DePIN: Decentralized Hardware Meets the New Data Economy

Written by: PAUL VERADITTAKIT

Compiled by: LlamaC, DefiLlama 24

(Portfolio: FORM 2016, Illustrator for Tomo: eth foundation)

TLDR: DePIN is the gradual integration of decentralized hardware layers with a community-owned new data economy.

Introduction

In recent years, decentralized physical infrastructure networks (DePIN) have become one of the hottest topics in the industry. The core idea of DePIN is to bring the claims of blockchain applications (such as community ownership, publicly verifiable, and incentive compatibility) into physical devices and infrastructures like WiFi hotspots, surveillance cameras, and servers. In this article, we will first delve into some of the core principles of DePIN, then examine some of the most typical DePIN projects, and finally explore the broader and more profound impacts of DePIN on the blockchain space.

Overview of DePIN

DePIN encompasses projects across various fields. From decentralized storage networks like Arweave and Filecoin to decentralized WiFi connection devices like Helium, and community software applications like Hivemapper, all can be categorized under "DePIN." Messari's groundbreaking DePIN report released in January 2023 clearly stated this and divided DePIN into four main areas: decentralized servers, wireless communications, sensor technology, and energy networks.

(Source: Messari Date: November 11, 2023)

From the projects and areas depicted by Messari, we can see that the initial definition of DePIN primarily focused on the "physical" nature of projects—namely, the actual use of sensors, servers, and routers to build a decentralized internet architecture from the hardware layer up. However, since then, this easily understandable concept of DePIN has gradually expanded to include more consumer-facing applications, such as TRIP, which aims to create a "decentralized Uber" [3]. Therefore, we need to consider: how should we begin to understand the deeper meaning contained within "DePIN"?

Thus, our primary task is to gain insight into the commonalities among these diverse projects, whether as described in the initial Messari report or how the term has gradually evolved. Many such projects share certain commonalities, such as collective ownership, distributed infrastructure costs, and economies of scale that continue to grow as more users join the ecosystem [4]. In fact, this can be summarized by Messari's DePIN flywheel theory, which elaborates on how to drive this process through token incentives.

(Source: Messari Date: November 11, 2023)

The aforementioned DePIN flywheel was initially conceived to include "physical infrastructure" networks, such as Filecoin and Helium, where users provide resources (disk space or WiFi connections) to the network. However, this flywheel is not limited to the hardware infrastructure domain; similar discussions exist for data infrastructure as well. This includes projects that focus on the collection and coordination of consumer data, utilizing blockchain and tokens as a universal interface to coordinate a new data-centric economic system. Examples in this area include consumer-facing applications, such as the "sensor network project" and "decentralized Uber" mentioned by Messari, as well as potential blockchain application scenarios in supply chain or logistics management (although the focus on token financialization is relatively small here).

Therefore, viewing the DePIN concept as a developmental trend may involve closely integrating the decentralized hardware layer with a new community-owned data economy.

Case Studies

Helium

Helium is one of the oldest and most well-known DePIN projects, starting in 2013, aimed at expanding broadband infrastructure by allowing users to deploy LoRa gateways in a decentralized manner. In 2017, the network decided to seize the momentum of cryptocurrency development and began offering cryptocurrency payments through its own L1 blockchain network.

Over the years, this approach has made Helium not only a typical representative of DePIN but also a broader model in the crypto industry. Many refer to it as "the people's network" because it is a significant project where people can clearly see how tokens can incentivize socially beneficial behavior. However, over time, both the Helium network and protocol have faced liquidity and adoption issues, with the network's weekly revenue steadily declining. Critics have also pointed out that the network's use cases have been exaggerated and that the incentives are unsustainable.

(Data from February 2022 to March 2023, Source: Coinmarketcap)

In April 2023, Helium successfully completed its migration from its L1 blockchain to the Solana network, hoping to expand its user coverage and liquidity while fully leveraging Solana's superior transaction processing capabilities for scalability.

Thus, Helium in this case reveals some important opportunities and potential risks in the DePIN space. While tokens have indeed shown great effectiveness in enabling real-world scenarios, maintaining sufficient value and attractiveness over the long term is quite challenging. Additionally, with the gradual integration of L1 and L2 layers, whether the viewpoint of proving the scalability, infrastructure, and liquidity of an independently operating blockchain rather than relying on another widely adopted chain is correct remains to be seen.

Hivemapper

Hivemapper is another notable DePIN project on the Solana network, aiming to create a decentralized "Google Maps." Essentially, users install dashcams in their cars and share real-time footage with Hivemapper in exchange for HONEY tokens as rewards. The company then uses all this distributed data to build a decentralized map with application API interfaces.

(Source: Hivemapper Dashboard, as of November 11, 2023: https://hivemapper.com/explorer)

The key advantage of Hivemapper compared to Google Maps is that, as a decentralized network with a token incentive mechanism, it can complete the mapping process more cost-effectively. Consequently, Hivemapper can offer more affordable API services as a strategy to break the monopoly of the Google Maps market.

Hivemapper emphasizes the core "flywheel" concept of the DePIN system, where we efficiently execute distributed, decentralized tasks through tokens. Notably, in the earliest Messari research report (January 2023), Messari described Hivemapper as an important example of a "sensor network." However, some may argue that this fails to fully showcase Hivemapper's true innovation.

In reality, Hivemapper's core competitive advantage stems from its accumulated data infrastructure—derived from decentralized data from the user network—and transforming this data infrastructure into monetary form by providing API access. There is no doubt that this project collects data using sensors and dashcams; however, this is just the tip of the iceberg. We can envision that even if this data is not generated by a "sensor network," but instead through other activities, such as user browsing behavior (like the Brave browser), or even data generated from user interactions with artificial intelligence, the same overall model could still be effective. DePIN generates massive amounts of data through token incentives in a decentralized manner (for example, through decentralized hardware networks), thereby creating a new data economy.

Teleport

The importance of the new data economy is further highlighted in the case of Teleport, which is one of the decentralized Uber competitors on the Solana network [3]. Recently, the company launched its application (October 2023) and participated in Solana's Breakpoint conference [16], further solidifying its position as a key component of the "Transportation Protocol" (TRIP). This protocol aims to establish a fair and autonomous market environment, eliminating the phenomenon of intermediaries or centralized fronts taking excessive ride earnings (often reaching 40%) [17].

Although the widespread application and longevity of Teleport and TRIP remain to be validated over time, Teleport has undoubtedly become a case study that powerfully demonstrates the significant role of an open and decentralized "data market" in the core value proposition of DePIN projects.

IoTeX

IoTeX is another key player in the DePIN space, emphasizing how the combination of blockchain technology and decentralized hardware devices can generate social benefits across different dimensions, namely security and privacy. IoTeX's flagship product is Ucam, a home security camera that only the user can access, with data protected by the encryption and immutability of blockchain.

As the overall trend of DePIN has continued to grow over the past year, IoTeX's goal is not just to build specific smart devices but to create an "open network" for IoT devices and popularize the concept of "MachineFi." However, as the story of Helium indicates, in the overall context of L1 scene integration, even with strong consumer backing, establishing an independent and specialized network and guiding liquidity within such an ecosystem is becoming increasingly challenging.

Broader Ecosystem Impacts

The development of DePIN over the past year has had a significant impact on the entire blockchain ecosystem. One of the most important reasons is that DePIN is a consumer-facing application layer, much like DeFi, gaming, and social applications, with the potential for mass adoption and the possibility of driving consumer demand for the underlying chains or ecosystems.

As the examples above illustrate, Solana appears to be a chain with significant activity in the DePIN space, along with other participants like IoTeX seeking to build novel alternative solutions tailored for DePIN. As an application layer interacting with mass users and IoT devices, high-performance and composable chains may be required—chains capable of handling mass consumer load demands and chains that can be composed in a universal language, such as Rust and WebAssembly, which can easily run on IoT devices.

Furthermore, the growth of the DePIN trend has also had downstream effects on decentralized governance. Since it is customary to launch a decentralized autonomous organization (DAO) coordinated by token voting after issuing tokens, many prominent DePIN projects seem to have DAO governance modules on their roadmaps.

However, most of the most well-known DAOs, such as Uniswap, Compound, and MakerDAO, primarily deal with digital or financialized assets. But as DePIN projects mature and gradually transfer governance to DAOs, the demand for DAOs to coordinate the purchase, use, and maintenance of physical devices (whether servers, sensors, or hard drives) will continue to grow. Therefore, DePIN may become a trend that expands the governance tasks of DAOs from digital assets to physical assets, ultimately leading to DAO operations and behaviors resembling traditional companies. In the long run, this could be a turning point, marking the adoption of "web3" in the "real world."