POKT Network: DePIN veterans are moving towards AI narratives

Authors: Charlotte, Kevin, Metrics Ventures

TL;DR:

1. The POKT Network has built a decentralized RPC node network, which is significant for the decentralization of Web3 data. Compared to centralized providers, POKT Network offers higher scalability, lower maintenance and operational costs, lower usage fees, and more stable infrastructure, avoiding transaction censorship and centralized failures.
2. The POKT Network has completed the early launch of the DePIN network, with the number of nodes and business data continuously growing, and token economic parameters are being adjusted to reduce the inflation rate, transitioning from early launch to sustainable development.
3. Recently, the POKT Network launched a modular strategy for Gatewayverse, separating the demand side into multiple independent gateway operators, while the protocol itself will focus on becoming the underlying protocol that supports different gateway needs, concentrating on the incentives and construction of node clusters.
4. The POKT Network is committed to becoming a universal data service provider, opening up the market for non-Web3 native services. The main business currently under development is open-source LLM hosting, which will significantly increase the market and demand for the POKT network, but the specific implementation still needs further observation.
5. From a financial perspective, the POKT token has been sufficiently unlocked, the token inflation rate is continuously decreasing, half of the circulating POKT tokens are used for staking, and the chip structure is concentrated, making it a good target from a financial standpoint.

1 Which aspect of decentralization does POKT Network address?

To understand the position of POKT Network in the industry, we must first answer the question: which aspect of decentralization does POKT Network address in the industry? Why is POKT Network indispensable for the development of the industry? We start with the two most fundamental aspects of blockchain data: writing and reading.

1.1 On-chain Data Writing

The process of data writing is essentially the process of sending and completing a transaction on the blockchain. The lifecycle of a transaction can be divided into the following stages:

(1) The application front-end prepares the transaction and submits it to the user for signing, and the user approves the signature in their wallet (using Metamask as an example);

(2) Metamask sends a JSON RPC call to the Ethereum RPC node, which checks the signature, balance, and input for validity, verifies the transaction, and broadcasts it to other nodes, where it will be stored in the mempool;

(3) Miners will select transactions to include in a block, which will propagate through the network, and once the block is finalized, the transaction will officially occur in the blockchain's records;

(4) The RPC node will return the transaction result for the user to query.

At which stage might the transaction get stuck?

A critical stage is that the default RPC node can refuse to broadcast the transaction, preventing it from being accepted by other nodes and ultimately included in a block. Of course, users can choose to switch nodes, but RPC nodes are currently mainly provided by several centralized entities, most of which operate on existing Web2 platforms (e.g., AWS, Amazon Cloud). For example, Metamask's default node provider is Infura, which caused service interruptions in some regions in March 2022 due to misconfiguration, making it impossible to access transactions via Metamask. Centralized RPC nodes increase the risk of single points of failure and transaction censorship.

1.2 On-chain Data Reading

The demand for data reading is ever-present. Application developers need to display relevant data in real-time in dApps, quickly return results for user data queries, and analysts and investment institutions will assist market judgments and future decisions through layered analysis of on-chain data. There are two ways to obtain data:

• Using Ethereum client applications like Geth to sync Ethereum data to their own computers.
• Using data from node service providers, sending API session calls to RPC nodes to return data from the public chain.

Setting up and running a node requires a significant amount of time and resources, while node service providers offer a way to access blockchain data without running their own nodes. Therefore, most decentralized applications currently obtain data directly from nodes. When requesting data from centralized RPC node operators, it means needing to trust the results they return. In the Web3 data track, RPC nodes are positioned at the lowest level; although projects like The Graph and Covalent have made significant efforts in the decentralization of upper-layer ecosystems like data indexing, the centralization of data acquisition still poses a certain threat.

1.3 Summary: POKT Network Achieves Decentralization of RPC Nodes

The main RPC suppliers in the market, such as Infura, Alchemy, Flashbots, and QuickNode, can essentially be viewed as centralized providers, with most of their nodes operated by centralized entities and deployed on Amazon/Google servers. Therefore, in the top-down decentralized architecture of Crypto, a critical link has centralized risks, and we must accept some degree of transaction censorship and centralized failure risks, unconditionally trust the data they return, and accept monopolistic pricing.

POKT Network addresses this issue through a decentralized node "market." Unlike Infura or Alchemy, the POKT network does not have any nodes established by a team; its redundancy design has ensured that POKT has achieved 99.9% uptime over more than three years of mainnet operation. Currently, there are over 15,000 nodes in the POKT network, distributed across 22 countries/regions. Infura and Alchemy are more like companies providing node services, requiring them to set up and maintain nodes themselves, while POKT Network focuses on building protocols and improving the incentive layer to attract more nodes to join the network, matching supply and demand without needing to build and operate nodes itself.

2 DePIN Narrative: How POKT Achieves RPC Decentralization

The decentralized RPC node network is also an important module in the DePIN narrative. The core logic of DePIN is to incentivize network participants with tokens to provide resources, while the network collects fees paid by demanders, forming a decentralized resource market. POKT Network incentivizes RPC nodes from different blockchain networks to join through the POKT token, while demanders request data or send transactions to RPC nodes through the POKT network, simultaneously paying usage fees to the network.

The modular architecture of the POKT Network is as follows. The Gateway ecosystem replaces the previous single POKT Network front-end portal, built on the foundational layers of the RPC network and POKT network, abstracting the complexity of integration protocols. Application developers access the RPC node cluster of the POKT network through Gateway operators. Currently, there are three Gateway providers: Grove, Nodies, and the recently announced Liquify. Grove, which was rebranded from the former Pocket Network Inc, is the first portal on the POKT Network. Nodies became the second Gateway provider for the POKT Network in December 2023, created by former AWS engineers, and is also a provider of public endpoints for the POKT Network.

From the perspective of value transmission, users use the services provided by Gateway providers and pay the corresponding usage fees to the service providers; Gateway providers pay the Gateway Operator Fee based on the number of relays sent to the POKT network each week, with each relay costing $0.00000085, which is burned through POKT; the POKT Network incentivizes node operators participating in the network through POKT token inflation. A more detailed analysis of the token economic system and value transfer process will be provided in the fifth section.

Establishing the Gateway ecosystem is currently one of the key development focuses of the POKT network, known as the "Gatewayverse" strategy. The richness of Gateways will significantly reduce the cost for developers to access the POKT network and improve the overall service quality and competitiveness of the system. The Gateway abstracts the complexity of directly connecting to the POKT network protocol. Without Gateway operators, application developers would need to complete the following steps to send requests directly to the POKT network:

1. Generate an AAT (Application Authentication Token).
2. Send a request to the full nodes of the POKT network to obtain the latest nodes in the session.
3. Construct and sign the relay proof, and submit it to a node in the session.
4. Receive a response from the node.
5. Determine whether the response is valid.
6. Proxy the response back to the Web Application.

The Gateway abstracts the processes of retrieving sessions, signing relay proofs, etc., optimizing the developer experience and providing usability, while also offering innovative value-added services. The POKT network is currently collaborating with multiple institutions to onboard more Gateway providers. After completing the Shannon upgrade (expected to launch on the mainnet in Q2 2024), developers or RPC node operators can become Gateway service providers without permission. A series of development efforts to help build Gateways are underway. On February 8, 2024, Nodies released an open-source Gateway Server, integrated with the POKT network protocol, allowing developers to quickly use this tool to build Gateways that meet their needs, further simplifying the difficulty of accessing the POKT protocol.

In summary, the POKT network separates the operation of Gateways to achieve decentralization of the demand side, while focusing on building the underlying RPC node network. The advantages of this development path include: (1) providing more customized Gateway services to meet the needs of different types of developers and encouraging operators to develop value-added services to optimize user experience; (2) strengthening distribution power, as each Gateway operator will become a distributor of the POKT network, enhancing the BD capabilities of the entire network protocol and driving demand-side growth; (3) all Gateways are assumed not to issue tokens when cooperating with the POKT network and use $POKT for transaction settlement, ensuring that the growth of the ecosystem continues to empower $POKT without causing value dilution.

3 AI Narrative: Unlocking the Potential of POKT Network as a Universal Data Service Provider

The POKT Network is currently the leading underlying protocol for blockchain data services and is committed to providing data services for a broader open database, becoming the DePIN foundational layer for decentralized data relay services.

Two proposals in October 2023—PIP-31 and PIP-33—have opened up the market for non-Web3 native services for POKT, unleashing its potential as a universal RPC provider. RPC request services can not only be applied in blockchains but can also support other types of data services, such as LLM inference. Specifically, POKT can support open-source LLM hosting for node operators, completing inference tasks based on open-source large models. Unlike blockchains that are stateful and need to be continuously synchronized with the network, LLMs are stateless and only require manual periodic updates when the model is updated.

According to POKT Network co-founder Michael O'Rourke's estimates, opening up to the LLM inference market will increase the market for POKT Network by approximately 30%.

Currently, PIP-31 and PIP-33 have been approved by community voting. The decentralized node cluster of POKT can support the inference steps of hundreds of models, and LLM inference will be a key focus of POKT Network's development in 2024. The official POKT Twitter has already begun promoting its market expansion in LLMs. Compared to centralized providers, decentralized providers will significantly reduce costs. The greatest competitive advantage of the POKT network is its mature incentive mechanism and a large-scale node cluster—POKT protocol already has over 15,000 nodes, making it the largest decentralized node network in Web3, which provides strong imaginative space for this narrative. Additionally, RPC nodes are the entry point for users to read and write blockchain data, which will directly benefit AI products that use blockchain data for inference. AI + crypto has become one of the core narratives of this cycle, and POKT Network's transformation towards AI is still in its early stages, with significant value discovery yet to be realized, making it a good time for positioning.

4 Market Landscape and Business Data Comparison

According to estimates from the founders of POKT Network, the conservative daily paid RPC request volume in the Web3 market is 100 billion. Assuming a cost of $3-6 per million requests, the total market value of Web3 RPC is between $100 million and $200 million annually. With the arrival of a bull market and the construction of more blockchain networks, the volume of RPC requests will continue to increase.

In terms of market landscape, the POKT Network is currently the absolute leader in decentralized RPC nodes, with its main competitors being centralized players like Infura and Alchemy. Here, we compare the business data of the POKT network with major centralized RPC service providers.

From business data, the POKT Network currently has over 15,000 RPC nodes distributed across 22 countries/regions. The average daily relay volume over the past year has been 950 million, peaking at 2 billion. Since November 2023, the number of relays in the POKT network has significantly decreased, with the current daily relay volume around 400-500 million, due to the largest Gateway operator, Grove, announcing its independence, shutting down public endpoints, and reducing its free tier. In terms of the distribution of data relays across public chains, the main demand comes from Ethereum, accounting for 15% of the relay volume.

In terms of relay volume, the market share occupied by the POKT network is still very small. Centralized providers like Infura and Alchemy remain the preferred choice for applications, with their estimated daily data relay volume in the hundreds of billions or even trillions. From a market competition perspective, the POKT network still faces very strong competitors and a challenging competitive landscape, but it also has sufficient market expansion space.

In terms of the number of supported blockchains, the POKT Network currently supports over 75 blockchain RPC requests, while Infura and Alchemy only support 9 blockchains. The POKT network provides services by attracting full nodes from different chains rather than building full nodes from scratch, significantly enhancing the scalability of the ecosystem.

In terms of pricing plans, both POKT Network and Infura charge based on the number of relays, while Alchemy and others use compute units as their pricing unit. Currently, POKT Network charges $0.85 for every million relays to Gateways. For comparison, Infura's Growth plan, which is the cheapest, charges about $6.67 per million relays, roughly 8 times that of POKT Network. However, most developers access the POKT network through Gateway providers, and these operators do not use subscription plans but pay directly based on the number of relays. Grove, beyond its free plan, charges $7.456 per million relays, while Nodies charges $4.5 per million relays beyond its free plan, and enterprise users are charged $3.4. Grove, as the largest Gateway operator, has relatively high pricing, but as the number of Gateways increases and permissionless Gateway access becomes available, the competitive market on the POKT network will gradually improve, allowing developers to operate their own Gateways to access the POKT network and reduce costs.

In terms of valuation comparison, there are currently no decentralized RPC providers directly competing with POKT Network. Therefore, the projects that can provide valuation comparison references are: (1) centralized RPC providers, such as Infura and Alchemy; (2) Web3 data infrastructure, such as The Graph and Covalent. The valuations of Infura (ConsenSys) and Alchemy are significantly higher than that of POKT Network, primarily due to their higher market share and richer product offerings. The competitive point of POKT Network lies in the argument of "decentralization." If the argument for decentralized infrastructure can be accepted by more investors and developers, POKT Network will have a unique competitive advantage. The Graph/Covalent and POKT Network both belong to Web3 data infrastructure and are similarly classified by Messari as part of the DePIN track, but POKT Network is upstream of the two. The valuation of The Graph is much higher than that of POKT, while Covalent's valuation is relatively lower. Currently, the entire decentralized data infrastructure track is still in a relatively early stage and is expected to see valuation increases as the demand for data in the bull market grows and the need for decentralization increases.

5 Token Economics and Chip Structure

5.1 Token Economic System and Value Cycle

As mentioned earlier, the core logic of DePIN is to incentivize network participants with tokens to provide resources. The foundational mechanism of the DePIN network is that individual suppliers provide corresponding hardware or services to obtain token incentives. In the early stages of the project, a high inflation rate is needed to incentivize supplier participation through higher token rewards; as the project matures, it is necessary to reduce the token inflation rate to avoid excessive token release diluting the token price, ultimately transitioning to a low-inflation or even deflationary era. This is equally applicable to the POKT Network, as a balanced and healthy economic system is crucial for the sustainability of the entire network.

From the supply side, the latest supply plan for POKT was determined by the proposal PUP-32 passed in June 2023, with an average daily minting of 220k POKT. The distribution of newly minted POKT is as follows:

• 85% distributed to node operators,
• 5% distributed to validators of the POKT network,
• 10% enters the DAO treasury.

From the consumption side, the POKT network will burn the service fees paid by Gateway providers. Currently, the price for each Gateway relay is $0.00000085 (since the main market competitors, i.e., centralized RPC, use USD pricing, the POKT network also adopts USD pricing). Based on the number of relays sent to Gateway operators each week, the service fees to be paid will be calculated, and this part of the fee will be calculated based on the seven-day average price of POKT, and then the corresponding amount of POKT will be burned weekly from the pre-deposited POKT of the relay Gateway.

The token inflation rate of POKT will be determined by both the supply and burn amounts. With the supply remaining relatively stable, relay pricing, relay volume, and the price of POKT will all affect the token inflation rate. From business data, the higher the pricing of POKT network and the higher the relay volume, the lower the network's inflation rate. The POKT Foundation is working to reduce its inflation rate and plans to eventually enter a deflationary economic era.

From specific data, the total supply of tokens (Monetary Base) has been gradually slowing in growth over the past year. After the passing of PUP-32 in June 2023, the number of minted POKT has significantly decreased, maintaining a weekly release volume of around 1.5M. POKT began to be burned in May 2023, with the weekly burn volume around 200k for some time, but after November, there was a significant decrease along with the reduction in relay volume.

The circulation of tokens also depends on the total supply of tokens and the staking amount. Node operators need to stake at least 15,000 POKT to join the node network, and the top 1,000 nodes by staking will become validators of the POKT network. According to Poktscan, the minimum amount required to become a validator is currently 75,100. Since June 2023, the total staking amount in the POKT network has decreased, causing the previously stable Liquid POKT to begin to gradually increase after June.

5.2 POKT Chip Structure and Token Performance

The initial supply of POKT was 649,984,998, with no maximum supply. The initial distribution of tokens and the unlocking schedule are shown in the following figures. The current total supply is 1,637,686,745, with a circulating supply of 1,548,744,251 (according to Coingecko). The tokens have been sufficiently unlocked, and most investors and team tokens have already been unlocked.

In terms of token distribution, the current amount of staked tokens is 766,214,731, approximately 50% of the circulating supply, indicating that half of the POKT is actively used in the network. According to Poktscan data, the total number of addresses holding tokens is around 10,000, with the top 5 holdings totaling 304,546,121. Excluding the staked token amount, the top 5 holdings account for 38.2%, indicating a relatively concentrated holding structure.

In terms of token performance, the current market cap of POKT is $359,266,960, with an FDV of $368,776,455. Over the past three months, it has risen about tenfold from its lowest point to its highest point, completing a round of value discovery, but still has more than ten times the distance to the previous high.

In the trading market, the main trading volume of POKT is currently concentrated on Gate. POKT has not yet listed on major exchanges, resulting in a certain liquidity discount.

6 Conclusion: POKT Network is Transitioning to a Sustainable Development Stage

From a fundamental perspective, we believe the highlights of POKT Network are as follows:

(1) A decentralized RPC node incentive protocol occupies an important ecological position in the Web3 industry: RPC nodes are the entry point for users and developers to interact with the blockchain, obtaining and writing data to the blockchain, and occupy the lowest position in the entire Web3 data track. The importance is self-evident, and the centralization of RPC nodes brings risks such as transaction censorship and single points of failure. POKT Network achieves decentralized RPC node provision, filling this gap in the track, and currently has no competitors in the decentralized RPC node provider track. Compared to centralized providers, POKT Network offers higher scalability, lower maintenance and operational costs, lower usage fees, and more stable infrastructure.

(2) The early launch of the DePIN network has been completed, and it is in a relatively mature stage, transitioning to the next phase of sustainable development: POKT Network has completed the cold start of the node network, proving the feasibility of this protocol. It has now transitioned from early launch to sustainable development, which can be evidenced by the following two points: ① Business data: a large-scale node cluster and a continuously growing daily relay volume; ② Token economics: a continuously decreasing inflation rate and ongoing adjustments to token economic parameters.

(3) A new strategy for the demand side has been launched, and the existing modular structure and growth strategy align with the development stage: POKT Network has initiated the Gatewayverse development strategy, separating the demand side into multiple independent gateway operators, while the protocol itself will focus on becoming the underlying protocol that supports different gateway needs, concentrating on the incentives and construction of node clusters. Multiple Gateway operators will enrich the types of product services offered and attempt to introduce non-Web3 native businesses, including AI, in the future, thereby increasing the application of the POKT network. As mentioned earlier, the POKT network has completed the supply-side construction of the DePIN network, and it is reasonable to shift to a demand-side growth strategy at this development stage.

From a financial perspective, the POKT token has been sufficiently unlocked, the token inflation rate is continuously decreasing, and due to the existence of a burning mechanism, the token inflation rate is negatively correlated with the daily relay volume. The increasing relay volume in a bull market will further suppress token release. Half of the circulating POKT tokens are used for staking, and the chip structure is concentrated, making it a good target from a financial standpoint.

From a narrative perspective, the POKT Network currently aligns with two hot narratives: DePIN and AI, and the market has a high speculative enthusiasm for these two narratives.

The risk points to watch for in the future include:

• Changes in market share among RPC nodes: Compared to centralized RPC providers, POKT Network's market share is relatively low, and the strategic adjustment of Gatewayverse has also led to a decrease in daily relay volume, necessitating continuous monitoring of core business data changes.
• Changes in node quantity and staking volume: The number of nodes and staking volume simultaneously affect both the fundamentals and chip structure. Recently, both the number of nodes and staking volume have shown a temporary decline, becoming potential risk points.
• The implementation of the AI narrative: Whether the node cluster can truly be applied to open-source LLM inference remains uncertain. With the heat of the AI track, competition in decentralized inference services is currently fierce, and the feasibility and competitiveness of POKT Network in this track remain largely unknown.