The Basic Logic and Legal Risks of the DePIN Track

With the advancement of technology and the development of digital and decentralized technologies, the interaction and integration between the real world and the virtual world are accelerating, which also brings about 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 interactions between the real world and the virtual world. According to data, the current valuation of the entire sector is approximately $9 billion, and it is expected to grow to a scale of $35 trillion by 2028. From early projects like Arweave and Filecoin to the rise of Helium in the last bull market, and the recently popular Render Network, all belong to this field.

As one of the most promising tracks in the Web 3.0 field, which has received considerable attention in recent years and is likely to create economic value in the short term, this article will explore the fundamental logic, development prospects, and legal risks faced by the DePIN track.

The Basic Logic of the DePIN Track

DePIN(Decentralised Physical Infrastructure Networks) refers to decentralized physical infrastructure networks that incentivize individuals and businesses around the world to build any infrastructure in the physical world in a decentralized manner through blockchain technology and token rewards(, such as WiFi, hard disk storage, batteries, etc), providing services to anyone. The core concept is that users earn returns by renting out the services provided by hardware, such as WiFi hotspots in wireless networks or solar home batteries in energy networks. These networks are built in a decentralized manner by contributors from around the globe. In return, these individuals and entities receive financial compensation and network ownership through token incentives.

This concept was born in 2022 when a blockchain data research institution launched a survey to solicit formal titles for "Web3 physical infrastructure." In this call for submissions, names such as physical proof of work (PoPw), Token incentivized physical networks (TIPIN), EdgeFi, and decentralized physical infrastructure networks (DePIN) were all considered as options. In the end, DePIN won the vote 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 that unlock various innovative applications based on real-world data.

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

At the same time, in such a system, individuals or organizations can also contribute labor or other resources by maintaining and improving the infrastructure to obtain corresponding assets (, mainly cryptocurrency assets ), which can be used as rewards 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. These nodes can be personal computers, dedicated servers, or IoT devices. Together, these devices form a decentralized network without any central nodes or authoritative institutions. This characteristic of decentralization 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 follow the rules of the network.

In addition, to encourage nodes to participate and contribute their resources, DePIN uses an incentive mechanism. This mechanism is usually based on cryptocurrency, and nodes can earn rewards by participating in the network and contributing their resources. With sufficient resource supply, price competition will emerge; ample resources and good prices will promote demand. With demand, tokens will have value capture, which can better drive price increases and attract more resource providers.

The Development Prospects of the DePIN Track

Application fields 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 fields such as wireless networks, geospatial networks, mobile networks, and energy networks.

According to the data, the DePIN sector currently includes 45 issued token projects, ranking 25th among all sectors, with a total value of 9.7 billion USD, surpassing sectors such as AMM and AI, and only behind oracles and P2E sectors.

Reports predict that the total potential market size of the DePIN sector is approximately $2.2 trillion and may reach $3.5 trillion by 2028.

In addition to excellent performance in the secondary market, DePIN is gradually gaining favor from the market and institutions. 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 financing. At the eighth hackathon event announced by Solana in November 2023, five DePIN-related products also received prize funding. In addition, a certain foundation had previously provided nearly one million dollars in development funding to 15 DePIN-related projects.

Among them, the top 10 companies in DePIN are "Server Network" Filecoin, Arweave, Sia, and Storj, which belong to the category of digital resource network (DRN), as well as "Wireless Network" Helium and Pollen Mobile, which belong to the category of physical resource network (PRN), "Sensor Network" Hivemapper and DIMO, and "Energy Network" React Protocol and Arkreen. Below is a brief introduction to the representative projects currently in the DePIN track:

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 consumer side have created difficulties for users and businesses, and there are also risks such as data breaches. In response to this phenomenon, Filecoin and Arweave offer lower prices through decentralized storage to break the deadlock and provide users with different services.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through token rewards. Providing more storage space ( is directly related to obtaining more block rewards ). In about one month after the testnet went live, its storage space reached 4PB, with miners in China (, as storage space providers ), playing a significant role. Currently, the storage space has reached 24EiB.

It is worth noting that Filecoin is built on the IPFS protocol, which itself is a widely recognized distributed file system. Filecoin achieves decentralized and secure data storage by storing users' data on nodes within the network. Additionally, Filecoin leverages the advantages of IPFS, giving it strong technical capabilities in the field of decentralized storage, while also supporting smart contracts, enabling developers to build various storage-based applications.

Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage utilizes Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while a certain foundation and the Internet Archive use Filecoin to back up their content. It is worth noting that the world's largest NFT marketplace also uses 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, using token incentives to encourage users to provide storage space, with the amount of rewards depending on the amount 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" designed to prove the accessibility of data on the network. In simple terms, it requires miners to provide a randomly selected previously stored data block during the block creation process as "access proof."

Render Network

The business of Render Network can be simply described as matching computing power with artistic 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 from that network to Solana and to build the BME( Burn and Mint Equilibrium) model on Solana. 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 and has been applied in projects such as Helium.

In this model, users use RNDR tokens to purchase GPU rendering services, and the tokens used upon task completion will be destroyed. The rewards for service providers are issued in newly minted tokens, with the basis for rewards not only based on task completion metrics but also including other comprehensive factors such as customer satisfaction. As a result, RNDR tokens have more consumption scenarios within the entire economy, and the supply-demand relationship of the tokens can be balanced and adjusted based on 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 Render Network has successfully upgraded its core infrastructure from a certain network to Solana, and launched an incentive program to encourage users to upgrade their $RNDR on the certain network to the new token $RENDER on Solana.

Helium

Helium is one of the oldest and most famous 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 was hindered. In April 2023, it completed the migration to the Solana network, hoping to reach a larger user base and liquidity through this opportunity and fully utilize the efficiency of the Solana network for further expansion.

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

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

Hivemapper

Hivemapper is a blockchain-based map network where contributors can collect data by installing Hivemapper's dashcams, while earning tokens $HONEY as rewards. The issuance and settlement of the tokens occur on the Solana network. In Hivemapper, the dashcam is similar to a mining machine, connected to Hivemapper's application, uploading street view images as data.

In just one year since its establishment, Hivemapper has mapped approximately 91 million kilometers of roadways, covering 10% of the total road mileage worldwide, of which over 6 million kilometers are unique. With the delivery of more than 8,000 dashcams globally, drivers are helping to create the freshest maps of the world every day.

Hivemapper's income comes from two sources: selling dashcams and selling map data APIs. Each dashcam is priced at $300( for the standard model and $649) for the premium model, and the annual revenue is conservatively estimated to exceed two million dollars. The price of the $Honey token cannot be too low; otherwise, the demand for the dashcams will diminish, map expansion will not be effective, and the entire business will fall into a deadlock. The token has not yet been listed on mainstream exchanges and is primarily traded on certain DEXs, with a high FDV currently at $2.4B, but the circulation is only 2.6%. The high FDV and low circulation of the project used to be a significant characteristic of some series tokens, and the price is very susceptible.