The Basic Logic and Legal Risks of the DePIN Track

With the advancement of technology and the development of decentralized technology, the real world and the virtual world are accelerating their integration, leading to a redistribution of power, control, and data ownership.

In this context, the decentralized physical infrastructure network ( DePIN ) has emerged, providing us with a new perspective on the interaction between the real and virtual worlds. According to data, the current valuation of the entire sector is approximately $9 billion, and it is expected to grow to a scale of $3.5 trillion by 2028. From the earliest Arweave and Filecoin, to Helium from the last bull market, and the recently highly regarded Render Network, all belong to this field.

DePIN, as one of the most promising tracks in the Web 3.0 field that is likely to create economic value in the short term, has received considerable attention in recent years. This article will explore the fundamental logic of the DePIN track, its development prospects, and the legal risks it faces.

The Basic Logic of the DePIN Track

DePIN( is a decentralized physical infrastructure network) that incentivizes individuals and businesses globally to build various infrastructures in the physical world( such as WiFi, storage, batteries, etc., in a decentralized manner through blockchain technology and token rewards. At its core, users earn returns by renting out hardware to provide services, such as WiFi hotspots in wireless networks or home solar panels in energy networks. These networks are built in a decentralized manner by contributors from around the world. In return, participants receive financial compensation and ownership of the network through token incentives.

This concept was born in 2022 when a blockchain data research organization initiated a survey to solicit a formal name for "Web3 physical infrastructure." Ultimately, DePIN emerged victorious in the voting and began to attract attention.

The biggest difference from traditional networks is that DePIN uses tokens to initiate the deployment of physical infrastructure, leveraging blockchain technology to build and operate real-world physical infrastructure and hardware networks in a permissionless, trustless, and programmable manner, thereby creating large-scale network effects and unlocking various innovative DApps based on real-world data.

In short, DePIN is a physical infrastructure network ecosystem that is owned and monetized by users, device users, and enterprises. It enables globally distributed individuals to collaboratively build, maintain, and operate a shared physical infrastructure network without a single centralized entity. The ecosystem includes multiple components such as cloud networks ) VPN, CDN, file storage, databases (, wireless ) 5G, Internet of Things (, sensor networks, energy networks, and more.

In such a system, individuals or organizations can contribute labor or other resources by maintaining and improving the infrastructure, obtaining corresponding assets ), mainly cryptocurrency assets (. These cryptocurrency assets, given as rewards, can then be used to access the infrastructure or for trading.

From a working principle perspective, DePIN is based on decentralized and blockchain technology. First, DePIN relies on individual hardware devices, which are also known as nodes. Nodes can be personal computers, dedicated servers, or IoT devices. These devices collectively form a decentralized network, with no central node or authoritative agency. This decentralized nature makes DePIN more secure and transparent.

Secondly, DePIN uses blockchain technology to manage and protect the network. Blockchain is a public, transparent, and immutable digital ledger. It records all transactions and interactions on the network, ensuring that all nodes adhere to the rules of the network.

In addition, to encourage node participation and resource contribution, DePIN uses an incentive mechanism. This mechanism is typically based on cryptocurrency, where nodes can earn rewards by participating in the network and contributing resources. Sufficient resource supply creates price competition, and ample resources along with better prices promote demand. Demand gives tokens value capture, which can better drive price increases and attract more resource providers.

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The Development Prospects of the DePIN Track

) Applications of DePIN

DePIN is divided into two main areas: digital resource networks and physical resource networks. Digital resource networks include storage, computing, and bandwidth, while physical resource networks focus on hardware-related domains such as wireless networks, geospatial networks, mobile networks, and energy networks.

According to the data, the DePIN sector currently includes 45 launched token projects, ranking 25th among all sectors, with a total value of 9.7 billion USD, surpassing sectors like AMM and AI, second only to the oracle and P2E sectors.

A report predicts the total potential market size of the DePIN sector to be around $2.2 trillion, potentially reaching $3.5 trillion by 2028.

In addition to its outstanding performance in the secondary market, DePIN is gradually gaining favor among markets and institutions. For example, in April 2023, the decentralized camera network Natix Network secured $3.5 million in funding; in November 2023, DePIN provider Grove completed $7.9 million in funding. In addition, Solana, which is very fond of DePIN, announced that 5 related products, including Shaga and Dain, were awarded grants in the eighth hackathon event held in November 2023. The IoTeX Foundation had previously provided nearly one million dollars in development funding for 15 DePIN-related projects.

Among them, the top 10 companies in DePIN are "server networks" Filecoin, Arweave, Sia, and Storj in the category of digital resource network ###DRN(, "wireless networks" Helium and Pollen Mobile in the category of physical resource network )PRN(, "sensor networks" Hivemapper and DIMO, and "energy networks" React Protocol and Arkreen. Below is a brief introduction to the representative projects in the current DePIN track, both new and old:

Filecoin & Arweave

In the traditional data storage field, the high pricing of centralized cloud storage on the supply side and the low resource utilization on the demand side have created dilemmas for users and enterprises, along with risks such as data leakage. In response to this phenomenon, Filecoin and Arweave provide a breakthrough by offering lower prices through decentralized storage, delivering different services to users.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through tokens. Within about a month of going live on the testnet, its storage capacity reached 4PB, and it has now reached 24EiB. Filecoin is built on the IPFS protocol, which is already a widely recognized distributed file system. Filecoin achieves decentralization and security of data storage by storing user data on nodes within the network. Additionally, Filecoin leverages the advantages of IPFS, possessing strong technical capabilities in the decentralized storage field, and also supports smart contracts, allowing developers to build various storage-based applications.

Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage uses Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while the Shoah Foundation and the Internet Archive use Filecoin to back up their content. The world's largest NFT market also utilizes Filecoin for NFT metadata storage, which further promotes the development of its ecosystem.

Arweave has some similarities with Filecoin in terms of incentivizing the supply side by using tokens to encourage users to provide storage space, with the amount of rewards depending on the volume of data stored and the frequency of data access. The difference is that Arweave is a decentralized permanent storage network; once data is uploaded to the Arweave network, it will be permanently stored on the blockchain.

Arweave uses a proof-of-work mechanism known as "Proof of Access" to demonstrate the accessibility of data within the network. Simply put, it requires miners to provide a randomly selected previously stored data block during the block creation process as "proof of access".

Render Network

The business of Render Network can be simply described as matching computing power with art rendering needs. The role of computing power suppliers is called node operators, and this number has remained stable, with currently 326 Render node operators providing computing power.

Render Network was originally deployed on a certain network. In March 2023, the community decided through a proposal to migrate to another network and to build the BME) Burn and Mint Equilibrium( model on that network. The BME model describes a state of relative balance between burned tokens and minted tokens in an ideal process and specific consumption market. It is already a mature token model that has been applied in multiple projects.

In this model, users purchase GPU rendering services using RNDR tokens. The tokens used upon task completion will be destroyed, and the rewards for service providers will be distributed in newly issued tokens. The basis for these rewards is not only based on task completion metrics but also includes other comprehensive factors such as customer satisfaction. As a result, RNDR tokens have more consumption scenarios within the entire economy, and the supply and demand relationship of the tokens can be balanced and adjusted according to the algorithms between the destruction and minting of tokens. The entire business model has also evolved from a simple C2C to a more managed B2C model.

On November 2, 2023, the Render Foundation announced that the Render Network has successfully upgraded its core infrastructure and launched an incentive program to encourage users to upgrade their original tokens to new tokens.

Helium

Helium is one of the oldest and most well-known DePIN projects, a decentralized wireless network protocol that incentivizes users to deploy gateways, promoting a global network based on LoRaWan technology. Initially, it built its own Layer 1 network, but adoption faced obstacles. In April 2023, it completed a network migration, hoping to reach a larger user base and liquidity, and fully leverage the network's efficiency for further expansion.

$HNT is the main economic asset in the Helium ecosystem, and the only way to pay for data transmission fees on the network is by burning $HNT. Currently, its market value is 1.29 billion USD, and it was delisted from spot trading pairs by a certain trading platform in October 2022.

In 2023, Helium issued two new tokens, $Mobile and $IOT, which are the governance tokens for the Helium Mobile and Helium IOT subDAOs, respectively, aimed at achieving governance separation. The $Mobile earned from Helium Mobile's 5G hotspot business; while $IOT is used to reward nodes focused on running the Internet of Things. $HNT remains the primary asset within the Helium ecosystem, as the only token that can pay for network data transmission.

Hivemapper

Hivemapper is a blockchain-based mapping network where contributors can collect data by installing Hivemapper's dashcam, while earning the token $HONEY as a reward. The issuance and settlement of tokens take place on a certain network. The dashcam in Hivemapper is similar to a mining machine, connecting with the Hivemapper application to upload street view images as data.

In just one year since its establishment, Hivemapper has mapped approximately 91 million kilometers of road, covering 10% of the total global road mileage, with over 6 million kilometers being unique. With the delivery of over 8,000 dash cameras worldwide, drivers are helping to map the freshest maps in the world every day.

Hivemapper's revenue comes from two sources: selling dashcams and selling map data APIs. The price of each dashcam is $300) for the standard model and $649( for the advanced model. This year, the revenue is conservatively estimated to exceed two million dollars. The price of the $Honey token cannot be too low; otherwise, the demand for dashcams will diminish, and the map cannot be effectively expanded, leading the entire business to a standstill. The token has not yet been listed on mainstream exchanges and is primarily traded on a certain trading platform. The FDV is very high, currently at $2.4B, but the circulation is only 2.6%. Projects with high FDV and low circulation have been a major characteristic of certain tokens, making their prices very prone to volatility.

Tekkon

Tekkon is a project where users can take photos of local infrastructure, such as utility poles and manhole covers, or report damaged infrastructure to earn token rewards while helping the community improve.

Whole Earth Coin)WEC( is the reward token of Tekkon, and in a certain country, WEC can be exchanged for cash on a certain payment platform.

The initial issuance was 300 million tokens, with no maximum limit. When the initial tokens are exhausted, if the number of users continues to grow, the system will mint new tokens to reward users. Of the 300 million tokens initially issued, 20% is allocated for ecosystem development, 20% for in-app Fix and Earn, 25% for public sale, 15% for private placement, and the final 20% belongs to the team.