Original author: OKEx
Original source: OKEx
In 2024, the hottest track besides Bitcoin ecology is DePIN, which is the abbreviation of Decentralised Physical Infrastructure Networks. Sun Jing has led the IoTeX team to work on this track since 2017, and Hashkey's investment partner Sunny also paid attention to and invested in this track in the early stage.
Part 1: Evolution of the concept of DePIN
Q1. Mempool: Could you please popularize the concept of DePIN? There are various definitions of DePIN on the market. Some reports believe that the concept of DePIN refers to replacing existing infrastructure through hardware investment and token incentives. For example, Messari believes that DePIN is the use of an encrypted protocol to deploy real-world physical infrastructure and hardware networks. I would like to ask you to explain your understanding of the concept of DePIN and what are its core elements?
Sun Jing: DePIN has recently caused widespread discussion. I think DePIN may be a very new concept, especially for those who have just entered the crypto field. DePIN is actually an English abbreviation. Its full name is Decentralised Physical Infrastructure Networks, which is translated into Chinese as "decentralized physical infrastructure network". The simplest way to explain it is: a physical infrastructure network created and maintained by the community from the bottom up. The core elements of DePIN include three points:
Decentralized: Compared with infrastructure networks led and deployed by centralized institutions such as governments, DePIN emphasizes that all community members in different regions and countries can participate in the construction of infrastructure.
Physical infrastructure: hardware of different types and sizes, such as IoT, 5G information towers, various servers, or mobile phones.
Token economy: a network that uses economic incentives to encourage the community to contribute and build together.
Regarding whether this definition emphasizes or not putting data on the chain, we should see that DePIN is not only a data network, but also includes resource networks, information networks, computing power networks, etc. The DePIN network has diverse usage scenarios, and data is just one of them.
Sunny: The term DePIN was only widely adopted last year. Before this term appeared, people had actually been exploring this track for a long time. Broadly speaking, the DePIN concept combines two core elements:
Basic physical resources: including the most basic Internet of Things and Industrial Internet of Things, as well as the storage, computing and transmission of data. In addition, this concept has recently expanded to a wider range of resources, such as energy or infrastructure construction;
An extremely complex token economic system that can maintain a dynamic balance: the system can effectively incentivize the interaction between resource providers and demanders.
Q2. Mempool: DePIN was proposed by Messari in November 2022. At that time, they conducted a poll on Twitter, hoping that everyone would choose a name for this track from several words. The word DePIN stood out from a series of candidate words. Subsequently, the concept quickly gained wide recognition and popularity in 2023. Such a concept was proposed, and even some changes were made in connotation and extension. Will these changes have an impact on entrepreneurs and investors?
Sun Jing: Regarding this question, let’s first take a brief look at the history of IoTeX.
IoTeX can be said to be the earliest promoter of the DePIN track. It is also the earliest public chain project in the DePIN track. Its original intention is very consistent with DePIN, but there was no concept of DePIN at that time. The original intention of IoTeX is the decentralized Internet of Things. It emphasizes the connection of various devices and connects things, information, assets, etc. in the physical world to the blockchain. At that time, the blockchain played the role of a decentralized ledger. At that time, it was not realized that the most important function of the blockchain is an open financial infrastructure.
Until the second half of 2020, when the public chain matured and the infrastructure was ready, DeFi began to emerge and led the application development of the entire crypto industry. After DeFi, GameFi appeared. At this time, we realized the important value of blockchain as a value circulation system.
By the end of 2021, IoTeX proposed the concept of MachineFi, which is regarded as an early form of DePIN. The biggest difference between MachineFi and previous decentralized IoT is the introduction of token economy, which uses blockchain to realize value transfer, thereby releasing the potential economic value of IoT in the physical world of Web2.
Gradually, we found that different investors and practitioners also saw the same vision. Some proposed Token Incentivized Physical Network, or TIPIN, and some investors proposed EdgeFi, emphasizing the use of edge computing devices to facilitate a network. Everyone proposed different words until Messari proposed the concept of DePIN, which gained consensus in the industry. This word united people with the same vision, linked and combined resources from all parties, and gradually formed the DePIN track.
Sunny: From the perspective of an investment institution, HashKey Capital is committed to finding a field that can cause mass adoption by the entire society, such as token economy, blockchain technology, as well as games, SocialFi, DeFi, etc. at the application level. These all have the potential to achieve large-scale adoption.
This was the same logic that prompted us to invest in MachineFi of IoTeX: assuming a simple IoT device such as a watch or a mobile phone, if every mobile phone could add a Crypto-related application, then its adoption would actually grow by millions or tens of millions, far greater than pure Crypto applications. From this perspective, DePIN is actually a natural track to achieve large-scale adoption.
While we are paying attention to this track, we have also seen a lot of progress and changes. For example, projects such as IoTeX, Helium, and Random have actually completed a very important wave of market education. Through these market education, we have seen that in the past few years, many new projects have emerged in different segments such as data storage, computing, and transmission, or more practical applications, such as automotive batteries, energy, etc.
At the same time, we also see more people adopting this concept, including practitioners in some traditional industries, such as telecommunications and energy. They are willing to try to introduce the token economy into their projects and test whether the token economy can produce a flywheel effect and activate the resources of the entire industry. In turn, these entrepreneurs promote capital to enter this track. Therefore, we see that a positive cycle and interactive relationship is now forming between capital and business.
Q3. Mempool: Everyone has mentioned the outbreak point in 2023. Why 2023? Is it because infrastructure or other aspects have reached a turning point?
Sun Jing: I remember that the whole concept was proposed in November 2022. After it was proposed, there was a small-scale discussion in the Builder circle who participated in the development and construction of the DePIN project in the early stage. However, this concept did not form a track and received little attention from capital.
At that time, IoTeX wanted to connect everyone and organize an event so that the market could see this new track and understand how it differs from other tracks such as Defi and GameFi. IoTeX launched an event called "R 3a l World" at EthDenver in 2023, finding all the DePIN projects in the market and providing them with a platform at the event for them to showcase their products. This event was very successful and was the first large-scale event in the industry to focus on the DePIN track. Many participants were exposed to the track for the first time. One comment was very interesting, calling it the "WEB3 version of CES" (CES is the largest consumer hardware show in the United States, held in Las Vegas every January).
Although the scale of the activity was relatively small at the time, with only 20 to 30 projects, the track had already begun to show signs. This was mainly due to the development of two aspects: first, blockchain technology has basically matured, and the DePIN project can be verified on the chain; second, the infrastructure of DeFi has also been established. In general, each project has begun to find and position its own application scenarios and gradually promote development. However, at that time, there was still a lack of an infrastructure to transfer data from off-chain to on-chain, which was a key infrastructure that IoTeX later led and launched - W3bstream.
This event was just the beginning. Later, through continuous exchanges and activities in the industry, investors began to see its potential, invested more funds in the market, and more entrepreneurs joined this field. At the end of last year, we launched the DePINscan data platform and were surprised to find that the number of projects in the DePIN track in the market has grown from the initial 20 to 30 to more than 600.
Sunny: I am curious about where the entire on-chain interaction is concentrated? Last year, especially in the second half of the year, the transaction volume of the entire DePIN track continued to grow. For example, Arweave's storage capacity is said to have 1.8 billion calls, of which 1.2 billion actually occurred last year. But in my opinion, more interactions actually occur because of pure Crypto projects. From your data, are there more Web2 IOT projects or breakthrough projects that pay attention to Web3 solutions? Do you have more insights?
Sun Jing: The current data is basically on-chain interactions, not off-chain. Because there are many such projects this year, the gradual maturity of the projects will prompt the launch of the network, which means that tokens and their incentives will begin to be generated, and on-chain interactions will also be generated.
This is why we believe that the DePIN track is conducive to large-scale adoption. First, it incentivizes users to contribute equipment through the continuous use of tokens, and each token incentive forms an on-chain interaction; second, it truly implements the economic model. Unlike many on-chain projects that only have economic models in theory but have not been implemented, the DePIN project has an economic model on the supply side that is completely controlled by the blockchain, which can be compared to the way Bitcoin works, that is, it clearly stipulates when and how the mining mechanism is triggered.
We had hoped that Web2 companies would enter this race and recognize the economic model of Web3, but reality proved that we were too optimistic. Web2 and Web3 are basically two models running in parallel. However, Web3 companies still have the opportunity to cooperate with Web2 companies - especially those Web2 companies that have many IoT devices. DePIN can directly use these devices. In the economic system of Web2, these devices are usually controlled by centralized institutions to control data and their use rights; in the world of DePIN, each buyer of a device is not only the owner and user of the device, but also a contributor to the network, and can obtain a certain amount of income for his contribution, which constitutes a continuous process.
Therefore, we believe that for quite a long time, DePIN innovation will be mainly driven by companies rooted in Web3. At the same time, the founders of these companies often have deep experience in the Internet of Things or Web2 industries and a deep understanding of the economic model of Web3, enabling them to play a unique advantage in this cross-field.
Sunny: From the perspective of concepts, applications, and on-chain activity, we can see that DePIN will have a strong outbreak in 2023. From the perspective of the entire macro environment, we expect that the DePIN track will have a stronger outbreak in the next two years. There are two reasons for this:
First, from the perspective of the entrepreneur’s qualifications, success can only be achieved if they have experience and resources in Web2 as well as the participation of people who understand Web3.
Second, from the perspective of the market environment, the approval of ETFs by the SEC in January is equivalent to opening a door at the regulatory level. Not only can investment institutions enter the market smoothly through ETFs, but it is also a more relaxed and friendly signal for the regulatory environment, which means that many large physical companies that want to explore the DePIN field can explore more confidently. If the prediction is correct, the effect of this large-scale application can cross the bull-bear cycle because it has a solid source of income, clear supply and demand, and a clear token economy. We are also optimistic about the outbreak of the entire track in the next two years.
Part 2: IoTeX’s infrastructure and economic model
Q1. Mempool: Next, I would like to ask Jing to introduce us to the infrastructure of IoTeX. I believe it will help the audience better understand DePIN.
Sun Jing: IoTeX should be the most advanced and largest infrastructure platform in the industry designed specifically for the DePIN track. This infrastructure platform consists of two main parts:
First of all, IoTeX’s public chain, Layer 1, is a key financial infrastructure in DePIN. In the DePIN system, the use of token incentives to motivate various contributors in the network, including the supply side and the demand side, is a very important link. All participants ultimately need to trade and settle efficiently on Layer 1. This is in line with IoTeX’s design concept of pursuing a decentralized Internet of Things - with high TPS (transactions per second), it can connect millions or even hundreds of millions of devices in a compatible way, allowing these devices to settle on the chain at the same time.
Secondly, in 2023, we will focus on promoting off-chain verification and computing facilities, that is, as middleware or Layer 2, to introduce data from the physical world into the chain in a verifiable way. But not all data needs to be stored in Layer 1. In most cases, only the proof of data verification needs to be uploaded to the chain, while computing and storage are performed off-chain. This involves a key requirement in the DePIN network: zero-knowledge proof (ZKP). For example, a user's vehicle data, such as information about when the vehicle drove to a certain place, is extremely important to demanders such as insurance companies, which set insurance premiums based on this information. However, users do not want all personal information to be published on the chain, so ZKP technology is needed at this time.
In addition to the above two points, IoTeX is currently doing two things in depth:
The first is how to enable the DePIN project to develop the project better. This involves a lot of development tools. These modules can greatly shorten the time from development to launch for the DePIN project, for example, from two to three years to two to three months or even a few weeks;
The second is how to better serve DePIN users, including equipment users and miners, so that they can participate in different projects more conveniently.
Overall, IoTeX provides an entire modular infrastructure platform designed specifically for DePIN.
Q2. Mempool: IoTeX was founded in 2017, focusing on the decentralized Internet of Things. Before that, although the concept of the Internet of Things was widely known, the progress of its actual application was relatively slow. As an entrepreneur, do you really feel the accelerating effect of encryption technology on the development of the Internet of Things? Please select a few important nodes from the development history of IoTeX to discuss how encryption technology has helped the development of the Internet of Things industry.
Sun Jing: Before I started working in Crypto, I was a venture capitalist, focusing on AI, IoT, VR, and AR, which covers a lot of innovative fields. However, in the investment process, we found that no matter what kind of startup company, there will be bottlenecks after reaching a certain stage of development. There are two reasons:
The first is the bottleneck problem of startups. For example, all artificial intelligence companies face challenges in data acquisition - most of the data is controlled by centralized companies, and innovation in AI models alone cannot enable these companies to grow into a scalable industry. Similarly, if IoT companies want to truly build a useful network, the initial capital demand is huge. They need to invest a lot of money to deploy physical equipment and bear high maintenance costs, which is why only large companies can get involved in the field of IoT in the early days, but the efficiency is also low.
The second is the bottleneck of centralized companies. Under the traditional centralized model, the value of IoT data is subject to many restrictions and is difficult to fully release. These data are controlled by centralized companies, making it impossible to introduce more partners and service partners into the ecosystem through open source or more open methods, thereby getting the flywheel of growth going.
The programmability and open source nature of encryption technology, as well as the smart contract system, allow us to see new ways to build IoT systems in the future. IoTeX’s vision when it was founded was to build a decentralized physical system. Although our original intention was very grand, the actual promotion process started from scratch and went through several key development nodes:
Public chain launch. In 2017, the blockchain infrastructure was still very weak. Although Ethereum was already online, its functionality, performance, and speed still could not meet the needs of the IoT system. Therefore, we spent three years building the IoTeX public chain and built a dedicated public chain that can meet the needs of the IoT.
The implementation of on-chain devices. In 2020, after the public chain was launched, we did not regard blockchain as just a financial infrastructure, but paid more attention to its decentralization, security and privacy. In this year, we launched the industry's earliest on-chain hardware device Ucam, a smart camera with identity management completely powered by blockchain. This product has received positive feedback from the market and is still circulating in the market. Although this step has not yet been fully integrated into the economic model, the key lies in the integration of hardware and blockchain, which involves the deep integration of hardware, hardware ID and middleware.
The concept of MachineFi was proposed. By the end of 2021, we realized the importance of financial incentives in the centralized Internet of Things. So we proposed the concept of MachineFi, which was largely due to the fact that DeFi and other NFT scenarios have matured and become financial modules serving other tracks. At that time, we saw the scenario of the current DePIN track: unleashing the economic and financial potential in the decentralized Internet of Things, and realizing the financialization and value circulation of devices, resources and data in the physical world on the chain.
The development and strategic positioning of DePIN. In 2023, when Messari proposed the concept of DePIN, the industry quickly reached a consensus. At the beginning of the year, we took DePIN first as an important strategy for the entire network. At present, we have reached cooperation with about 70% to 80% of the projects in the industry, becoming the largest and earliest modular infrastructure platform in the industry. We have launched a series of modules, including off-chain computing W 3 bStream, information data platform DePINscan, device identity management Identity, etc. In addition, in order to support the actual implementation of the DePIN project and the token economy, we have also established the Liquidity Hub, a liquidity center, to better incentivize users to use products and trade assets, thereby providing diversified services and modules for the entire industry.
Q3. Mempool: From the perspective of implementation, has IoTeX brought some new use cases that have changed the lives of users? Or is it still focused on the infrastructure level?
Sun Jing: IoTeX mainly supports various types of innovation in the DePIN field through infrastructure, and currently pays special attention to AI-related DePIN scenarios. We believe that DePIN in the AI field may become the fastest-growing and largest segment. For example, there is a project called BiTTensor, which has built a complete technology stack based on open source AI models and opened it to AI developers to create various subnets, which can provide a variety of services. In addition, we have also seen many AI-based computing power platforms and data platforms, which process a wide variety of data types, including geographic data, biological data, and retail data serving various scenarios such as retail. The core of these applications is still closely related to the collection and use of decentralized AI data, which we believe has great potential. We also pay attention to vehicle data. Many companies are concentrated in the field of mobility, but each has its own focus. Some DePIN projects focus on decentralized Surdace, while others allow users to contribute vehicle data to create decentralized high-precision maps, similar to the decentralized version of Waze, and some are doing decentralized high-precision maps, etc.
IoTeX may launch some more daring experimental platforms in the future to promote more devices to be on-chain. For example, the recently popular inscriptions are actually creating a new fair distribution mechanism that allows users to participate, but this distribution mechanism can easily be disrupted by large studios. If there is a layer of identity authentication based on physical addresses and devices, the inscription issuance mechanism will be fairer.
We also see some energy companies trying to decentralize energy. For example, there is a company called PowerPort, which installs a device on electric vehicles and uses it to obtain data on your use of green energy. This data is credit in developed countries such as the United States. The company will incentivize users based on the time they use green energy, encouraging them to charge during low-power periods.
Another track involves using existing wearable devices, such as watches and mobile phones, as data collection tools, a practice also known as BYOD (bring your own device). These devices serve as terminals for collecting users' daily data, and then contribute this data back to the users, forming a closed-loop network. However, this field also faces some challenges, such as how to ensure that the data uploaded by users is truly valuable, and how to use this data effectively. But we also see better scenarios. For example, a company on our platform called WifiMap has established a network that allows everyone to share their own Wifi resources and use other Wifi resources on the market. The network currently has 10 million real users.
Q4. Mempool: The economic model does play a very important role in this field. Because of the existence of the economic model, this decentralized network can be formed. What are the better models in the industry and what are the common elements?
Sun Jing: Tokens play a vital role in the entire decentralized network. They not only accelerate the circulation of value within the network, but also make it possible to quantify the value of different contributors, service providers, and users in the network. IoTeX itself is a public chain. In addition to the basic payment network Gas model, there is also a staking model.
The first is the Gas fee collected through each transaction, which is the fee required to use the blockchain network;
Second, exchange network services for staking. Staking can first allow the network to reach consensus to enhance consensus security. In addition, staking also gives the staker the right to participate in the network. For example, the demander can obtain standardized services provided by the network, such as verification or data services, by staking the DePIN network's token. For example, IoTeX's W 3 bStream is an infrastructure service that provides decentralized computing to verification on the chain. If different node operators want to participate in W 3 bStream and provide services, they can do so by staking IoTeX's tokens; for project parties that need these services, they also need to stake IoTeX tokens to obtain the services provided by these nodes.
In addition to the IoTeX economic model, there is also a BME (Burn-and-Mint) model for obtaining services. This model uses tokens to burn, which is a mechanism that converts tokens into a unitized purchasing power for goods. In the DePIN track, Helium is one of the earliest projects to actively promote this BME model. In this model, the network will have two tokens: one is the network's own token, and the other is a universal token used within the network, which can be regarded as points in Web2 companies or stablecoins used within the network. The reason why this kind of token similar to a stablecoin is important is that the token price of the network itself is usually volatile, but the purchasing power of goods and services is relatively stable. Therefore, users can burn a certain number of tokens and convert them into a corresponding amount of stablecoins to purchase goods. Of course, there are many other application methods, but staking and burning are the two most important methods. Their purpose is to enable participants in the network to participate in the network economy by using tokens, while providing a relatively rational and calculable pricing model for external economic vitality of the network.
Part 3: Market size and integration of DePIN and AI tracks
Q1. Mempool: Messari’s report believes that DePIN’s flywheel will add a lot of revenue to the global GDP in the future, even to the level of 10 trillion US dollars. What do you think of this market forecast?
Sunny: In my opinion, many areas are still in the exploration stage. For example, projects that have been committed to this field for a long time, such as IoTeX, Helium, and Render, have been growing in data volume in the past few years, as large enterprises have gradually begun to transfer part of their storage and computing power to decentralized networks. At the same time, some car manufacturers and different equipment manufacturers have also begun to integrate token economy into their devices. In addition, we have also seen crypto-native projects, such as the launch of Saga mobile phones on the Solana ecosystem and Helium's attempts to promote 5G, embedding applications into devices by selling mobile phones, which are explorations at different levels. The essence of DePIN is the relationship between supply and demand, which means that a product must have strong market demand to attract corresponding purchasing power. Only when purchasing power persists can the flywheel effect or economic benefits continue to strengthen and expand. At present, many projects are focusing on the supply side, promoting competition among supply-side resources through the so-called flywheel effect to reduce costs and attract market demand. However, market demand is a variable dimension involving multiple factors such as user experience and cost, so we are both optimistic and cautious about this track.
Sun Jing: We agree with what Messari said about future growth mainly based on two factors:
First of all, from the development history of the entire society, the proportion of machines and equipment in the global GDP has been on an upward trend. With the development of technologies such as artificial intelligence, the demand for manpower has gradually decreased. We expect this proportion to exceed 40% in the future, which has formed a huge trillion-level market. However, there is currently no unified way to circulate the productivity formed by these machines, which leads to the locking of data value, resource value and network value. DePIN can largely unlock these previously bound values.
Second, the size of the physical infrastructure market itself needs to be considered. We believe that DePIN represents a new community-driven, bottom-up elastic model that uses a shared economy approach to build infrastructure. Although many countries already have centralized infrastructure, decentralized infrastructure owned by the community is still needed as an alternative. For example, the current war situation in Ukraine shows that centralized infrastructure is easily destroyed. If there is a decentralized alternative infrastructure that is difficult to directly control, it will be extremely important for the survival of the country and even the people. For example, in the field of AI, the most powerful AI infrastructure is now in the hands of technology giants such as Microsoft and Google, who use a lot of resources to build centralized AI computing systems. If there is a decentralized system, whether it is a model, computing power or basic chips, it will be a protection for most ordinary people.
Therefore, while the DePIN market segment may not be able to compete directly with the most advanced centralized infrastructure in the short term, its market share will gradually grow. Even if it only accounts for 10% of all infrastructure, it will form a trillion-dollar market.
Q2. Mempool: We see that DePIN can bring some solutions to AI on the one hand; on the other hand, AI can indeed bring new narratives and demands to the DePIN track. What are your observations on this segmented vertical field? What opportunities may there be in the future?
Sunny: First, we can discuss the application of AI+DePIN: Since the launch of ChatGPT in 2023, it has brought revolutionary progress to the entire encryption technology industry. Analyze from the following aspects:
AI technology optimizes the entire technology development process and makes the technology stack more efficient.
As an automated and self-maintained IoT network, DePIN not only improves the automation and decision-making maintenance capabilities of the network by introducing AI algorithms and large-scale models, but also enhances the intelligent identification of abnormal behaviors, thus making the DePIN physical network more efficient , automation and security are significantly improved.
Next, let’s look at the role of DePIN+AI in promoting the development of the AI field, mainly starting from the needs of the AI technology stack:
Computing power. AI infrastructure requires strong computing power support, and currently these resources are mainly concentrated in the hands of a few large companies. The key demand at this stage is to integrate these scattered computing resources through a decentralized network so that small and medium-sized enterprises can also access high-quality computing resources.
Data collection and storage. These can be naturally integrated into DePIN’s physical network, providing AI with more decentralized and even lightweight device-side storage and computing capabilities, which is completely in line with DePIN’s original design intention.
Model. Effective data models require data liquidity and distributed computing capabilities, which is exactly where DePIN can naturally meet the needs of AI.
Finally, we focus on the popularity and practicality of the application level:
AI can make hardware smarter and human-computer interaction more engaging and interactive;
Explore how devices, algorithms and token economy are combined, which are the natural integration points of AI and DePin.
Sun Jing: AI is one of the most powerful productivity tools of human society so far, and DePIN represents a new way of infrastructure construction and economic distribution model, which complement each other. AI can be widely used in DePIN's infrastructure, making the DePIN network more intelligent, easy to use and valuable, thereby stimulating stronger demand.
First of all, DePIN can serve AI at multiple levels such as computing power, models, and data, and release capabilities that AI does not originally have in a decentralized way. For example, DePIN allows more people to participate and invest idle resources in the AI network. We have seen many DePIN AI computing power platforms that allow people to use their idle resources for computing power services in AI networks. In the field of decentralized AI, although the current focus is on developing large-scale general AI models, many actual needs are actually smaller customized models that require accurate and real-time data. The DePIN approach can introduce these necessary data and solve the data needs of these small models.
Furthermore, DePIN makes AI more open source, transparent and secure. For the general public and even AI practitioners, security is both a Pandora's box and a black box. Closed source leads to the opacity of problems and risks, and people can only rely on the opinions of top scientists and experts in centralized companies. But if AI becomes more open source, everyone can better understand internal problems, monitor potential risks more effectively, and brainstorm to find solutions.
