Decentralization Physical Infrastructure Network: Exploring the Opportunities and Challenges of DePIN

DePIN( Decentralization Physical Infrastructure Network) encourages users to share personal resources to build infrastructure networks, including storage space, communication bandwidth, cloud computing, energy, and other fields through token incentives. It crowdsources the infrastructure that was originally provided by centralized companies and distributes it to numerous users worldwide.

Data shows that the market value in the DePIN field has reached 5.2 billion USD, surpassing the oracle field, and is on a continuous upward trend. From Arweave and Filecoin to Helium and Render Network, all belong to this field.

DePIN has recently gained renewed attention for three main reasons:

1. The infrastructure has improved compared to a few years ago, 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 of crypto investment in the next decade," which has added narrative heat to this track.

3. The expectation of Web3 breaking out of its circle is shifting from social and gaming to exploring other directions, with DePIN, which is closely linked to Web2 users, becoming an important choice.

This article will deeply analyze DePIN from five perspectives: demand, token economic model, industry status, representative projects, and advantage analysis, as well as limitations and challenges.

Why is DePIN needed?

Current situation of the traditional ICT industry

Traditional ICT infrastructure is mainly divided into hardware, software, cloud computing and data storage, and communication technology. Among the top ten companies in global market value, six belong to the ICT industry, accounting for half of the market.

The global ICT market size reached 439 billion USD in 2022, with data centers and software showing a growth trend, impacting all aspects of our lives.

Traditional ICT industry dilemma

1. The industry has high entry barriers, limiting fair competition, and pricing is monopolized by giants.

High costs have led to participation only by giant enterprises, such as AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud in the fields of cloud computing and data storage, which have a market share of nearly 70%. This results in pricing being monopolized by the giants, with costs being passed on to consumers.

Taking cloud computing and data storage prices as an example, the costs are quite high:

In 2022, the total spending on cloud services by enterprises and individuals reached $490 billion, and it is expected to exceed $720 billion by 2024. 31% of large enterprises spend more than $12 million annually on cloud services, while 54% of small and medium-sized enterprises spend over $1.2 million. 60% of enterprises state that cloud costs are higher than expected.

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

On average, 32% of the company's cloud budget is wasted, meaning that one-third of resources are idle after cloud spending, resulting in significant financial losses.

This improper allocation of resources can be attributed to multiple factors. Regarding resource supply, companies often overestimate demand to ensure continuous service availability. More than half of cloud waste is due to a lack of understanding of cloud costs.

Facing the high prices of cloud computing and storage and the dilemma of cloud waste, DePIN can effectively address this need. Decentralized storage ( such as Filecoin and Arweave ) is several times cheaper than centralized storage; some decentralized infrastructures adopt tiered pricing to distinguish different needs, such as Render Network efficiently matching GPU supply and demand through a multi-tiered pricing strategy.

DePIN Token Economic Model

The core logic of DePIN is to promote users to provide resources, including GPU computing power, deployment hotspots, storage space, etc., through token incentives, contributing to the entire network.

Early DePIN tokens often lack actual value. Users participating in resource provision are somewhat similar to venture capitalists, choosing to invest resources in promising projects as "risk miners," profiting through the increase in the number of tokens acquired and the appreciation potential of prices.

These providers differ from traditional mining; the resources they offer may involve hardware, bandwidth, computing power, etc., and income is often related to factors such as network usage and market demand. For example, low network usage can lead to reduced rewards, or attacks on the network can result in wasted resources. Therefore, risk miners in the DePIN track need to be willing to bear these potential risks and provide resources for the network.

This incentive method will create a flywheel effect, forming a positive cycle when development is good; when development declines, it is easy to cause a withdrawal cycle.

1. Attracting supply-side participants through tokens: Attract early participants to network construction and resource provision through a good token economics model, providing token rewards.

2. Attract builders and network consumers: As more resource providers emerge, some developers begin to join the ecosystem to build products. Meanwhile, after certain services can be provided on the supply side, consumers are also attracted to join because DePIN offers lower prices compared to decentralized infrastructure.

3. Forming positive feedback: As the number of consumer users increases, this demand incentive brings more revenue to supply-side participants, forming positive feedback, thus attracting more people to participate from both sides of the supply.

Under this cycle, the supply side has more and more valuable token rewards, while the demand side has cheaper and more cost-effective services. The value of project tokens aligns with the growth of participants on both the supply and demand sides. As token prices rise, it attracts more participants and speculators, forming value capture.

Through the token incentive mechanism, DePIN first attracts suppliers, then attracts users for use, thereby achieving the project's cold start and core operation mechanism, further expanding development.

Current Status of the DePIN Industry

From the earliest established projects, such as the decentralized network Helium(2013, the decentralized storage Storj)2014, and Sia(2015, it can be seen that the earliest DePIN projects were primarily focused on storage and communication technology.

With the continuous development of the Internet, Internet of Things, and AI, there is an increasing demand for infrastructure and innovation. From the current development status of DePIN, projects are mainly focused on computing, storage, communication technology, as well as data collection and sharing.

From the current top 10 projects by market capitalization in the DePIN field, most belong to the Storage and Computing sectors. Additionally, there are some notable projects in the telecommunications sector, including industry pioneer Helium and latecomer Theta.

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Representative Projects in the DePIN Industry

) Filecoin & Arweave - Decentralization storage track

Filecoin and Arweave break the deadlock by offering lower prices through Decentralization storage methods, providing users with different services.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through tokens. Currently, the storage space has reached 24EiB. Filecoin is built on top of the IPFS protocol and supports smart contracts, allowing developers to build various storage-based applications.

Arweave is a decentralized permanent storage network that ensures data uploaded will be permanently stored on the blockchain. Arweave uses a "Proof of Access" consensus mechanism, requiring miners to provide randomly selected previously stored data blocks during the block creation process as "access proof".

Filecoin and Arweave have significant differences in terms of storage methods, economic models, and consensus mechanisms, each possessing its own advantages in different application scenarios. Currently, Filecoin is far ahead in market performance.

Decentralized storage has significant price differences compared to centralized storage. Under the same conditions of storing 1TB for one month, the average price of decentralized storage is less than half of Google Drive and one-tenth of Amazon S3.

In addition to price advantages, decentralized storage offers higher security, with data distributed across multiple nodes, reducing the risk of single points of failure and providing greater resistance to censorship. Users retain absolute ownership and control over their data in decentralized storage.

In terms of disadvantages, decentralized storage faces many technical challenges, including issues that need to be solved regarding data storage and retrieval efficiency, node reliability, and more. Compared to the high availability and performance guarantees of centralized storage, the availability and performance of decentralized storage may be affected by the participants in the network, which may fluctuate and impact user experience.

Helium - Decentralization wireless network

Helium was established in 2013 and is a pioneer in the DePIN track. In the traditional IoT industry, due to the difficulty of covering infrastructure costs with revenue, there have been no major players emerging among IoT device network providers, and the market has not been integrated. The demand exists, but the supply is difficult, which provides a foundation for Helium's development in IoT.

Helium attracts global users to participate in purchasing network devices to form networks and achieve network supply through token incentives. Its technical strength gives it a significant advantage in the Internet of Things (IoT) field, with the number of hotspots exceeding 900,000 last August, and the monthly active hotspots in IoT reaching 600,000, which is 20 times the 30,000 hotspots of traditional IoT network leader The Things Network.

Helium performs outstandingly in the IoT field, but appears slightly weak in the 5G field. This is because:

1. The IoT field adopts LoRaWAN technology, which has low power consumption, long transmission distance, and excellent indoor penetration, requiring no specific authorization, making it an economical choice for large-scale IoT deployments.

2. The IoT network market has a wide coverage but low data transmission volume, making it difficult to generate revenue, and no industry giants have emerged yet. Helium seizes the opportunity to combine web3 technology with the IoT network, cleverly solving the high funding threshold issue through DePIN.

3. The 5G market faces a dual dilemma of compliance and market ceiling. In terms of compliance, domestic frequency allocation and licensing in the United States are strictly regulated by the FCC. Regarding the market ceiling, 5G is a sector strictly regulated by national policies, with most network operators in the world being state-owned enterprises, and only a few private enterprises that have close ties with the state.

In addition, the lack of transparency in cooperative equipment is an experiential issue on the supply side. Due to the open-source nature of Helium devices, different partner manufacturers have varying performance, prices, and installation processes. The lack of clarity in performance and pricing causes confusion for suppliers, and there are also cases of merchants using second-hand equipment to fill in.

On March 27 this year, Helium began migrating from its own Layer 1 blockchain to Solana. The main reasons for the migration are:

1. The core team wants to build a network. After assessing the importance of maintaining Layer 1, they decided to hand over the maintenance of the underlying blockchain to those who are skilled, allowing the team's focus to be freed up for the construction of the Helium network.

2. Choose Solana mainly from the ecosystem