Translation: Blockchain in Vernacular
The “second wave advantage” phenomenon is playing out in real time in the DePIN space.
DePIN (decentralized physical infrastructure network) is everywhere. Or, at least, it is for those of us reading CoinDesk in July 2024. As someone who has been involved in the space since its inception in 2019, I admit that I am probably an early adopter and more enthusiastic about DePIN than most. But as I sat down to write this article and quickly reflected on the DePIN projects I participate in on a daily basis, even I was surprised by the number and variety of projects that now exist.
This opinion piece is part of CoinDesk’s new DePIN column, covering the emerging industry of decentralized physical infrastructure. Connor Lovely is head of DePIN at IoTeX and host of the Proof of Coverage Podcast. He was previously a consultant at BCG.
First, I wear a Cudis ring on my hand, which provides health data and accumulates points for future airdrops. The Helium and XNET WiFi hotspots at home provide wireless connectivity for my devices (and others' devices) and pay me in tokens when used. Helium Mobile (which is my only cellular provider, by the way) has an app on my phone that pays me in cryptocurrency by voluntarily sharing location information, which is used to better triangulate data usage and network needs. I have the Grass browser extension running on my computer, which allows AI labs and web crawlers to view the internet through my residential IP and earn me airdrop points. Finally, I have a DIMO device in my car, which provides real-time data from my vehicle and makes this anonymized data available to third-party developers, while paying me in tokens.
If you think this list is comprehensive, you’re thinking too narrowly. Today, there are over 1,300 projects in the DePIN space, and growth is accelerating in the bull market. While the widespread adoption of the DePIN model is exciting, what’s more interesting to me is how exactly this generation of DePIN projects is building their networks… and how this differs from their predecessors. Here are a few ways I’ve observed this generation of DePIN projects improving on the learning and iterations of the past five years:
1. Demand-oriented
The most common and fair criticism of early DePINs (such as Helium's IoT network) is that they did a good job of building supply, but not enough demand. This generation of DePIN projects secured demand early, in many cases before the Token Generation Event (TGE). They also built supply in a more targeted and controlled manner, allowing demand to determine in which countries or regions to incentivize supply-side construction.
For example, Spexi, a DePIN project for aerial drone imagery, had secured seven-figure requirements contracts prior to the TGE and had paid six-figure cash to drone operators salivating over the simple gamification opportunity to earn revenue from their existing drone assets.
2. Lower the entry barrier for contributors
This cycle, we have seen the rise of DePIN projects that leverage off-the-shelf general-purpose hardware (rather than custom hardware). These projects leverage activities that people already do on a daily basis to accelerate supply-side growth. An example of both strategies is Natix, which uses smartphones in cars as dashcams to obtain street-level imagery. The company hopes to leverage behavior that is already happening (driving) rather than incentivizing new behavior through tokens (a more expensive solution from a token incentive perspective). As a contrasting example, wireless DePINs like Helium hope to incentivize contributors to climb onto rooftops to install CBRS radios. This is an entirely new behavior.
3. Take advantage of speculative psychology
Incentives make the world go round. DePIN has always known this, but in this cycle, we see it being further reinforced. Using points as a mechanism to record contributors’ contributions before the TGE has been very successful, giving this generation of DePIN more flexibility and time to collect data before finalizing its token economics. Referral programs are also a major change, where contributors may receive a fixed number of points or tokens, or even a permanent percentage of the referrer’s points or tokens, which drives viral growth on the supply side. Grass is the best example of a successful points program incentivized by referrals.
4. Stay centralized, longer
Without a dedicated person or team to make quick decisions, iterate, and advance, no project, idea, or concept can get off the ground. Ideas are most fragile (but also most flexible) in their earliest stages. In this cycle, we all hope to see DePIN quickly find product-market fit (PMF), effectively scale supply and demand, and generate revenue on the chain; we don't care about decentralization until there are early signs of PMF. Only when a project works well is it worth decentralizing.
Take 3DOS, a DePIN project for manufacturing. Its founder developed a popular 3D printer operating system that allows devices to be networked and print jobs to be automated and remotely controlled. He has achieved great success in the Web2 world, with NASA, Google, and 40% of universities in the United States as his customers. He believes that 3D printers are a shared resource and is creating a global manufacturing network where companies can submit tasks, find the printer closest to the end customer (to reduce transportation costs and time), and then sign a contract with the printer owner or workshop to complete the task. 3D printer owners can monetize existing assets, companies can save time and money on printing products, and everyone can benefit.
I mention 3DOS because it is an exciting use case, but also because it is so early in its life cycle that founder John Dogru is in full centralized control of the idea, software, network, demand side, etc., which is exactly what he should do. Without him in control at this early stage, nothing would happen, and there wouldn't be much worth decentralizing!
DePIN is still relatively young, but has had enough time to learn and improve from the first generation. This generation of DePIN projects prioritizes demand at the earliest stage, expands the supply side faster by lowering barriers to entry and favoring speculation, and remains centralized longer to speed up delivery. New DePIN projects are launched at an astonishing rate, and there will be more iterations and learnings in the future.
DePIN remains one of the most influential ideas in the crypto industry, making a positive difference in the real world. I look forward to the success of the DePIN 2.0 team, and to writing an updated chapter for the DePIN 3.0 team in just a few years!
Note: The opinions expressed in this column are those of the author and do not necessarily reflect the views of CoinDesk Inc., its owners and affiliates.