Author | Jiawei @IOSG
▲ Source: Grayscale
Grayscale wrote a research report on DePIN earlier this year, and the table shows the leading DePIN projects and their market values. Since 2022, DePIN and AI have been mentioned as two new directions for Crypto investment. However, it seems there has not yet been a landmark project in the DePIN field. (Helium is considered a leading project, but it appeared even before the concept of DePIN; projects like Bittensor, Render, and Akash listed in the table are more often categorized as AI tracks.)
Thus, it appears that DePIN does not have a sufficiently strong leading project to break the ceiling of this track. There may still be some Alpha opportunities in the DePIN track in the next 1-3 years.
This article attempts to outline the investment logic of DePIN from scratch, including why DePIN is a track worth our attention and proposing a simple analytical framework. Since DePIN is a comprehensive concept covering a wide range of sub-tracks, this article will zoom out slightly, explaining the concept from an abstract perspective, but still providing some concrete examples.
Why focus on DePIN investment?
DePIN is not a buzzword
First, it is important to clarify that decentralizing the infrastructure of the physical world is not a fancy idea, nor is it merely a 'narrative play,' but something that can be executed. DePIN indeed has scenarios where decentralization can 'enable' something or 'optimize' something.
Here are two simple examples:
▲ Source: IOSG
In a major track of DePIN—telecommunications, taking the US market as an example, traditional telecom operators (such as AT&T, T-Mobile) often need to invest billions of dollars in spectrum license auctions and base station deployments, paying deployment costs of $200,000 to $500,000 for each macro base station covering a radius of 1-3 kilometers. In a 2022 auction by the US Federal Communications Commission (FCC) for 5G spectrum in the 3.45GHz band, AT&T invested $9 billion, becoming the operator with the highest investment. This centralized-dominated infrastructure model leads to high prices for communication services.
Helium Mobile, through community crowdsourcing, spreads the early costs to each user, requiring individuals to only purchase hotspot devices priced at $249 or $499 to access the network, becoming 'micro-operators.' This drives community-driven networking through token incentives, thereby reducing overall investment. Verizon's deployment cost for a macro base station is about $200,000, while Helium can achieve a similar coverage area by deploying about 100 hotspot devices (total cost about $50,000), reducing costs by approximately 75%.
Additionally, in the AI data field, traditional AI companies pay up to $300 million/year in API fees to platforms like Reddit and Twitter to obtain training data, and scrape data using Bright Data (residential proxies) and Oxylabs (data center proxies). Moreover, they increasingly face more copyright and technical restrictions, making compliance and diversity of data sources challenging.
Grass breaks this dilemma through distributed Web Scraping, allowing users to share idle bandwidth by downloading a browser extension, helping to scrape publicly available web data and earning token rewards from it. This model greatly reduces the data acquisition costs for AI companies while achieving diversity and geographical distribution of data. According to Grass statistics, there are currently 109,755,404 IP addresses from 190 countries participating in the network, contributing an average of 1,000 TB of internet data daily.
In summary, a fundamental starting point for investing in DePIN is that decentralized physical infrastructure has the opportunity to perform better than traditional physical infrastructure, or even accomplish what traditional methods cannot.
As an intersection of Infra and Consumer
As two major lines of Crypto investment, Infra and Consumer each face some challenges.
Infra projects generally have two characteristics: first, they have strong technical attributes, such as ZK, FHE, MPC technologies, which have high barriers, and there is a certain disconnect in market perception. Secondly, apart from the familiar Layer 1/2, cross-chain bridges, staking, etc., that can directly reach end users, most Infra projects are actually B2B. For example, developer tools, data availability layers, oracles, co-processors, etc., are relatively distant from users.
These two points make it difficult for Infra projects to promote users' mindshare and have poor virality. Although high-quality Infra has a certain PMF and revenue, being self-sufficient to cross cycles, the lack of mindshare in a market with scarce attention makes subsequent listings very difficult.
Looking at it from the other side, Consumer has the inherent advantage of being directly aimed at end users, capturing mindshare naturally. However, new concepts can easily be disproven by the market, and may even fall sharply after a shift in trends. Such projects often fall into a cycle of narrative-driven short-term bursts followed by disproval and decline, with short lifecycles. Examples include friend.tech and Farcaster, among others.
Growth, mindshare, and listings are all issues that have been discussed a lot in this cycle. Overall, DePIN can address the dilemmas mentioned above and find a balance.
DePIN is based on real-world demand, such as energy, wireless networks, etc. High-quality DePIN projects have solid PMF and revenue, are difficult to disprove, and are easily understood by the market. For instance, Helium's $30 per month unlimited data plan is clearly cheaper than traditional operators' offerings.
DePIN also has user-side demand, capable of capturing mindshare. For example, users can download the Grass browser extension to contribute their idle bandwidth. Currently, Grass has already reached 2.5 million end users, many of whom are not native crypto users. Other tracks such as eSIM, WiFi, and in-car data are similarly close to users.
DePIN Investment Framework
▲ Source: Messari, IOSG
Direction
From intuition alone, 5G and wireless networks represent a large market, while in-car data and weather data are smaller markets. From the demand side, we look for whether it is a necessity (5G) or has strong demand. Moreover, since the market share of traditional markets like 5G is very large, even if DePIN can capture a small portion of it, the market capacity looks considerable in the context of Crypto.
Product
According to Grayscale's report, the DePIN model is particularly suitable for industries with high capital requirements, high entry barriers, obvious monopolistic patterns, and underutilization of resources. Answering the PMF question essentially looks at two points.
▲ Source: Hivemapper
On the supply side, has DePIN accomplished what was not achievable before, or does it have outstanding advantages over existing solutions (cost, efficiency, etc.)? For example, in the map collection track where Hivemapper operates, traditional map collection faces at least three major issues:
Traditionally reliant on specialized fleets and manual labeling, which are costly and lack scalability.
Google Street View has long update cycles and low coverage in remote areas.
Centralized map service providers monopolize data pricing power.
Hivemapper allows users to collect data by selling dash cams, turning data collection into something users do during their daily driving through a crowdsourcing model. It guides users with token incentives, prioritizing resources in high-demand areas.
On the demand side, the products offered by DePIN must have real market demand, preferably with a strong willingness to pay. Similarly, Hivemapper can sell map data to autonomous driving, logistics, insurance companies, and municipalities, with critical demand being validated.
Regarding hardware, Multicoin's article in 2023 (Exploring The Design Space Of DePIN Networks) begins by discussing hardware. I would like to add a few points of view here.
The timeline for hardware can be summarized as 'manufacturing—sales—distribution—maintenance.'
#Manufacturing
Should the project party design and manufacture hardware themselves, or use existing hardware? For instance, Helium offers two types of its own hotspots and also supports integrating existing WiFi networks. Alternatively, for computation and storage-based DePIN projects, existing graphics cards and hard drives can be directly utilized.
#Sales
The clear pricing of sales means that users will calculate the payback period based on potential earnings. The price of Helium's home mobile hotspot is $249, while DIMO's in-car data collector costs $1,331.
#Distribution
How to distribute? Distribution involves many uncertain factors: logistics timeliness, transportation costs, and delivery cycles starting from pre-sales, etc. For projects targeting global reach, inappropriate distribution design and means can greatly slow down project progress.
#Maintenance
What do users need to do to maintain the hardware? Some devices may experience depreciation or wear. The simplest maintenance example is Grass, where users only need to download the browser extension without requiring any other actions; or Helium's hotspots, which only need simple installation to continue running. If it involves solar power generation, it may become more complex.
Considering the above points, the simplest model is Grass's model—directly using existing network bandwidth, requiring no manufacturing and distribution, allowing users to start without barriers, and not needing sales, which helps to rapidly expand the network in the early stages of the project.
Certainly, projects in each direction have different hardware needs. However, hardware relates to the friction of initial adoption. The less friction there is in the early stages of the project, the better, and as the project matures, some friction can lead to retention and a certain degree of binding relationships. For startup teams, it is essential to manage the path choices and resource investments in hardware, progressing gradually rather than all at once.
Imagine, if everything from 'manufacturing—sales—distribution—maintenance' is not easy, then unless there are very strong and highly certain incentives, why would users want to participate?
Token Economy
The design of the token mechanism is the most challenging aspect of DePIN projects. Unlike projects in other fields, DePIN needs to incentivize various participants in the network early, thus requiring the launch of tokens very early in the project. This topic is suitable for a new article to conduct some case studies, and will not be elaborated on here.
Team
In the team composition, founders need at least one member with each of the following backgrounds: one who has worked in traditional companies in this field with rich experience, responsible for practical matters like technology and product implementation, and another who is crypto-native, understands token economics and community building, and can differentiate between the preferences and mental models of crypto users and non-crypto users.
Others
Regulatory issues, such as collecting road images and data domestically, are clearly very sensitive.
Summary
Crypto has not really had a true 'breakthrough' application in this cycle, and it seems we are still far from adoption by users outside the circle. Some short-term incentives offered by Crypto applications are the reasons users use them, but they cannot last. However, the economic benefits derived from the underlying layer of DePIN may replace traditional infrastructure on the user side, achieving sustainability for applications and large-scale adoption.
▲ Source: Helium
Although the characteristic of DePIN being tied to reality makes the development cycle longer, we have already seen some glimmers of hope from the development of Helium Mobile: Helium Mobile collaborates with T-Mobile, allowing user devices to seamlessly switch to T-Mobile's nationwide 5G network. For example, when users leave the range of Helium community hotspots, they automatically connect to T-Mobile's base stations, avoiding signal interruptions. Earlier this year, Helium announced a partnership with global telecom giant Telefónica to deploy Helium Mobile 5G hotspots in Mexico City and Oaxaca, marking the beginning of its expansion in South America. Telefónica's subsidiary Movistar in Mexico has about 2.3 million users, and this cooperation directly connects these users to Helium's 5G network.
In addition to the content discussed above, we also believe that DePIN has two unique advantages:
Compared to traditional monopolistic large enterprises, DePIN has a more flexible deployment method and means, and can align incentives within the ecosystem through the token model. For example, the traditional telecom industry is usually occupied by a few giants, lacking the motivation for innovation. In rural areas, due to dispersed populations, traditional operators see low ROI and long timelines, so they have no motivation to push for deployment. However, with appropriate token economic design, networks can be encouraged to deploy in areas with sparse hotspots. Hivemapper also sets higher incentives in areas where map resources are scarce.
DePIN has the opportunity to bring positive externalities. From AI companies purchasing internet data collected by Grass, autonomous driving companies purchasing street-level map data from Hivemapper, to Helium Mobile offering low-cost data plans, it can be seen that DePIN can actually step outside the realm of Crypto and bring value to real life and other industries, while feeding back into the entire ecosystem through the token economy. In other words, the token behind DePIN is supported by real value, rather than being a Ponzi scheme.
Of course, DePIN also faces many uncertainties: for example, uncertainties in time cycles due to operational hardware, regulatory risks, due diligence risks, etc.
In summary, DePIN is a track we will focus on in 2025, and we will subsequently output more research related to DePIN.
