New Infrastructure Wave: Analyzing the Opportunities and Challenges of the DePIN Track

1. Introduction: Definition and Development of DePIN

DePIN is the abbreviation for Decentralized Physical Infrastructure Network, which builds infrastructure by incentivizing users to share personal resources through tokens, including storage space, communication bandwidth, cloud computing, energy, and more. It decentralizes infrastructure that was originally provided by centralized companies and distributes it to users globally in a crowdsourced manner.

The current market value of the DePIN field has reached 5.2 billion USD, surpassing the oracle field, and shows a continuous upward trend. From the earliest Arweave and Filecoin, to the Helium of the last bull market, and the recently highly regarded Render Network, they all belong to this field.

DePIN has recently attracted attention for three main reasons:

1. The infrastructure is more complete, paving the way and empowering the DePIN track;

2. Messari proposed the new concept of DePIN, believing it to be "one of the most important areas for crypto investment in the next decade," bringing new narrative hotspots;

3. The narrative of Web3 breaking out of its circle shifts from social and gaming to exploring other possibilities, with DePIN closely connected to Web2 users becoming an important choice.

2. The Necessity of DePIN

2.1 Current Status of the Traditional ICT Industry

Traditional ICT infrastructure mainly includes hardware, software, cloud computing and data storage, communication technology, etc. Among the top ten companies in the global market value, six belong to the ICT industry. In 2022, the global ICT market size reached 439 billion USD, with growth trends in areas such as data centers and software.

2.2 The Dilemma of the Traditional ICT Industry

The ICT industry is currently facing two major dilemmas:

1. The industry has a high entry barrier, which restricts sufficient competition and leads to pricing being monopolized by giants.

In fields such as data storage and communication services, high costs have led to participation only by giant enterprises. For instance, in the cloud computing and data storage sector, AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud have a market share close to 70%. This results in monopolized pricing, with costs ultimately passed on to consumers.

2. The utilization rate of centralized infrastructure resources is low.

According to the Flexera report, an average of 32% of companies' cloud budgets are wasted. Improper resource allocation can be attributed to overestimating demand and a lack of understanding of cloud costs.

These challenges provide opportunities for DePIN development. Decentralized storage solutions like Filecoin and Arweave are several times cheaper than centralized storage. Some DePIN projects adopt a tiered pricing model, such as Render Network, which efficiently matches GPU supply and demand through a multi-tiered pricing strategy.

3. The Token Economic Model of DePIN

The core logic of DePIN is to incentivize users to provide resources through tokens, such as GPU computing power, hotspot deployment, storage space, etc. In the early stages, participants are similar to "risk miners", investing resources to obtain tokens, anticipating an increase in the number of tokens and appreciation in price.

This incentive mechanism creates a flywheel effect:

1. Tokens attract supply-side participants to provide resources.

2. Attract developers to build products and attract consumers at low prices.

3. Increased demand brings more revenue to the supply side, creating positive feedback.

In this cycle, both supply and demand sides benefit, the value of the project token aligns with the growth of participants, attracting more people to participate, thereby forming value capture.

4. Current Status of the DePIN Industry

The DePIN project mainly focuses on computing, storage, communication technologies, and data collection and sharing. The top 10 projects by market capitalization mostly belong to the storage and computing sectors, with representative projects in the communication field such as Helium and Theta.

V. Representative Projects in the DePIN Industry

5.1 Filecoin & Arweave - Decentralized Storage Track

Filecoin is a distributed storage network that incentivizes users to provide storage space through tokens. Currently, the storage space has reached 24 EiB. Filecoin is built on top of the IPFS protocol and uses a Proof of Storage consensus mechanism.

Arweave is a permanent storage network that uses the "Proof of Access" consensus mechanism.

There are significant differences between the two in terms of storage methods, economic models, and consensus mechanisms. Decentralized storage has a significant price advantage compared to centralized storage; for instance, storing 1TB for a month costs on average less than half of Google Drive and one-tenth of Amazon S3.

5.2 Helium - Decentralized Wireless Network

Helium incentivizes users to purchase devices to form a network through tokens, showing outstanding performance in the IoT field. Last August, the number of hotspots exceeded 900,000, and the monthly active hotspots in IoT reached 600,000.

Helium adopts LoRaWAN technology in the IoT field, a low-power wide-area network technology suitable for large-scale IoT deployments. However, it performs poorly in the 5G market, facing the dual dilemma of compliance and market ceiling.

In March of this year, Helium began migrating from its own Layer 1 blockchain to Solana to focus on network construction and leverage Solana's ecosystem resources.

5.3 Render Network - Decentralized Computing

Render Network is a decentralized GPU rendering platform that efficiently matches GPU supply and demand using a multi-layer pricing strategy. Pricing is based on OctaneBench units and offers three tiers of services to meet the needs of different users.

Render Network emphasizes the full utilization of idle GPU resources, providing an efficient two-way market for global GPU computing supply and demand.

5.4 Theta Network - Decentralized Video Network

Theta Network adopts a blockchain-based optimized content delivery network to reduce video content transmission costs and enhance distribution efficiency. Users contribute bandwidth and computing power to become caching nodes, achieving closer video distribution to viewers.

This model provides a better experience for viewers while rewarding users who provide resources, reducing platform costs. With the increase in video content consumption, Theta Network is expected to be applied in more scenarios.

6. Advantages of DePIN

6.1 Transition from capital-intensive industries to P2P/P2B models

DePIN lowers the participation threshold for enterprises, breaks price monopolies, and provides users with more economical choices. By incentivizing users to share resources and establish a free competitive ecosystem, it makes the market more open, transparent, and competitive.

6.2 Reutilization of idle resources to promote better social development

DePIN encourages users to share and utilize idle resources through incentive mechanisms, maximizing resource utilization. This not only reduces resource waste but also brings more sustainable development to society.

6.3 Eliminate intermediaries, making money flow more efficiently.

DePIN establishes a decentralized ecosystem that directly connects suppliers and demanders, enabling direct value transfer and improving transaction efficiency and transparency. This lowers transaction costs and brings more opportunities and flexibility to market participants.

7. Limitations and Challenges of DePIN

7.1 Experience Level: The industry lacks standards in its early stages, resulting in poor experiences for developers and users.

In the early development of the DePIN industry, there was a lack of complete infrastructure and high participation barriers for users. It is necessary to aggregate and simplify user participation and usage thresholds to improve network availability.

7.2 Competitive Aspect: Lack of Competitive Moat

Users are likely to switch to other networks, so it is necessary to enhance non-replaceability and competitive barriers. Preventing cheating is also an important issue. How to continuously attract user participation and form a positive flywheel effect still needs to be explored.

7.3 Expansion Aspect: Regulatory Compliance Restrictions

DePIN involves infrastructure and faces regulatory compliance issues. For example, the telecommunications sector is subject to strict regulation, making it difficult to obtain authorization. It needs to grow in tandem with regulatory developments.

7.4 Construction Level: Talent Barrier

DePIN requires talent with a combination of skills, who understand both the Internet of Things and the operations of the Web3 market. Such talent is currently relatively scarce, posing challenges for team recruitment and collaboration.

Despite facing numerous challenges in the short term, DePIN will have a profound impact on the market in the long run, affecting supply chains, industrial patterns, and the entire economic ecosystem. As it continues to develop and mature, DePIN is expected to become a key force for real change for society, businesses, and individuals.

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