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

I. Introduction: What is DePIN?

DePIN stands for Decentralized Physical Infrastructure Network, which encourages users to share personal resources through token incentives to build infrastructure networks, including storage space, communication traffic, cloud computing, energy, and other fields.

To put it simply, DePIN is a form of crowdsourcing that decentralizes the infrastructure originally provided by centralized companies to a large number of users around the world.

According to CoinGecko, the current market capitalization of the DePIN space has reached $5.2 billion, surpassing the $5 billion of the oracle space, and the trend continues to rise. Whether it’s Arweave and FIL, or Helium, which took off in the last bull market, and Render Network, which has recently attracted much attention, all belong to this field.

Some readers may wonder if these projects have been around before, and Helium has attracted a lot of attention in the last bull market, but why has DePIN started to attract attention and craze recently?

The reasons can be broadly summarized in three aspects:

1. The construction of infrastructure has been much better than a few years ago, which has paved the way and empowered the DEPIN track;
2. On the other hand, at the end of '22, Messari first proposed the new concept of DePIN, believing it to be “one of the most important areas of crypto investment in the next decade”, and the new definition and expectations also added a narrative heat to this track;
3. In addition, people used to pin the new narrative of web3 to break the circle on social and games, but with the arrival of the bear market, people have begun to explore more possibilities in other directions, and the DePIN track, which is also closely linked to web2 users, has gradually become an important choice for web3 builders.

This article will give you an in-depth analysis of DePIN from five perspectives: why you need DePIN, DePIN’s token economic model, industry status, representative projects, advantage analysis, and limitations and challenges.

Part 2: Why do I need a DePIN?

So why do we need DePIN, and what problems does DePIN solve compared to traditional ICT infrastructure?

2.1 Current status of the traditional ICT industry

In the traditional ICT industry, infrastructure can be divided into the following categories: hardware, software, cloud computing and data storage, and communication technology.

Six of the world’s top 10 companies by market capitalization are in the ICT industry (Apple, Microsoft, Google, Amazon, NVIDIA, Meta), accounting for half of the market.

According to Gartner, the global ICT market has reached US$4.39 trillion in 2022, and data centers and software have shown a growth trend in the past two years, affecting our lives in all aspects.

2.2 The dilemma of the traditional ICT industry

However, the current ICT industry faces two significant dilemmas:

1. The industry has a high barrier to entry, which restricts full competition and leads to the monopoly of pricing by giants.

In areas such as data storage and communication services, enterprises need to invest a lot of money in hardware purchase, leased land, deployment and maintenance, and personnel hiring. As a result of these high costs, only giant enterprises can participate, such as AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud in the field of cloud computing and data storage, with a combined market share of nearly 70%. As a result, pricing is monopolized by giants, and high costs are eventually passed on to consumers.

Take the price of cloud computing and data storage, for example, which can be quite costly:

According to Gartner, in 2022, businesses and individuals spent a total of $490 billion on cloud services, and it is expected to continue to grow in the coming years, with it expected to exceed $720 billion by 2024. According to RightScale, 31% of large enterprises spend more than $12 million annually on cloud services, and 54% of small and medium-sized businesses spend more than $1.2 million on cloud services. As enterprises increase their investment in cloud services, 60% say their cloud costs are higher than expected.

Based on the current situation of cloud service spending related to cloud computing and data storage, it can be seen that after the price is monopolized by giants, the spending pressure on users and enterprises will also increase. In addition, the capital-intensive nature restricts full competition in the market, while also affecting innovation and development in the field.

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

The low utilization of centralized infrastructure resources is a major challenge in today’s business operations. This problem is especially acute in cloud computing environments, where companies often allocate large budgets to cloud services.

According to a recent report by Flexera (2022), there is a worrying trend where, on average, 32% of a company’s cloud budget is wasted, meaning that a third of a company’s resources are idle after cloud spending, resulting in huge financial losses.

This misallocation of resources can be attributed to a variety of factors. For example, when it comes to resource provisioning, companies tend to overestimate their demand to ensure continuous availability of services. In addition, according to Anodot, cloud waste is due to a lack of understanding of cloud costs in more than half of the cases, getting lost in complex cloud pricing and a wide variety of packages.

On the one hand, the monopoly of giants leads to high prices, and on the other hand, a considerable part of the company’s cloud expenditure is wasted, which makes the IT cost and IT utilization of the enterprise fall into a double dilemma, which is very unfavorable to the healthy development of the business environment. However, everything has a double-edged sword, which also provides the soil for the development of DePIN.

In the face of the high price of cloud computing and storage and the dilemma of cloud waste, the DePIN track can solve this demand well. In terms of price, the price of decentralized storage (such as FIL and Arweave) is several times cheaper than that of centralized storage, and in terms of cloud waste dilemma, some decentralized infrastructure has begun to adopt a hierarchical pricing method to distinguish different needs, such as Render Network in the decentralized computing track to most efficiently match GPU supply and demand by adopting a multi-level pricing strategy. The advantages of decentralized infrastructure in solving these two dilemmas will be detailed in the section on project analysis below.

3. DePIN’s token economic model

Before understanding the current situation of the DePIN track, let’s first understand the operation logic of the DePIN track. The core question is: why are users willing to contribute their own resources to join the DePIN project?

As mentioned in the introduction, the core logic of DePIN is to promote users to provide resources, including GPU computing power, deployment hotspots, storage space, etc., through token incentives to contribute to the entire DePIN network.

Since in the early days of DePIN projects, tokens often have no real value, so the behavior of users participating in the network to provide resources is to some extent similar to venture capitalists, and the supply side selects promising projects among many DePIN projects, and then invests resources to become “risk miners”, making profits by obtaining the increase in the number of tokens and the appreciation of the token price.

What sets these providers apart from traditional mining is that the resources they provide may involve aspects such as hardware, bandwidth, computing power, etc., and the tokens of their revenue are often related to network usage, market demand, and other factors. For example, low network usage leads to reduced rewards, or the network is under attack or instability, resulting in a waste of their resources. Therefore, venture miners in the DePIN track need to be willing to take on these potential risks and provide resources to the network, becoming a key component in the process of network stability and project development.

This kind of incentive will form a flywheel effect, forming a positive cycle when development is good, and conversely, it is easy to create an exit cycle when development is downward.

1. Attract supply-side participants through tokens: Through a good tokenomics model, attract early participants to participate in network construction and provide resources, and give tokens in return.

2. Attract builders and online consumer users: With the increase of resource providers, some developers have begun to join the ecosystem to build products, and at the same time, after the supply side can provide certain services, consumers have begun to be attracted to join because DePIN provides lower prices than decentralized infrastructure.

3. Generate positive feedback: As consumer users increase, this demand incentive brings more revenue to supply-side participants, forming positive feedback, thereby attracting more people to participate on both the supply side.

Under this cycle, there are more and more valuable token returns on the supply side, cheaper and more cost-effective services on the demand side, and the value of the project’s tokens is consistent with the growth of participants on both the supply and demand sides, and as the token price rises, more participants and speculators are attracted to participate and value capture is formed.

Through the token incentive mechanism, DePIN first attracts suppliers, and then attracts users to use, so as to achieve the cold start and core operation mechanism of the project, so that it can further expand and develop.

Fourth, the current situation of the DePIN industry

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

However, with the continuous development of the Internet, the Internet of Things, and AI, there are more and more requirements for infrastructure and innovation. From the perspective of the development status of DePIN, the current DePIN projects mainly focus on computing, storage, communication technology, and data collection and sharing.

Judging from the current top 10 projects in the DePIN field by market capitalization, most of them belong to the storage and computing fields, and there are also some good projects in the telecommunications field, including industry pioneer Helium and late-stage star Theta, which will be further interpreted in the later project analysis.

5. Representative projects in the DePIN industry

Based on the depin market cap rankings on Coingecko, this article will focus on the top five projects: FIL, Render, Theta, Helium, and Arweave.

First of all, let’s take a look at FIL and Arweave in the decentralized storage track, which are also two projects that everyone is more familiar with.

5.1 FIL & Arweave - Decentralized Storage Track

As mentioned in the dilemma of the traditional ICT industry at the beginning, in the traditional data storage field, the high pricing of centralized cloud storage on the supply side and the low resource utilization rate on the consumption side have caused difficulties for the interests of users and enterprises, and there are also risks such as data leakage. In the face of this phenomenon, FIL and Arweave break the game by providing lower prices through decentralized storage and provide users with different services.

Let’s take a look at FIL first. From the supply side, FIL is a decentralized distributed storage network that incentivizes users to provide storage space through token incentives (providing more storage space is directly related to getting more block rewards). Within about one month of the testnet’s launch, its storage space reached 4 petabytes, and Chinese miners (storage space providers) played a very important role. At present, the storage space has reached 24EiB.

It’s worth noting that FIL is built on top of the FIL protocol, while FIL itself is already a widely recognized distributed file system that FIL decentralizes and secures data storage by storing users’ data on nodes in the network. In addition, FIL leverages the strengths of FIL to give it a strong technical prowess in the field of decentralized storage, while also supporting smart contracts, allowing developers to build a variety of storage-based applications.

At the level of consensus mechanism, FIL uses Proof of Storage, including advanced consensus algorithms such as Proof of Replication (PoRep) and Proof of Spacetime (PoSt) to ensure data security and reliability. In simple terms, Proof of Replication ensures that the node replicates the client’s data, while Proof of Spacetime ensures that the node maintains storage space at all times.

Currently, FIL has partnerships with a number of well-known blockchain projects and businesses, such as NFT.Storage leverages FIL to provide a simple decentralized storage solution for NFT content and metadata, while the Shoah Foundation and the Internet Archive utilize FIL to back up their content. It is worth noting that OpenSea, the world’s largest NFT marketplace, also uses FIL for NFT metadata storage, which further promotes the development of its ecosystem.

Next, let’s take a look at Arweave, which has some similarities with FIL in terms of incentive supply side, through token incentives, so that users can provide storage space, and the amount of rewards depends on the amount of data stored and the frequency of data access.

。 The difference is that Arweave is a decentralized persistent storage network, and once data is uploaded to the Arweave network, it will be stored in the blockchain forever.

How does Arweave incentivize users to provide storage space? At its core, it uses a proof-of-work mechanism called “Proof of Access” to prove the accessibility of data across the network. In layman’s terms, it requires a miner to provide a randomly selected block of previously stored data as a “proof of access” during block creation.

At present, the official provides a variety of solutions, including permanent storage of files, creation of permanent profiles and web pages, etc.

(Source: Arweave official Website)

In order to make it easier for you to quickly understand the differences between Arweave and FIL, a table has been created to help you understand.

As can be seen from the above table, FIL and Arweave have obvious differences in terms of storage methods, economic models, and consensus mechanisms, which make them have their own advantages in different application scenarios, but due to the lower storage price, FIL is currently in a leading position in terms of market performance.

On the whole, with the popularization of big data and artificial intelligence applications, the amount of data generated has increased exponentially, and the demand for data storage has also increased.

For the same storage of 1TB for a month, the average price of decentralized storage is less than half of Google Drive and one-tenth of that of Amazon S3.

In addition to the price advantage, decentralized storage is more secure, data is distributed across multiple nodes, reduces the risk of a single point of failure, and also has higher censorship resistance.

When it comes to data privacy, users retain absolute ownership and control over their data in decentralized storage. Users can access, modify, or delete their data stored on the network at any time, whereas in centralized storage, users host their data to a service provider, so the service provider may have some control over the data, and the user is required to comply with the service provider’s terms of use and privacy policy.

In terms of disadvantages, decentralized storage has many technical challenges, including data storage and retrieval efficiency, node reliability and other issues that need to be solved. In contrast 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, so there may be some fluctuations that affect the user experience.

5.2 Helium - Decentralized Wireless Network

Now that we’ve learned about the decentralized storage track, let’s take a look at Helium, a decentralized wireless networking project that has attracted much attention. Founded in 2013, it is also a veteran and pioneer of the DePIN track.

In the traditional IoT industry, due to the difficulty of infrastructure costs to cover revenue, there are no giants in the network suppliers of IoT devices, and there is no integrated market. Demand and supply provide the soil for the development of Helium in IoT.

Since the most difficult point is the cost of infrastructure, it has become a natural advantage of DePIN to share the cost by “crowdfunding” users on the supply side. Through token incentives, users around the world are attracted to participate in the purchase of Helium’s network equipment to form a network to realize the supply of the network. Its technical strength gives it a significant advantage in the field of the Internet of Things (IoT), with the number of hotspots exceeding 900,000 in August last year, and the number of monthly active IoT hotspots reaching 600,000, which is 20 times the 30,000 hotspots of The Things Network, the head player of traditional IoT networks. (Even if the number of active hotspots today fell to 370,000, there is still a clear advantage)

After making progress in the IoT space, Helium wanted to further expand its network footprint and began to enter the 5G and wifi markets. However, as you can see from the data in the chart below, Helium is currently doing well mainly in the IoT space and mediocre in 5G.

(Source: Helium official Website)

Why is Helium outperforming in the IoT space but slightly weaker in the 5G space? Let’s take a look at the market and compliance.

In the IoT field, Helium uses LoRaWAN technology, a low-power wide-area network technology characterized by low power consumption, long transmission distance, and excellent indoor penetration. Such networks typically do not require specific authorization, making them a cost-effective option for large-scale IoT deployments.

For example, in agricultural scenarios, farmers only need to monitor whether soil moisture and temperature exceed a certain threshold to implement intelligent irrigation and crop management. Similarly, there are many prospects for development in smart city scenarios such as smart light poles, trash cans, and parking sensors.

In addition, the IoT network market is difficult to cover revenue due to its wide coverage but small data transmission volume, and industry giants have not yet emerged. Helium seized the opportunity to combine web3 technology with IoT networks to cleverly solve the problem of high barriers to capital with DePIN. Through the participation of everyone, the heavy cost of the early construction of the Internet of Things can be allocated to each user, so as to achieve a lightweight start-up. At present, some indoor and outdoor positioning devices, smart farms such as Abeeway, Agulus, etc. have begun to adopt Helium, and as of August last year, the number of hotspots has exceeded 900,000.

On the other hand, Helium has been involved in the 5G market for a year, and its current performance has not been satisfactory, and the root cause can be summarized as the dual dilemma of compliance and market ceiling.

In terms of compliance, the allocation and licensing of frequency bands in the United States is strictly regulated by the Federal Communications Commission (FCC). The 600MHz and 700MHz low bands, the 2.5GHz and 3.5GHz mid-bands, and the 28GHz and 39GHz bands are all subject to rigorous review before authorization. For example, licensed T-Mobile deploys 5G using the 600MHz band, and Verizon deploys 5G using the 700MHz band. As a latecomer, to reduce deployment costs and address compliance challenges, Helium opted for the non-licensed CBRS GAA band, which has slightly smaller coverage than the mid-band and does not show a significant advantage over U.S. carriers.

In terms of the ceiling of the market, it is worth noting that 5G is an area that is strictly regulated by national policies, and the network operators in most countries around the world are state-owned enterprises, and only a few are private companies and have a close relationship with the state. As a result, from a large market perspective, it will be difficult for Helium to replicate its 5G market experience in the U.S. overseas.

In addition, the opacity of cooperative devices is also an experience problem on the supply side. Since Helium’s equipment is open source, the performance, price, and installation process of different partner manufacturers are different, and the opacity of performance and price is a big problem for suppliers participating in Helium, and there is also the phenomenon of merchants indiscriminately filling the number with second-hand equipment. How to optimize the supply-side experience, balance open source, and the transparency and pleasantness of the device’s performance price are also challenges that the Helium project needs to face.

It is worth noting that on March 27 of this year, Helium began migrating from its own Layer 1 blockchain to Solana. The reasons for migration can be summarized as follows:

1. After evaluating the importance of maintaining Layer 1, the core of the Helium team decided to hand over the maintenance of the underlying blockchain to someone who is good at it, so that the team’s focus can be liberated on the construction of the Helium network.
2. Solana was chosen mainly from the ecological aspect, Solana has many high-quality ecological projects and developers, and Helium’s token HNT natively compatible with other innovative projects on the Solana ecosystem, so that token holders can have more use cases;
3. In addition, Solana’s latest state compression feature enables a large number of NFTs to be minted at a fraction of the cost, allowing Helium to migrate to Solana for nearly 1 million NFTs to mint at a cost of only $113, saving a lot of fees. These NFTs can be used as Helium’s network credentials and validate hotspots, and can also integrate the functions of the entire ecosystem, including token gating and access rights for hotspot owners, which is very efficient and convenient.
4. In terms of future planning, there is also a lot of room for cooperation with Helium in projects such as Solana Mobile Stack and Solana’s Saga mobile phone, which is a win-win situation for Solana who wants to make mobile phones and Helium that wants to develop into a 5G service provider.

In the long run, Helium’s exploration in the IoT space is a 0-to-1 innovation that is extremely valuable in addressing the needs of the Internet of Things. While there will be many challenges along the way, with the popularity of IoT devices and the expansion of use cases, Helium’s decentralized network solution may become more widely adopted. It is believed that in the future of smart agriculture, smart city and other fields, it will play a huge potential.

5.3 Render Network - Decentralized Computing

Render Network is a decentralized GPU rendering platform that refers to the transformation of 2D or 3D computer models into photorealistic images and scenes. Previously, during the Apple Vision Pro launch event, as well as during the metaverse and AR/VR boom, Render Network was hotly discussed.

Some readers may wonder why Render Network is needed when it comes to editing videos and creating animations, because for small projects such as short videos or micro films, the computing power requirements are relatively low. However, for many large-scale projects, the computing resources required for rendering are huge, and it is often necessary to rely on centralized cloud service providers, such as AWS, Google Cloud, Microsoft Azure, etc., but the prices of giants are often not cheap.

For customers, in terms of price, Render Network uses multi-layer pricing to match the supply and demand of GPUs in the most efficient way.

Focusing on the price aspects that customers care about most, Render Network employs a multi-layered pricing strategy to match GPU supply and demand in the most efficient way.

Rendering services are quantified in OctaneBench units and time, adjusted according to OctaneBench4 and normalized to €1. This pricing model is based on the current cost of GPU cloud rendering services on centralized platforms such as Amazon Web Services (AWS). Specifically, 1 euro worth of RNDR is equivalent to 100 OctaneBench4 per hour.

Compared to Tier1, Tier2 provides 2 to 4 times the total workload of OctaneBench tokens and 200-400% more computing power than Tier 1 RNDR tokens. Layer 2 rendering jobs are prioritized in the render queue over Layer 3, allowing for accelerated parallel rendering services. Tier3 offers 8 to 16 times more OctaneBench workload. However, Layer 3 services have the lowest priority in the render queue and are not recommended for time-sensitive rendering tasks.

(Source: Render Network Knowledge Base)

In simple terms, the pricing formula for each tier is fixed, but the pricing unit OctaneBench fluctuates based on market performance. The cost and effect of Tier1 are comparable to centralized cloud rendering services such as AWS, while Tier2 and Tier3 achieve lower prices through lower speed requirements. For price-sensitive users, you can choose Tier3, while for users who pursue high efficiency, Tier1 is a preferred choice, and those in the middle can choose Tier2.

In addition, Render Network emphasizes the full use of GPU idle resources. This is because most GPUs are underutilized when they are idle locally. At the same time, artists and developers are working tirelessly to scale cloud rendering and computing efforts. The decentralized rendering network provides an efficient two-way market for the supply and demand of GPU computing around the world, which is a very efficient way to match resources.

5.4 Theta Network - Decentralized Video Network

Steve Chen, the co-founder of Theta Network, was a former co-founder of Youtube and has a strong industry background. The core function of the project is the adoption of an optimized blockchain-based content delivery network, which significantly reduces the cost of video content transmission and improves the efficiency of content distribution.

For a better understanding, let’s contrast traditional content delivery networks (CDNs):

In a traditional distribution network, all video viewers are directly connected to POP servers (network nodes distributed around the world) to watch the video. At present, most platforms such as Netflix and Facebook obtain services through centralized CDNs. However, for those geographies that are far away from POP servers, video streaming tends to suffer. Theta Network’s model allows users to contribute their own bandwidth and computing power to become caching nodes to distribute videos closer to viewers.

This results in a better experience for the final video viewers, while bringing token rewards to users who provide bandwidth and computing power, and also reducing the cost of the video platform. With the continuous increase in video content consumption and the rise of industries such as online live streaming and game live streaming, Theta Network is expected to be applied in more application scenarios. Currently, in the field of decentralized video streaming, Theta Network will also face competition from projects such as Livepeer and VideoCoin.

Of course, in addition to the top 5 projects in terms of market capitalization analyzed above, there are many projects worth mentioning, such as IoTex, which provides the underlying infrastructure for IoT projects, SDKs for developers of the DEPIN track, and DePINscan, a beta version of the data platform, to help analyze the data of the DePIN track.

In addition, Ketchup Republic, the champion project of this year’s Wanxiang Blockchain Week Hackathon, aims to create a web3-based Dianping, which directly delivers the traffic fees purchased by merchants to users, providing merchants and consumers with better traffic and experience…

These noteworthy projects that have emerged from the DePIN track have sprung up like mushrooms after a rain, and the breakthrough that everyone is eager to break may be born in the DePIN track, but due to the cost requirements of the combination of software and hardware, the summer may come more slowly. But I believe that the belated spring is also spring.

6. Advantages of DePIN

Looking at the mechanism of various DePIN projects, the most essential core is resource integration: users are incentivized to share resources through tokens, so that resources can flow efficiently to the demand side. Compared with centralized traditional infrastructure, DePIN is like DeFi compared to CeFi, which weakens the role of middlemen to a certain extent, making resources more unimpeded between the supply side and the demand side.

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

The mechanism presented by the DePIN project is essentially a revolutionary market change. Its decentralized nature means that the threshold for enterprises to participate will be significantly lowered, and they will no longer be subject to the monopoly of a few centralized giants. This groundbreaking change will give SMEs and start-ups greater participation and provide an opportunity to compete on an equal footing with industry leaders.

In the field of infrastructure construction, the oligopoly problem of centralized markets has been significant. Especially in the traditional storage and computing field, which is obviously a capital-intensive industry, with giants such as AWS, Azure, and Google Cloud sitting on prices, users often lack bargaining power, are forced to accept high prices, and even lack real choice.

However, the advent of DePIN has brought new life to the status quo. Whether it’s FIL, Arweave, or Render Network, the transition from a capital-intensive industry to a P2P or P2B model is achieved by incentivizing user tokens and allowing users to provide resources to form a network. This greatly lowers the threshold for enterprise participation, breaks the price monopoly, and allows users to have a more affordable choice. DePIN makes the market more open, transparent, and competitive by incentivizing users to share resources and build an ecosystem of free competition.

6.2 Reuse of idle resources to promote better social development

In the traditional economic model, many resources sit idle and fail to realize their potential value. This waste of resources not only has a negative impact on the economy, but also puts pressure on the environment and society that cannot be ignored, including idle computing power, storage, and energy. Taking the cloud as an example, according to Flexera’s report, the effective use rate of enterprise cloud purchases in 2022 is only 68%, which means that 32% of cloud resources are wasted. Considering that Gartner expects cloud spending to reach nearly $500 billion in 2022, that means a rough estimate of $160 billion in cloud spending is wasted.

However, the emergence of DePIN offers a new solution to this dilemma. Many users hold a lot of idle resources, whether it’s storage, computing power, or data, and the key is how to mobilize these resources. Through the incentive mechanism, DePIN encourages users to share and utilize their resources, maximizing the utilization of resources. This includes not only resources such as data storage and computing power, but also environment-related resources, such as React Protocol, which connects batteries and electricity markets into a community network, helping to stabilize the grid by connecting batteries and sharing users’ excess power, on the one hand, contributing to the supply of clean energy, and on the other hand, for users with limited resources, there is also an additional way to make money and monetize, which has to be said to be a win-win situation. This initiative will not only reduce the waste of resources, but also bring more sustainable development to society.

6.3 Eliminate middlemen, more efficient flow of money

In addition to the paradigm shift and the reuse of idle resources embodied in decentralized storage, computing and networking, the vision and characteristics of O2O projects such as Meituan, Dianping, and Didi, which want to become web3, have been found in some recent emerging DePIN projects.

For example, Ketchup Republic wants to use the location relationship between consumers and businesses (using Bluetooth) to help businesses attract offline traffic. Merchants can configure token incentive methods for users by themselves, and marketing settings can be made in terms of location, frequency, distance, etc. Compared with the merchant-platform-user incentive model of Meituan and Dianping in web2, in Ketchup Republic, the merchant’s marketing fee is directly hit into the user’s pocket, thereby reducing the wear and tear of the marketing fee.

These emerging DePIN projects are designed to replace web2 infrastructure projects, allowing users who provide data to be paid directly by merchants, eliminating the middleman.

This means that by building a decentralized ecosystem that directly connects the supply side and the demand side, DePIN realizes the direct transfer of value, and funds and resources can flow more quickly, thereby improving the efficiency and transparency of transactions. This mechanism will not only reduce transaction costs, but will also bring more opportunities and flexibility to market participants.

7. Limitations and challenges of DePIN

The DePIN track covers a wide range of categories, including storage, computing, data collection and sharing, communication technology, etc., all of which present varying degrees of competition. The development of DePIN also faces a number of limitations and challenges:

7.1 Experience level: lack of standards in the early stage of the industry, poor developer and user experience

At present, the development of the DePIN industry is still in its early stages, lacking a complete infrastructure, and each project needs to be developed on its own. In addition, the project has a relatively high threshold for understanding and using user participation, and users need to learn and hold tokens, as well as purchase and configure some hardware. These factors lead to the average user experience of DePIN projects in the current market, and the company needs to aggregate and simplify the threshold for user participation and use to improve the availability of the network in order to have more possibilities to break the circle.

For example, FIL announced the launch of FIL Data Tools, a set of network-based computing and storage technologies to enhance the developer experience and provide comprehensive solutions for data service needs, and IoTex is also moving to infrastructure earn’s SDK and other toolkits, hoping to reach some standards and consensus at the DePIN level to promote the development of the industry.

7.2 Competitive level: lack of competitive moat

The lack of a competitive moat poses a challenge to the long-term stability of the network. Users who are resource providers may be able to easily move to other networks once more options emerge in the market. For example, at present, in the 5G track, Pollen has entered the market, and some miners from the Helium community have also begun to deploy Pollen’s mining machines.

In addition, how to prevent cheating is also very important for sustainable development, such as how to avoid cluster mining cheating encountered in Helium projects, GPS location modification cheating in geodata-related projects, etc., is also a very important part. For example, Helium has fallen from 600,000 monthly active hotspots at its peak to 370,000 monthly active hotspots at present.

The current projects mostly attract users from the aspect of token incentives, such as adjusting the token incentive amount from multi-dimensional settings such as coverage and availability, but there is no sustainable and effective plan yet, and there is still a way to go to explore how to continue to attract users’ participation and form a positive flywheel effect.

7.3 Extended Dimension: Regulatory Constraints on Regulatory Compliance

Regulatory compliance is an unavoidable issue due to the infrastructure involved in the DePIN space, which also affects users in the web2 world. For example, in the field of communications, 5G technology is subject to strict regulatory requirements. In many countries, network operators are run by state-owned enterprises, and the private sector is also closely linked to the government, so obtaining authorization can be challenging. Even if some countries have opened up some frequency bands, such as the CBRS GAA band opened by the United States, there is no obvious advantage over other operators due to frequency band limitations.

On the other hand, in the IoT space, there is no mature giant solution, so there is room for Helium to play. The current DePIN is still in the early stage, on the one hand, in the current web2 unsolved areas, such as IoT networks, can try new tricks, on the other hand, in web2 there are more mature solutions to the track, such as 5G, data security, etc., need to grow together with the development of regulations, this growth speed is unknown and full of changes.

7.4 Construction level: talent barrier

When communicating with some DePIN track project parties, I found that the common pain point and challenge of everyone is the scarcity of talents.

The DePIN space needs people with a comprehensive set of skills, both to understand the Internet of Things and how the web3 market works. However, such talents are relatively scarce in the current industry.

To a certain extent, the temperament of the steady development of the Internet of Things and the radical innovation style of Web3 have also become a slightly contradictory quality that is difficult for talents. Most talents with IoT experience may be more inclined to develop in traditional industries, while talents who understand IoT while understanding the Web3 market and operations are even more scarce. The difference between the two makes team recruitment and collaboration a challenge.

Overall, the DePIN space faces challenges in the short term, such as product experience, moat building, regulatory compliance, and talent shortages. However, in the long run, the emergence of DePIN will have a profound impact on the market, whether it is from the perspective of lowering the barrier to entry, innovation, or leveraging idle resources and money flows, and the market changes it brings will affect the evolution of supply chains, industrial patterns, and the entire economic ecosystem. As DePIN continues to grow and mature, there is reason to believe that it will become a key force that can make a real difference to society, businesses and individuals.

Author: Fred

References

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