Author: Jasper De Maere, CoinDesk; Translated by: Deng Tong, Golden Finance
The first wave of DePIN initiatives around 2019 focused on digital infrastructure, but now we are seeing other types of networks emerging (DePIN stands for Decentralized Physical Infrastructure Networks). Projects centered around data or service networks are becoming more common. Ultimately, I categorize DePIN as projects that 1) use blockchain-based decentralized coordination to operate infrastructure and 2) rely on or impact physical infrastructure (such as servers, sensors, or property).
Before discussing the drivers, we need to understand that DePIN projects are almost always composed of two-sided markets. These markets have a demand side and a supply side.
Demand side. Users look for services or products to solve specific problems or needs, which can be met through services or dApps.
Supply side. The decentralized infrastructure in the market (including nodes, hardware, sensors, etc.) is hosted by the front end of the project or dApp.
So what’s happening on both sides of these markets?
Supply Side
Making DePIN provision simpler will enable better and more diverse supply, and thus be closer to diverse demand parties.
I see two main drivers behind supply-side onboarding:
The cost curve is falling;
Utility token design improvements.
Cost Curve
Historically, hosting infrastructure required upfront capital that was only available to large centralized entities. As the cost curve comes down, almost anyone can become an infrastructure provider.
Recent studies have shown that memory costs have fallen 100x and compute (GPU) costs have fallen 100-300x over the past two decades. While demand for these resources is growing (and even in short supply), the barriers to entry for hosting large amounts of compute or memory have dropped dramatically. The capital required to build infrastructure is decreasing, enabling more people to participate, run nodes, and making the network more robust without critical points of failure.
Utility Tokens
The design of utility tokens has long been considered a dark art. Over the past few years, the technical know-how has been rapidly improving to provide more robust token models.
DePIN networks often rely on utility tokens because they have network effects, as these tokens can align incentives between stakeholders with different economic interests. Sound token design is critical to creating the right game theory and incentivizing behaviors that support the network, and appropriately rewarding contributions. Utility tokens also help to kick-start initial network effects, and now more and more token engineers are using scenario analysis and statistics in the design process. This will lead to more robust designs that can stand the test of time and market fluctuations.
Demand side
Historically, DePIN projects have been demand-constrained, meaning that services and applications have come online but have low uptake for a variety of reasons. Growing demand will eventually make DePIN businesses viable, kickstarting the flywheel of improvements.
I see three main drivers behind demand-side onboarding:
The availability of DePIN is increasing;
Privacy and security are growing concerns;
Data generation is exploding.
Availability
Let’s be honest: many Web3 applications today are unusable to people who don’t spend a lot of time in crypto. Account abstraction and AI-enabled UX should solve this problem.
2024 is the year that account abstraction (hiding some of the technical wiring of blockchain transactions from users) becomes popular on Web3. The realization that the current Web3 UX may not be enough to convince mainstream users to transition from Web2 has gained a lot of attention recently. Today, there are a large number of companies focusing on UX and account abstraction. At the same time, we are seeing ERC-4337 (which is what the 2023 Ethereum upgrade is focused on) really being adopted by a wide range of projects, including DePIN.
Meanwhile, AI has experienced a renaissance since GPT launched nearly two years ago, with models improving and integrations developing rapidly. AI assistants currently being developed on the blockchain will simplify the use of applications and reduce the need for human-friendly front ends.
Privacy and Security
Concerns about data protection have proven to be beneficial for the adoption of DePIN, which fundamentally improves data protection due to its decentralized nature.
While the privacy paradox is a well-documented reality, users have become increasingly concerned since AI has spread through society. Especially when it comes to data management, privacy and security are a growing concern. We are seeing evidence that users are increasingly looking for alternative solutions that prioritize the protection of their personal information. DePIN’s decentralized approach inherently enhances privacy and security, making it a more attractive option for individuals and businesses. After decades of indifference, people are becoming increasingly sensitive to the topic, creating good conditions for DePIN.
Data Generation
It is estimated that approximately 350 million terabytes of data are generated every day. Humanity is generating unprecedented amounts of data that need to be stored in memory and processed by computers, and DePIN is very good at this...
We are creating more data than ever before. It’s estimated that 90% of all data today was generated in the past two years. With the growth of Gen AI, data is truly the oil of the 21st century, so we need to make sure it’s stored properly. Previously, many companies and individuals were unsure whether data should be stored on bare metal servers or in the cloud; now, there is more of a decision-making process when it comes to data storage. As DePIN matures, it increasingly becomes a viable alternative to more established data storage and processing options.
Future prospects
There is a lot of room for DePIN to grow, which explains the excitement among users, investors, and the community at large. I firmly believe that DePIN will soon redefine the way economically important infrastructure in society is organized, at least positioning it on par with traditional infrastructure.
