DePIN Investment Logic Analysis: Understanding New Opportunities from Scratch

Since 2022, DePIN and AI have been two new directions in cryptocurrency investment, running parallel to each other. However, the DePIN field seems to have lacked a flagship project. While Helium can be considered a leading project, it appeared even before the concept of DePIN. The projects Bittensor, Render, and Akash in the table are more attributed to the AI track.

This indicates that DePIN lacks a sufficiently strong leading project to break through the ceiling of this track. Therefore, there may still be some Alpha opportunities in the DePIN track in the next 1-3 years.

This article attempts to clarify the investment logic of DePIN from scratch, including why DePIN deserves our attention and proposing a simple analytical framework. Since DePIN is a comprehensive concept that encompasses multiple sub-tracks, this article will explain the concept from an abstract perspective while providing some concrete examples.

Why Focus on DePIN Investment

DePIN is not a gimmick.

First, it is necessary to clarify that decentralizing the infrastructure of the physical world is not a fancy idea, nor is it merely a simple "narrative hype"; it is something that can be executed in practice. In DePIN, there are indeed situations where decentralization can "achieve" or "optimize" certain scenarios.

Here are two simple examples:

In one of the main tracks of DePIN - the telecommunications sector, taking the U.S. market as an example, traditional telecom operators often need to invest billions of dollars for spectrum license auctions and base station deployments, and then pay deployment costs of $200,000 to $500,000 for each macro station with a coverage radius of 1-3 kilometers. In a 2022 auction by the U.S. Federal Communications Commission for 5G spectrum in the 3.45GHz band, one operator invested $9 billion, becoming the operator with the highest investment. This centralized infrastructure model leads to high prices for communication services.

A decentralized mobile network spreads its early costs to each user through community crowdsourcing, allowing individuals to access the network by purchasing hotspot devices for only $249 or $499, becoming "micro-operators" and driving community spontaneous networking through token incentives, thereby reducing overall investment. The cost for a traditional operator to deploy a macro base station is about $200,000, while this decentralized network can achieve a similar coverage with about 100 hotspot devices for a total cost of around $50,000, reducing costs by approximately 75%.

Moreover, in the field of AI data, traditional AI companies need to pay up to $300 million/year in API fees to social platforms to acquire training data, and they also use proxy services to scrape data. Furthermore, they increasingly face more and more copyright and technical restrictions, making it difficult to ensure the compliance and diversity of data sources.

A decentralized data collection platform has cracked this dilemma through distributed Web Scraping, allowing users to share idle bandwidth by downloading a browser extension, helping to scrape publicly available web data and earn token rewards from it. This model has significantly reduced the data acquisition costs for AI companies while achieving data diversity and geographic distribution. According to statistics, there are currently 109,755,404 IP addresses from 190 countries participating in the network, contributing an average of 1,000 TB of internet data daily.

In summary, a basic starting point for investing in the DePIN direction is that decentralized physical infrastructure has the opportunity to perform better than traditional physical infrastructure, and even achieve things that traditional methods cannot.

( as the intersection of infrastructure and consumer applications

As the two main lines of cryptocurrency investment, infrastructure and consumer applications each face some issues.

Infrastructure projects generally have two characteristics: first, they have strong technical attributes, such as ZK, FHE, MPC, etc., which have high thresholds and a certain disconnect in market recognition. Second, apart from the projects we are familiar with such as Layer 1/2, cross-chain bridges, and staking that can directly reach end users, most infrastructure is actually aimed at enterprises. For example, developer tools, data availability layers, oracles, co-processors, etc., are relatively distant from users.

These two points make it difficult for infrastructure projects to capture users' mind share and have poor spreadability. Although high-quality infrastructure has a certain product-market fit and revenue, allowing it to be self-sustaining through cycles, the lack of mind share in a market with scarce attention makes it very difficult to go public later.

Conversely, consumer applications have a natural advantage in directly targeting end users, capturing mental share effectively. However, new concepts can easily be disproven by the market, and may plummet after the hype switches. Such projects often fall into a cycle of narrative-driven short-term bursts followed by disproof and decline, with a short lifecycle. Examples include certain social token projects, etc.

Growth, mental possession, and listing coins are all issues that have been discussed a lot in this cycle. Overall, DePIN can better address the dilemmas mentioned above and find a balance.

1. DePIN is built on the real demands of the physical world, such as energy, wireless networks, etc. High-quality DePIN projects have a solid product-market fit and revenue, are difficult to falsify, and are easily understood by the market. For example, a certain decentralized mobile network offers an unlimited data plan for $30 per month, which is clearly cheaper than the plans provided by traditional operators.

2. DePIN also has user-side usage needs, which can capture mental ownership. For example, users can download a browser plugin for a certain decentralized data collection platform to contribute their idle bandwidth. Currently, this platform has reached 2.5 million end users, many of whom are non-crypto native users. Other sectors, such as eSIM, WiFi, and in-vehicle data, are similar in that they are very close to users.

![The Alpha opportunity still exists, starting from scratch to sort out the investment logic of DePIN])https://img-cdn.gateio.im/webp-social/moments-a6a4e3d2fdd69e2774ac998ed946f6e2.webp###

DePIN Investment Framework

( Direction

Starting from intuition, 5G and wireless networks are large markets, while in-vehicle data and weather data are small markets. From the demand side, we need to see if it is a necessity )5G### or if the demand is strong. Moreover, since the market share of 5G in traditional markets is very large, even if DePIN can capture a small portion of it, the market capacity still looks quite substantial under the scale of cryptocurrency.

( product

According to a report from a research institution, the DePIN model is particularly suitable for industries with high capital requirements, high entry barriers, obvious monopoly patterns, and underutilization of resources. Answering the question of product-market fit essentially looks at two points.

On the supply side, has DePIN achieved what could not be done before, or does it have significant advantages over existing solutions in terms of cost, efficiency, etc., for example, in the decentralized map collection project within the map collection track, traditional map collection at least has three major problems:

• Traditionally relies on professional fleets and manual labeling, which is costly and has poor scalability.
• Traditional street scene services have a long update cycle and low coverage in remote areas.
• Centralized map service providers monopolize data pricing rights

The project allows users to collect data by selling dash cams, turning data collection into a task users perform during their daily driving through a crowdsourcing model. Users are guided by token incentives to prioritize resources in high-demand areas.

On the demand side, the products provided by DePIN must have real market demand, preferably with a strong willingness to pay. A similar example is that the map project can sell map data to companies in autonomous driving, logistics, insurance, and municipal sectors, where key demand has been validated.

Regarding hardware, a certain investment institution discusses hardware at the beginning of an article in 2023. The author would like to add a few points of view here.

The hardware timeline can be summarized as "manufacturing-sales-distribution-maintenance".

Manufacture

Does the project team design and manufacture their own hardware, or do they use existing hardware? For example, a certain decentralized mobile network provides two types of its own hotspots and also supports the integration of existing WiFi networks. Alternatively, for computing and storage-related DePIN projects, they can directly use existing graphics cards and hard drives, etc.

Sales

The clear pricing of sales means that users will calculate the payback period based on potential returns. A home mobile hotspot of a certain decentralized mobile network is priced at 249 dollars, and a certain vehicle data collector is priced at 1,331 dollars.

Distribute

How to distribute? Distribution involves many uncertain factors: logistics timeliness, transportation costs, and delivery cycles starting from pre-sales, etc. For projects aimed at a global scale, improper distribution design and methods can greatly slow down the project's progress.

Maintenance

What do users need to do to maintain hardware? Some devices may experience depreciation or wear and tear. The simplest maintenance example is a decentralized data collection platform where users only need to download a browser extension without requiring any other actions; or a hotspot for a decentralized mobile network that can continue to run with just a simple installation. If it involves solar power generation, it may be more complicated.

Considering the points above, the simplest model is that of a decentralized data collection platform - directly utilizing existing network bandwidth, requiring no manufacturing and distribution, allowing users to start without barriers, and not needing sales, which helps to quickly expand the network in the early stages of the project.

Indeed, different projects have varying hardware requirements in each direction. However, hardware relates to the friction of initial adoption. The less friction there is in the early stages of a project, the better; as the project matures, some friction can lead to retention and a certain degree of binding relationships. For startup teams, it is necessary to manage the choices of paths and resource investments in hardware, progressing gradually rather than achieving it all at once.

Imagine, if it is not easy from "manufacturing - sales - distribution - maintenance", then unless there are very strong and highly certain incentives, why would users participate?

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( token economy

The design of the token mechanism is the most challenging aspect of DePIN projects. Unlike projects in other fields, DePIN needs to incentivize various participants in the network early on, which necessitates the launch of tokens at a very early stage of the project. This topic is suitable for a new article to conduct some case studies, and this article will not elaborate on it further.

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) Team

In the team composition, the founder must have at least one individual with the following backgrounds: first, someone who has worked in traditional companies in this field and has rich experience, responsible for practical matters such as technology and product implementation; second, someone who is native to crypto, understands token economics and community building, and can distinguish between the preferences and mental models of crypto users and non-crypto users.

others

Regulatory issues, such as the collection of road images and data in certain areas, are clearly very sensitive.

Summary

Cryptocurrency has not really had a "breakthrough" application in this cycle, and it seems that we are still far from the adoption of users outside the circle. The short-term incentives provided by some crypto applications are the reasons users engage with them, but they are not sustainable. On the other hand, the economic benefits derived from DePIN at the foundational level may replace traditional infrastructure on the user side, thereby achieving the sustainability of applications and facilitating large-scale adoption.

Although the characteristics of DePIN that integrate with reality result in a longer development cycle, we have already seen some glimmers of hope from the development of a certain decentralized mobile network: this network collaborates with a traditional operator, allowing user devices to be seamless.