Author: EO@codeboymadif, Lisa@lisal1l1, Ryan@Ryan0xfmg, Kelv@KelvinYuan13, Simon Source: FutureMoney Group

Part 01 What and Why DePIN

Using the crypto economy to deploy real-world physical infrastructure has a long history. Some typical projects can be founded in 2013. They have conducted very valuable explorations from the fields of communications, storage, computing, etc. until today, this model has expanded to more.In many fields, such as AI, energy, data collection, etc., the ecosystem has also ushered in phased prosperity.

DePIN represents a paradigm of decentralized applications: node economy, miner model, transforming the real world.

· Compared with centralized infrastructure, DePIN has a higher unit economic effect.DePIN’s smart contracts, equipment standardization and economic models replace CePIN hardware laying, operation and management, which will bring 75%-90% cost savings.

· Token economy is the key to the expansion of node networks and the formation of network effects. When token prices rise, economic incentives lead to rapid growth of node scale.

· If Web2.0 allows humans to interact with the Internet through various input devices, Web3.0 allows physical hardware to interact with blockchain through DePIN.

We’ve experienced DeFi Summer, NFT and Metauniverse Fever.Will the next wave turn to DePIN?DeFi’s market value grew nearly 100 times between 2020 and 2021, from a maximum of $1.75 billion to $172.2 billion.Assuming that in this bull market, the total market value of DeFi increases by 10 times and the total market value of DePIN reaches 50% of DeFi, thenDePIN’s total market capitalization will reach $500 billion, with at least 20 times more room for growth.According to Messari estimates that the market value of DePIN reaches US$3.5 trillion in 2028, DePIN has a potential growth space of 120 times.

We believe that the following 5 opportunities exist from bottom to top of the DePIN architecture:

1.DePIN blockchain underlying facilities.The underlying facilities of the DePIN blockchain act as the settlement layer of DePIN applications, providing support for the operation of transactions and token economic models.

2.DePIN middleware.DePIN middleware connects the middleware layer of the underlying infrastructure and upper-level applications, providing standardized interfaces and tools.This layer is a key hub for the DePIN ecosystem.

3. DePIN upper layer application.DePIN upper-level applications are various applications built based on DePIN infrastructure and middleware layers, providing users with actual services and value.This is the front-end and landing scenario of the DePIN ecosystem.

4. Derivative Opportunities:Edge AI.Edge AI is an important extension of the DePIN ecosystem. It uses DePIN network to deploy edge computing and AI applications, process data locally and provide intelligent services.

5. Derivative Opportunities:RWA.Combine DePIN with Real World Assets (RWA) to create new financial products and services.

Part 02 Opportunities for the existence of the underlying facilities of DePIN

In the future, L1/L2 may benefit from the DePIN ecosystem

· DePIN is the main track of Solana OPOS (Only Possible On Solana) concept. Benefiting from this positioning, Solana fought back from the shadow of FTX, with a market value growing from a minimum of $3.6 billion to $89.8 billion, an increase of $89.8 billion.25 times.DePIN will still be a big narrative for Solana in the future.The choice of top projects often represents a trend, and Helium migrates the mainnet to Solana to play a clear manifestation effect.According to this logic, Polygon and Arbitrum are both underlying chains that may benefit from DePIN growth in the future.

· Proprietary chains that provide DePIN modular infrastructure will benefit from the growth of ecological and head applications such as IoTeX and Peaq.

· The public chain that is closely integrated with the concept of AI will inevitably extend to the upstream DePIN sector.For example, Near develops a public chain narrative around AI, and Aptos cooperates with Microsoft to try to combine AI with Web3 products.

Universal middleware is DePIN Crown Pearl

Seamlessly connecting physical infrastructure with blockchain requires powerful middleware.Currently, trusted hardware is mainly controlled through official authorization, while anti-cheating is achieved through governance and miner management tools.

Difficulties in the development of general middleware:

·Technology is difficult, and it is difficult to prevent cheating and trustworthy data from being on the link with technology alone.

· The overall DePIN market size is limited, resulting in limited middleware market space.

Once a general-purpose middleware breaks through, it will greatly lower the threshold for DePIN application and promote ecological prosperity, and middleware will be the direct beneficiary.

DePIN Miner Service Layer: Miners’ Guild Without Borders, People’s Network

The miner service layer is located at the bottom of the DePIN ecosystem and is an indispensable component for DePIN applications. It is mainly divided into two categories: hardware production and node operation and maintenance:

· Hardware manufacturers are responsible for providing the physical equipment needed to build the network, such as servers, storage and network equipment.Hardware manufacturers can open up new markets by innovating and improving their products and are direct beneficiaries of the growth of the DePIN ecosystem.Therefore, powerful hardware manufacturers will participate in the DePIN ecosystem in various forms, including financial support in addition to hardware support.Various reasons have made hardware manufacturers an important driving force in the development of DePIN.

· Hardware operation and maintenance projects help nodes deploy and operate and maintain, and charge a certain service fee. This model will perform well in the later stage of the bull market.Under the DePIN flywheel effect, the token price will rise in the later stage of the bull market, and the node return cycle will be very fast. Ordinary users can quickly start making profits by paying service fees.

Potential Opportunities:

1. Hardware manufacturer with global distribution and rapid production of trusted equipment.

2. The DePIN node deployment platform without permission will play a role similar to the chain game guild.

3. Expect better DePIN tool layer projects to appear and capture value.The device data aggregation platform is a high-quality user entrance.At present, DePIN data is still not transparent enough, and some key data to judge the development of the project is difficult to obtain, such as the number of equipment nodes, comparison of miner returns, number of users on the demand side and income, which makes decisions difficult, and there are vacant opportunities in the DePIN tool layer.

Part 03 DePIN Application Value Assessment Logic: Finding the Unchanging Rules

DePIN Protocol is a bilateral market, where the supply side provides services and the demand side contributes revenue, so value assessment should be conducted from both the supply and demand side.

Demand-side value judgment

Compared to dividing from the concept, industry and supply side, we believe that judgment of the demand market is more important, so we pay special attention to projects for the C-end market.

Two judgments on the demand side:

·For C-end applications, more high-profit scenarios and more room for imagination.

· Applications for AI data requirements are still in their very early stages.

Demand terminal end bold guess: Web3 mobile phones and new sharing economy

1. Encrypted mobile phones will be the key to breaking through the C-end market

Through customized mobile phones, mobile phones can have built-in DePIN applications and achieve rapid growth through airdrop incentives.For the C-end, the market often needs to be acquired through subsidies.Take Helium Mobile as an example, the revenue is a $20 package paid to users.Since T-mobile needs to pay cooperation fees, when 70-80% of the download service is provided by Helium’s own network, it just reaches the profit point (Messari, as of December 2023, Miami’s proportion is 55%). Once the profit point is exceeded, the project will be the first to reach the profit point.It will achieve self-hematopoiesis and the DePIN flywheel will operate better.

2. Create a Web3 version of the sharing economy network

Relying on Web3 mobile applications, through effective token incentives, large-scale sharing economy/social networks can be realized in the future.

Supply side value judgment

The price of hardware equipment has dropped dramatically over the past two decades, allowing individuals to act as infrastructure services providers as well.

Our criteria for judging the supply market:

· Is the product easy to standardize?The more standardized the product, the easier it is to financialize. For example, the computing power is priced according to the duration, and the configuration is different.

· Is the equipment cost low enough?The lower the cost, the larger the potential supply scale and the more decentralized it is.

Supply terminal: Focus on projects that can be scaled and standardized quickly

· The cost of node equipment in 6 tracks is mostly medium ($300-$1000), which can reach the consumer level.Among them, mid-to-high-end GPUs (A100, H100) with computing power are more expensive, while AI requires professionalism. We also define it as high cost, and some equipment in energy exceeds $1,000.

· In terms of product standardization, we generally face the problem of low standardization. Wireless’s bandwidth is a standardized product, and other sub-sectors such as 5G and WiFi are non-standard products.

Part04 DePIN application layer potential analysis

According to Messari statistics, by 2023, DePIN applications have already had more than 650 projects covering six sub-tracks: computing, AI, wireless networks, sensors, energy and services.

01 Computing is the most mature sector for DePIN

Computing (computing power + storage) is TAM’s largest track, with enterprise cloud service revenue reaching US$270 billion in 2023 (Synery Research).

· Demand side: The demand in the computing sector comes from small and medium-sized enterprises and individuals, among which GPU demand is the strongest due to the growth of AI.

· Supply side: Akash has a diverse hardware network including CPU, GPU and storage, and Render has a large number of GPUs.io.net has obtained a large number of GPUs from its own network and other platforms.

2 trend judgments in the calculation sector:

1. The GPU computing power market is currently the most imaginative sub-sector. We believe that there are more secondary market opportunities in this field, and it will move towards head concentration and horizontal integration in the future.

GPU computing power platform growth logic:

1. Global GPU shortage, demand soars

2. Resonance with the AI ​​concept

3. World computing power currency under geopolitical conflict

The development trend of decentralized GPU platform is to attract top computing power projects through token incentives and horizontal integration of resources.Currently, we are facing the risk of failure in matching demand and supply, and demand growth or model innovation is needed to support the current market value.The growth point of the future decentralized GPU platform is to bypass the B-end, expand the computing power to the C-end, and build an edge computing network. The demand side is to closely combine with the downstream demand side or build self-built application scenarios.

2. The storage sector will move towards the integration of storage and computing, becoming a unique Layer1.

Some large storage DePINs will become unique Layer1 after superimposing computing—a blockchain that can provide decentralized storage and computing power.Compared with the current blockchain, this unique Layer1 can greatly reduce the cost of on-chain storage and computing. Some applications that require large-scale storage and complex logic can be implemented here, such as content platforms, social networking, games, etc.

02 DePIN AI realizes open AI model platform, AI data, and AI Agent through decentralization

Bittensor is a typical model for DePIN AI, which creates a decentralized machine learning (ML) network that inspires the development and decentralization of artificial intelligence.Bittensor has a first-mover advantage in the Web3 AI big model track and is a leading project in this field. Its model iteration and ecological construction are developing steadily.It is expected that Bittensor is expected to reach another level with the outbreak of AI narratives or high-quality subnets.

ORA has stronger scalability than Bittensor.Bittensor’s subnet currently has huge application costs and requires pledging a considerable amount of TAO tokens. However, ORA that implements on-chain AI oracle will have more ecosystems (AI Agent / AIGC NFT / AI-powered Protocol and other projects.) Blooms in its on-chain AI technology.

03 Sensor: The new sector with the most growth potential and AI-driven

Currently, there are fewer sensor categories, especially data-focused projects, which means more primary market opportunities.

Sensor sector value analysis:

Is the market space large enough?The size of the downstream demand market determines the project ceiling.

Is the data valuable enough?The uniqueness of data and application scenarios determine the value of sensor-type DePIN applications.

Growth logic of the sensor sector:

1. New AI-driven sector

2. Decentralization is needed from the underlying logic

3. The self-built mining machine supply chain provides a richer source of funds and a longer profit cycle.

04 Wireless network: fierce competition and difficult operation

DePIN provides information transmission services to the Internet of Things and terminal users through physical devices such as decentralized base stations and routers.The main difficulty is that demand is decentralized and decentralized networks are difficult to meet demand.We need to use the power of traditional operator networks to expand the market, such as DePIN as a supplement to traditional operators or provide them with data.Therefore, the core competitiveness of the wireless communication field lies in cooperation with traditional operators.(Helium Mobile leveraged the power of T-mobile in the cold start phase of the market).

05 Energy Network: The minimum viable product needs to be achieved with the help of a centralized network

DePIN energy network reduces energy transmission through distributed power supply, improves energy utilization efficiency, and ultimately realizes VPP virtual power plants.With the development of energy collection and energy storage technologies, individuals can become energy suppliers, but transmission faces higher costs.Through the collection of electricity consumption data, the smart grid can guide the construction of the power supply network, which is relatively easy to build.Therefore, the fastest-growing segment of DePIN energy will be the smart grid.Similar to wireless communication networks, power generation projects need to achieve mode operation through cooperation with centralized power grids.

Our judgment on DePIN energy:

· VPP (Virtual Power Plant, VPP) virtual power plant is the end of DePIN energy: through the DePIN incentive mode, the small power supply network and the demand end are connected to form a virtuous cycle, and ultimately realize the VPP virtual power plant.

· At present, DePIN energy projects are gradually realizing some links of VPP, such as data, electricity meter or power generation.

06 DePIN + Consumer Products: A New Revolution in Marketing Model

Since the DePIN track became popular in October last year, a large number of DePIN consumer-grade products have emerged in the market, including watches, rings, e-cigarettes, power banks, game consoles, etc., which promotes the sales and high level of equipment through DePIN incentives.Frequently used.

Features of DePIN + Consumer Products:

· High ceiling of market size: The consumer-grade equipment market space is huge, and it is estimated that in the Web2 world, between trillions of dollars and hundreds of trillions of dollars, including various consumer goods.

· Reaching C-end users: Most Web3 users are transaction-oriented users, with relatively few connections to the real world and lack close connection with user life.However, the business model and operational approach of DePIN consumer products can allow Web3 applications to be integrated into real life, connect with users and increase user stickiness, thus making them truly integrated into the real world.

· High return expectations promote the transformation of traditional brands Web3: The new Web3 marketing model allows products not only to have useful value, but also to make profits. This model helps products quickly occupy the market, thereby significantly improving profitability.

Potential risks and deficiencies of consumer-grade DePIN hardware:

Due to the single token incentive, most users buy hardware and fuck hair, rather than users with real needs. Similar to the current verification problems between DePIN hardware devices and software, more anti-cheating solutions are needed to overcome them.

Two new opportunities derived from Part 05 DePIN

01 The second half breakthrough of the DePIN supply side is in Edge AI: mobile phone and PC side

Mobile phones and PCs are the most popular hardware devices, without the need for cryptocurrency experience, and are an excellent entry to break the circle.There are two ways to join the DePIN network:

· Run the node program and become the control end of DePIN hardware.

· Directly provide sensor data or computing resources.

Opportunities for the rise of encrypted mobile phones: 4 major application scenarios, leveraging the market through potential returns

· Mobile encryption app.The encryption application market built-in for encryption phones is an excellent user portal for dAPP.As the device that people use the most in daily life, mobile phones provide a platform for the popularization of encryption applications.

· Edge computing.Edge computing is a clear trend.Data processing and analysis tasks are moved from centralized data centers to places closer to data sources, thereby increasing efficiency and reducing costs.Token economic incentives combined with encrypted mobile phones can accelerate the development of edge computing.

· Token airdrop.For mobile phone buyers, airdrops can bring financial rewards.For project parties, airdropping with encrypted mobile phones as the object makes the token holding highly dispersed, which is conducive to Meme spread or cold start of consumer-grade applications.

· DePIN mining.For the DePIN project, the sensors and computing modules of encrypted mobile phones are natural supply terminals.Mobile phones can participate in the DePIN economy as a DePIN device and receive rewards.

The key to encrypted mobile phone competition

·The production barriers of mobile phone hardware are small, the mobile phone production supply chain is mature, the production cycle is short and the cost is controllable, making the selling price low. The currently launched encrypted mobile phones range from US$100 to US$1,000.

· The difficulty in mobile phone delivery lies in the sales network.Projects with Internet sales and offline ground promotion networks will be easier to access the market.

· Application ecosystem is the key to the formation of barriers for encrypted mobile phones. Once a network is formed, it will have the opportunity to become a traffic entrance for Web3.

· Other tests: hardware iteration tests the project’s financial strength and operational capabilities.

Encrypted mobile phone endgame: DePIN + Sharing Economy

In the Web2 era, through the Internet, personal cars and houses gathered together to form a huge service market, allowing personal assets to be monetized.

In the Web3 era, through the token economy, idle and decentralized personal hardware devices will be organized to form productivity, and personal hardware devices will be monetized.The software based on Web3 mobile phones will also build Web3 service infrastructure, innovate the Web2 sharing economy model, covering all aspects such as catering, travel, and accommodation. Mobile Web3 applications have the following characteristics: marketing innovation through crypto economy, token airdrop, and high frequency.Social and consumer grade products.

02 DePIN hardware and data assets use the RWA model to realize on-chain financialization

DePIN physical hardware tokenization:

· Release DePIN hardware liquidity.After the tokenization of DePIN physical hardware, RWA derivative projects such as separation of returns, mortgage lending and other RWA derivative projects can be realized, and DePIN income rights can be traded without physical delivery.

· DePIN income provides a source of interest for stablecoins.

· DePIN hardware assets blockchain asset securitization, issuing traditional financial products similar to Reits model, such as packaging GPUs onto the chain and making them into GPU Index.

Data Assets (NFT) Tokenization:

· Standardization and tokenization of data assets are the key to promoting their flow in the market.

· DePIN data assets empower on-chain finance.Based on the tokenization of data assets, financial products supported by data can be created to achieve innovative applications. For example, DIMO’s automotive data can be used for on-chain car loans.

Summary and prediction

· The expansion of blockchain into the real world is an inevitable trend. DePIN represents a paradigm of decentralized applications: node economy, miner model, and transforming the real world.According to Messari’s estimate last year, the market value of DePIN in 2028 will reach US$3.5 trillion. Based on the current scale of US$30 billion in the DePIN category on Coingecko, it can be concluded that there is a potential growth space of 20-120 times.

· Layer1/2 is the most certain and stable beneficiary of ecological growth. The public chains that support the DePIN ecosystem in this cycle will receive the greatest dividend.

· Currently, middleware is mainly an important component of DePIN-specific Layer1. Although the general-purpose middleware technology is difficult, we still look forward to a breakthrough, which will greatly promote the prosperity of DePIN applications, and middleware will be the direct beneficiary of the prosperity.

· Similar to the Game Guild, the DePIN miner service layer is expected to develop the Borderless Hardware Miners Guild. The current potential opportunity is global hardware supply chain and node deployment services, and there are also gaps in the DePIN data aggregation tool layer.

· In the computing sector, GPU is the fastest-growing and most mature sub-sector. In the future, GPU platforms will move towards horizontal integration and vertical connection; in addition, the “computing and storage integration” based on storage superimposed computing will be a new narrative, and traditional storage such as Filecoin, Arweave will be revitalized.

· DePIN AI development status: The AI ​​big language model led by Bittensor uses its first-mover advantage to gradually absorb many leading track projects. At the same time, other big models similar to Fetch.ai are also actively deploying, with fierce competition and unclear patterns, and will be in the future.Just like the Internet broke out in 2000, a war of thousands of models has been ushered in, and everyone has a chance.

· Sensors are the potential sector activated by AI, and the revenue from proprietary equipment sales will provide sensor projects with more innovation space and risk resistance.

· The pattern logic of wireless networks and energy networks is similar.The end of wireless network is to bind large operators, and it is more likely to break through from the third world; the end of energy network is a virtual power plant (VPP). At present, the project starts from all aspects of VPP to explore, and the track is still in its early stages of development.

· Edge AI based on mobile phones and PCs is the next trend of DePIN development. General-purpose Web3 terminal devices will also give birth to a new Web3 sharing economy, and more high-frequency consumer-grade Web3 applications for the C-end will gradually emerge.

· DePIN is a new method of issuing RWA assets, and combining it with on-chain DeFi will free up the liquidity of DePIN hardware and data.

Original text of the report: https://docsend.com/v/x2zdt/futureofdepincn

Thanks for the support: DePhy, Exabits, Ora, EthStorage, Hotspotty, IoTeX, DePIN Hub for guidance and advice on this report.

Reference:

https://messari.io/report/state-of-depin-2023

https://public.bnbstatic.com/static/files/research/depin-an-emerging-narrative.pdf

https://mirror.xyz/sevenxventures.eth/Hx4AScWLZf4HrCl1IoumFTq1L20e3SzF-9XEkgWmrG4

https://www.galaxy.com/insights/research/understanding-intersection-crypto-ai/

https://gpus.llm-utils.org/nvidia-h100-gpus-supply-and-demand/

https://messari.io/report/the-depin-sector-map