New Infrastructure Wave: Analyzing the Opportunities and Challenges of the DePIN Track

DePIN stands for Decentralized Physical Infrastructure Network, which builds infrastructure networks by incentivizing users to share personal resources through tokens, including storage space, communication bandwidth, cloud computing, energy, and other fields. It crowdsources infrastructure that was originally provided by centralized companies and distributes it to users worldwide.

According to data platform statistics, the current market value of the DePIN field has reached 5.2 billion USD, surpassing the 5 billion USD of the oracle field, and it shows a continuous upward trend. From the early Arweave and Filecoin, to the highly关注ed Helium during the last bull market, and the recently popular Render Network, all belong to this field.

The recent renewed interest in the DePIN track can be attributed to three main reasons:

1. The infrastructure has become more完善 compared to a few years ago, paving the way for DePIN track empowerment;

2. At the end of 2022, institutions first proposed the concept of DePIN, believing it to be "one of the most important areas for crypto investment in the next decade," with new definitions and expectations adding excitement to the field.

3. The narrative of Web3 breaking out of its circle shifts from social and gaming to explore other directions, with the DePIN track closely connected to Web2 users becoming an important choice for Web3 practitioners.

This article will deeply analyze DePIN from five perspectives: why DePIN is needed, the token economic model of DePIN, the current state of the industry, representative projects, advantages analysis, and limitations and challenges.

Why is DePIN Needed?

Current Status of the Traditional ICT Industry

Traditional ICT infrastructure is mainly divided into: hardware, software, cloud computing and data storage, and communication technology. Currently, among the top ten companies in the global market value, six belong to the ICT industry, accounting for half of the market.

According to data, the global ICT market size reached 439 billion USD in 2022, with data centers and software showing a growth trend in the past two years, influencing our lives in various ways.

The difficulties of the traditional ICT industry

The current ICT industry is facing two significant dilemmas:

1. The industry has a high entry barrier, limiting sufficient competition, resulting in pricing being monopolized by giants.

In fields such as data storage and communication services, companies need to invest a large amount of funds for hardware purchases, leasing land for deployment, and hiring maintenance personnel. High costs have resulted in only giant enterprises being able to participate, with a few giants in the cloud computing and data storage sectors holding nearly 70% of the market share. This leads to pricing being subject to monopolies, with high costs ultimately passed on to consumers.

Taking cloud computing and data storage prices as an example, the costs are quite high. According to data, total spending by enterprises and individuals on cloud services reached $490 billion in 2022, and is expected to exceed $720 billion by 2024. 31% of large enterprises spend more than $12 million annually on cloud services, while 54% of small and medium-sized enterprises spend over $1.2 million. As companies increase their investment in cloud services, 60% of enterprises report that cloud costs are higher than expected.

The current situation in the cloud services sector related to cloud computing and data storage shows that after prices are monopolized by giants, the spending pressure on users and enterprises is increasing. In addition, the capital-intensive nature limits adequate competition in the market, which can also affect innovation and development in the field.

The utilization rate of centralized infrastructure resources is relatively low.

The low utilization rate of centralized infrastructure resources is a major challenge in today's business operations, particularly prominent in cloud computing environments.

According to recent reports, on average, 32% of company cloud budgets are wasted, meaning that one-third of resources are idle after cloud spending, resulting in significant financial losses.

This improper resource allocation can be attributed to various factors. For example, regarding resource supply, companies often overestimate demand to ensure service continuity. Additionally, data shows that cloud waste is due to a lack of understanding of cloud costs in over half of cases, getting lost in complex cloud pricing and a myriad of packages.

On one hand, the monopoly of giants leads to excessively high prices; on the other hand, a significant portion of the company's cloud spending is wasted, placing enterprise IT costs and utilization rates in a double bind, which is very detrimental to the healthy development of the business environment. However, this also provides fertile ground for the development of DePIN.

Faced with the high costs of cloud computing and storage, as well as the dilemma of cloud waste, the DePIN track can effectively address this demand. In terms of pricing, decentralized storage is several times cheaper than centralized storage; regarding the cloud waste dilemma, some decentralized infrastructures have begun to adopt tiered pricing methods to differentiate between various needs. For example, the Render Network in the decentralized computing sector efficiently matches GPU supply and demand through a multi-tiered pricing strategy.

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The Token Economic Model of DePIN

The core logic of DePIN is to promote users to provide resources, including GPU computing power, deployment hotspots, storage space, etc., through token incentives, contributing to the entire DePIN network.

In the early stages of DePIN projects, tokens often lack real value, so users participating in resource provision for the network are somewhat similar to venture capitalists. The supply side selects promising projects among numerous DePIN projects and then invests resources into them to become "risk miners," profiting by increasing the number of tokens acquired and the appreciation potential of the token price.

These providers differ from traditional mining in that the resources they offer may involve hardware, bandwidth, computing power, and so on, and the income tokens are often related to network usage, market demand, and other factors. For example, low network usage can lead to reduced rewards, or if the network is attacked or unstable, it can result in resource wastage. Therefore, risk miners in the DePIN track need to be willing to take on these potential risks and provide resources for the network, becoming a key component in the stability of the network and the development process of the project.

This incentive mechanism will create a flywheel effect, forming a positive cycle when development is favorable; conversely, it can also easily lead to a withdrawal cycle when development is declining.

1. Attract supply-side participants through tokens: By using a good token economics model, attract early participants to engage in network construction and provide resources, and reward them with tokens.

2. Attracting builders and network consumers: As the number of resource providers increases, some developers have begun to join the ecosystem to build products. Meanwhile, after certain services can be provided on the supply side, consumers are also starting to be attracted to join, as DePIN offers lower prices compared to decentralized infrastructure.

3. Forming Positive Feedback: As the number of consumer users increases, the incentive of this demand brings more income to supply-side participants, forming positive feedback, thereby attracting more people to participate from both supply sides.

Under this cycle, the supply side has more valuable token rewards, and the demand side has cheaper and more cost-effective services. The value of the project's tokens aligns with the growth of participants on both the supply and demand sides. As the token price rises, it attracts more participants and speculators, forming value capture.

Through the token incentive mechanism, DePIN first attracts suppliers, then attracts users to use it, thereby achieving the project's cold start and core operation mechanism, which can further expand and develop.

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Current Status of the DePIN Industry

From the earliest established projects, such as the decentralized network Helium) in 2013, decentralized storage Storj( in 2014, and Sia) in 2015, it can be seen that the earliest DePIN projects basically focused on storage and communication technologies.

However, with the continuous development of the Internet, the Internet of Things, and AI, the requirements for infrastructure and the demand for innovation are increasing. From the current development status of DePIN, the projects of DePIN are mainly focused on computing, storage, communication technology, and data collection and sharing.

From the current top 10 projects by market value in the DePIN field, most belong to the Storage and Computing sectors. Additionally, there are some noteworthy projects in the telecommunications sector, including industry pioneer Helium and the rising star Theta.

Representative Projects in the DePIN Industry

According to the market capitalization ranking of DePIN on the data platform, this article will focus on analyzing the top five projects: Filecoin, Render, Theta, Helium, and Arweave.

( Filecoin & Arweave - Decentralized Storage Track

In the traditional data storage field, the high pricing of centralized cloud storage on the supply side and the low resource utilization on the consumer side create dilemmas for users and enterprises, and there are also risks such as data leakage. In response to this phenomenon, Filecoin and Arweave offer a breakthrough by providing lower prices through decentralized storage methods, offering users a different service.

Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through a token-based reward system. Providing more storage space is directly related to earning more block rewards. Within about a month of going live on the testnet, its storage capacity reached 4PB, with miners from China playing a significant role as storage space providers. Currently, the storage capacity has reached 24EiB.

It is worth noting that Filecoin is built on top of the IPFS protocol, which itself is a widely recognized distributed file system. Filecoin achieves decentralized and secure data storage by storing user data on nodes in the network. In addition, Filecoin leverages the advantages of IPFS, giving it strong technical capabilities in the field of decentralized storage, while also supporting smart contracts, allowing developers to build various storage-based applications.

At the consensus mechanism level, Filecoin adopts Proof of Storage, including advanced consensus algorithms such as Proof of Replication)PoRep( and Proof of Spacetime)PoSt###, to ensure the security and reliability of data. In simple terms, Proof of Replication ensures that nodes replicate the client's data, while Proof of Spacetime ensures that nodes continuously maintain storage space.

Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage utilizes Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while some foundations and internet archives use Filecoin to back up their content. Notably, the world's largest NFT market also uses Filecoin for NFT metadata storage, which further promotes the development of its ecosystem.

Next, let's take a look at Arweave, which has some similarities to Filecoin in terms of incentivizing the supply side. Through token incentives, it encourages users to provide storage space, and the amount of rewards depends on the volume of data stored and the frequency of data access.

In contrast, Arweave is a decentralized permanent storage network, and once data is uploaded to the Arweave network, it will be permanently stored on the blockchain.

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