Why is DEP now so popular?

Author: Jasper De Maere, CoinDesk; Translation: Deng Tong, Golden Finance

Around 2019, the first wave of DePIN’s focus was on digital infrastructure, but now we see other types of networks emerging (DePIN stands for Decentralization’s Physical Infrastructure Network). Projects centered around data or service networks are becoming increasingly common. In the end, I classify DePIN as 1) operating infrastructure using blockchain-based decentralization coordination and 2) projects that rely on or impact physical infrastructure such as servers, sensors, or properties.

Before discussing the driving factors, we need to understand that the DePIN project almost always consists of bilateral markets. These markets have demand and supply sides.

• Demander. Users search for services or products to solve specific problems or needs, which can be satisfied through services or dApps.
• Supplier. The decentralized infrastructure in the market (including Nodes, hardware, sensors, etc.) is hosted through projects or dApp front-ends.

So, what happened between the two sides of these markets?

Supplier

Make DePIN supply simpler, enabling better and more diverse supply to better meet diverse demand.

I see two main driving factors behind the supplier’s online launch:

• Cost curve is decreasing;
• Improved design for practical Token.

Cost Curve

From a historical perspective, custodial infrastructure requires upfront capital, which only large centralized entities can access. As cost curves decline, almost anyone can become an infrastructure provider.

Recent research has shown that in the past twenty years, the cost of memory has dropped by 100 times, and the cost of computing (GPU) has dropped by 100-300 times. Despite the rise in demand for these resources (even shortages), the entry barrier for hosting large amounts of computation or memory has dropped significantly. The capital required to build infrastructure is decreasing, allowing more people to participate, operate Nodes, and make the network more robust without critical failure points.

Practical Token

The design of practical Tokens has long been seen as a dark art. In the past few years, technical tricks have been rapidly improving to provide more powerful Token models.

DePIN networks typically rely on utility tokens, as they have network effects, since these tokens can coordinate incentives between stakeholders with different economic interests. Proper token design is essential for creating the right game theory and incentive support for network behavior, and properly rewarding contributions. Utility tokens also help to initiate initial network effects, and more and more token engineers are using scenario analysis and statistical data in the design process. This will bring stronger designs that can withstand the test of time and market fluctuations.

Demander

From a historical perspective, the DEP project has always been limited by demand, which means that although services and applications are launched, their acceptance is relatively low for various reasons. The continuously rising demand eventually made the DEP business viable, thus initiating an improved flywheel.

I see the three main driving factors behind the demand party’s online launch:

• The availability of DePIN is improving;
• Privacy and security are becoming increasingly worrisome;
• Data generation is increasing rapidly.

Availability

To be honest, many Web3 applications are inaccessible to those who have not spent a lot of time on Crypto Assets. Account abstraction and AI-supported UX should be able to solve this problem.

The year 2024 will be the year when account abstraction (hiding some technical details of blockchain transactions from users) becomes popular on Web3. People have realized that the current Web3 user experience may not be sufficient to convince mainstream users to transition from Web2, which has recently led to widespread attention. Now, a large number of companies are focusing on UX and account abstraction. At the same time, we see that ERC-4337 (the Ethereum upgrade in 2023 is specifically focused on this) is truly being adopted in widespread projects including DePIN.

Meanwhile, since the launch of GPT two years ago, artificial intelligence has undergone a renaissance, with constant improvements to the models and rapid integrated development. The artificial intelligence assistant being developed on the Blockon-chain will simplify the use of applications and reduce the need for user-friendly front-end.

Privacy and Security

Concerns about data protection have proven to be beneficial for the adoption of DEP, as its Decentralization feature fundamentally improves data protection.

While the privacy paradox is a verifiable reality, users have become increasingly concerned since the spread of artificial intelligence in society. Particularly in terms of data management, privacy and security have become increasingly serious issues. The evidence we see indicates that users are increasingly seeking alternative solutions that prioritize the protection of personal information. DePIN adopts a Decentralization approach, fundamentally enhancing privacy and security, making it a more attractive choice for individuals and businesses. After decades of indifference, people’s sensitivity to this topic is increasing, creating favorable conditions for DePIN.

Data Generation

It is estimated that about 3.5 billion TB of data is generated every day. Humans are generating an unprecedented amount of data, which needs to be stored in memory and processed by computers, and DEP is very good at this…

We are creating more data than ever before. It is estimated that 90% of all data today has been generated in the past two years. With the development of Gen AI, data has truly become the oil of the 21st century, so we need to ensure proper storage of data. Previously, many companies and individuals were uncertain whether data was stored on bare metal servers or in the cloud; now, there are more decision-making processes in data storage. With the maturity of DEP, it is increasingly becoming a viable alternative to more mature options for data storage and processing.

Future Prospects

DePIN has a lot of room for development, which also explains the excitement of users, investors, and the entire community. I firmly believe that DePIN will soon redefine the organization of important economic infrastructure in society, at least positioning it on par with traditional infrastructure.