DePIN: Double-curve-driven Decentralization value network construction

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Number: Chain Source Security Knowledge No.011

DePIN (Decentralized Physical Infrastructure Network) is gradually realizing the large-scale interaction between the physical world and Web3, and gradually disrupting the operating mode of traditional infrastructure. By combining sensors, wireless networks, computing resources, AI, and blockchain technology, and using encryption economic incentives to promote crowdsourced development, DePIN is forming a decentralized value network. One important feature of DePIN’s business model is the first rise curve based on hardware revenue, and then overlaying the monetization of data services to form a second rise curve. The overlay of these dual curves is one of the key factors that allows DePIN to lead the current cycle rise, and also demonstrates how DePIN-like projects can create significant wealth effects during the construction of decentralized infrastructure networks, ultimately forming a scalable decentralized value network.

This concept heralds an application scenario full of imagination: common infrastructure around us, including communication base stations, car charging piles, photovoltaic panels, billboards, as well as data storage and computing devices behind the operation of the Internet, will no longer be controlled by centralized entities and institutions, but will be divided into equally sized units and controlled by individuals or scaled Miners. Physical infrastructure of the same kind is highly standardized and scaled, forming a carpet-like coverage.

By Decentralization, the layout and utilization of infrastructure can achieve higher efficiency and lower costs, while enhancing the overall system’s security and resilience. From energy production to data processing, various facilities have the potential to transition to the Decentralization mode. The combined market value of the related industries involved in DePIN already exceeds 5 trillion US dollars. Therefore, Messari predicts that the potential market size of the DePIN field is estimated to be about 2.2 trillion US dollars, and is expected to reach 3.5 trillion US dollars by 2028.

DePIN Track Segmentation

The DePIN track covers six sub-domains: Computing, AI, Wireless Communication, Sensors, Energy, and Services. From the perspective of Supply Chain, DePIN can be divided into:

• Upstream: Hardware manufacturers and supply-side users as “Miner”.
• Midstream: The blockchain responsible for project platform, data validation, and Token Settlement, as well as the on-chain layer protocol serving DePIN; used for developing and managing modular service components (such as platform interface, data analysis, and standardized services) for the DePIN network, SDK toolkit developed by DePIN, API interfaces, etc.
• Downstream: dock dApp application and interface on the demand side.

Most DePIN projects choose Solana or IoTeX as the Settlement layer for Token economy. AI and cloud computing projects in the sub-field focus more on on-chain Settlement and the development and management of project platforms, with underlying hardware devices being scheduled through middleware to utilize idle electronic devices, such as smartphones or computers with high-performance consumer-grade GPUs.

DePIN Industry Development Overview

According to DePIN Ninja, the number of DePIN projects that have gone live has reached 1,215, with a total market cap of about $43 billion. Among them, the total Market Cap of projects that have been issued and listed in Coingecko’s DePIN subreddit exceeds $25 billion. In October last year, that number was only $5 billion, and it has multiplied fivefold in less than a year, which shows how fast the DePIN industry has risen. This indicates the increasing demand and acceptance of the Decentralization physical infrastructure network. With the launch of more projects and the expansion of application scenarios, the DePIN industry is expected to become an important field for the combination of blockchain technology and real-world applications.

Insights from DePIN business logic

The prototype of DePIN can be traced back to the concept of internet of things + blockchain (IoT + Blockchain) in the last cycle. Projects such as FIL and STORJ have transformed centralized storage into a decentralized operating mode through encryption economic models, and have been practically applied in the Web3 ecosystem, such as on-chain non-fungible token storage and the front-end and back-end resource storage of DApps.

internet of things+ The Block chain only embodies the characteristics of Decentralization (“De”), while DEP emphasizes the construction of physical infrastructure and the scaling of interconnected networks. In DEP, “PI” represents Physical Infrastructure, and “N” represents Network, that is, the value network formed after the hardware of DEP reaches a certain coverage scale.

The most typical example is Helium, founded in 2013, which only confirmed the use of blockchain as a means of incentivizing the deployment of the Internet of Things through Decentralization in 2018. So far, Helium has almost met all the elements of DePIN: Node economy, Miner mode, value network, crowdsourcing incentives, and is also a leading project in the field of Decentralized Wireless Communication (DeWi); In addition, the $20 communication package service launched by Helium Mobile in cooperation with T-Mobile not only can receive Token rewards but also enjoy reliable communication services, solving the problem of signal coverage in remote areas of the United States, forming a three-way win-win situation. Both Helium and FIL belong to the DePIN category, but the difference between the two is that Helium emphasizes hardware, enabling it to rise support the second curve of data services through hardware income and build an independent ecosystem.

The explosive rise of DEP is based on the dual-curve theory

“The second curve” is a concept in management and innovation theory, originally proposed by management scholar Charles Handy. It refers to the need to introduce new innovation or change when an organization, product, or business reaches the peak of its traditional rise curve, in order to initiate a new rise curve and avoid stagnation or decline.

The value of hardware is the first curve of creating value

On the first rise curve, the business will go through an initial rapid rise and then gradually reach its peak. The rise momentum of the first curve of the DePIN project comes from the revenue and profit generated by hardware sales. Traditional infrastructure, especially in areas such as data storage and communication services, the business logic of centralized service providers or entities is linear: early-stage business requires investment in infrastructure construction, and then provides services to end users (C-end) after the facilities are perfected. Therefore, developing such businesses often requires the participation of giant enterprises to bear high costs in the early stages of business operation.

Through the DePIN project, the decentralized supply side is split and made into a crowdsourcing form to establish a hardware network. By promoting itself and attracting supply-side users to participate, the DePIN project transfers the huge investment in infrastructure costs to supply-side users, achieving low-cost and lightweight start-up. Supply-side users become the “shareholders” of the project by holding hardware and help the project deploy hardware networks with the expectation of earning money from Mining in the future.

For example, the business performance of Hivemapper and Helium is very impressive:

• Helium: A Decentralization wireless network, the main business includes Helium Hotspot and Helium Mobile. Helium Mobile is a mobile communication service launched in collaboration with T-Mobile, which has increased from 0 to 93,000 subscription users in 5 months.
• Hivemapper: A Decentralization map drawing platform, with main business including HiveMapper Dashcam. The device is priced at $549, and based on the current Node deployment, Hivemapper has already generated revenue of more than $60 million from hardware sales alone.

Other projects such as Jambo and OORT have also achieved good rise in hardware revenue. For example, Jambo has achieved excellent sales performance in the African market with its mobile phones as the selling point; OORT has achieved significant hardware sales revenue in cloud computing and Edge Computing through its innovative model.

The realization of data value and network value is the second curve of DePIN rise.

The DEP project, after accumulating a certain income through the sale of hardware in the early stage, will open the second curve after the business of selling equipment in the early stage reaches its peak before the first curve of rise reaches the critical point. The core of the second curve rise lies in the data value network established on the basis of a matured hardware network at this point.

DePIN aggregates a series of value chains, breaks down the centralized supply side, and uses the public chain to aggregate long demand sides, ultimately forming a data value network under the DePIN mode.

Although the DePIN project emphasizes physical nature, its core business logic revolves around how to extract value from data. The data is stored in the Block chain storage layer.

Conclusion

DePIN achieves efficient deployment and management of physical infrastructure through Decentralization, demonstrating tremendous market potential and room for growth. Despite facing challenges in technology, demand, economy and regulation, DePIN’s Decentralization feature and innovative business model provide a solid foundation for its future development. The PandaLY team will continue to follow the trend of DePIN and conduct in-depth discussions in subsequent posts.

Chain Source Technology is a company that focuses on blockchain security. Our core work includes blockchain security research, on-chain data analysis, as well as asset and contract vulnerability rescue, and we have successfully recovered long stolen digital assets for individuals and institutions. At the same time, we are committed to providing project security analysis reports, on-chain tracing, and technical consulting/support services for industry institutions.

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