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The DePIN track has a broad development prospect, with a valuation potentially reaching $35 trillion.
The Basic Logic and Legal Risks of the DePIN Track
With the advancement of technology and the development of decentralized technology, the interaction and integration between the real and virtual worlds are accelerating, while also bringing about a redistribution of power, control, and data ownership.
In this context, the decentralized physical infrastructure network ( DePIN ) has emerged, providing us with a new perspective on the interaction between the real and virtual worlds. According to reports, the current valuation of this sector is approximately $9 billion, and it is expected to grow to a scale of $3.5 trillion by 2028. From the earliest Arweave and Filecoin, to the Helium of the last bull market, and the recently popular Render Network, all belong to this field.
As one of the most promising tracks in the Web3 space that is likely to create economic value in the short term, DePIN has received significant attention in recent years. This article will explore the foundational logic of the DePIN track, its development prospects, and the legal risks it faces.
The Basic Logic of the DePIN Track
DePIN(Decentralised Physical Infrastructure Networks)refers to decentralized physical infrastructure networks that incentivize individuals and businesses globally to build the infrastructure of the physical world in a decentralized manner through blockchain technology and token rewards(such as WiFi, storage, batteries, etc.)to provide services to users. The core idea is that users earn returns by renting out hardware to provide services, such as WiFi hotspots in wireless networks or home solar panels in energy networks. These networks are built in a decentralized manner by contributors from all over the world. In return, participants receive financial compensation and network ownership through token incentives.
This concept was born in 2022 when an American blockchain data research agency conducted a survey to solicit a formal name for "Web3 physical infrastructure." Ultimately, DePIN won in the voting and began to attract attention.
The biggest difference from traditional networks is that DePIN uses tokens to initiate the deployment of physical infrastructure, leveraging blockchain technology to build and operate real-world physical infrastructure and hardware networks in a permissionless, trustless, and programmable manner, thereby creating large-scale network effects that unlock various innovative decentralized applications based on real-world data.
In short, DePIN is a physical infrastructure network ecosystem that is owned and monetized by users, device users, and enterprises. It enables globally distributed individuals to collaboratively build, maintain, and operate a shared physical infrastructure network without a single centralized entity. This ecosystem includes various components such as cloud network ( VPN, CDN, file storage, database ), wireless ( 5G, Internet of Things ), sensor networks, energy networks, and more.
In such a system, individuals or organizations can also contribute their labor or other resources by maintaining and improving the infrastructure, thereby obtaining corresponding crypto assets. These crypto assets, awarded as rewards, can then be used to access the infrastructure or engage in transactions.
From a working principle perspective, DePIN is based on decentralized and blockchain technology. First, DePIN relies on individual hardware devices, which are also known as nodes, and can be personal computers, dedicated servers, or IoT devices. These devices collectively form a decentralized network without any central nodes or authoritative institutions. This decentralized characteristic makes DePIN more secure and transparent.
Secondly, DePIN uses blockchain technology to manage and protect the network. Blockchain is an open, transparent, and immutable digital ledger. It records all transactions and interactions on the network, ensuring that all nodes adhere to the rules of the network.
In addition, to encourage nodes to participate and contribute their resources, DePIN uses an incentive mechanism. This mechanism is typically based on cryptocurrency, and nodes can earn rewards by participating in the network and contributing their resources. Sufficient resource supply will create price competition, and a sufficient supply of resources at good prices will promote demand. With demand, tokens will have value capture capability, which can better drive price increases and attract more resource providers.
The Development Prospects of the DePIN Track
The application fields of DePIN
DePIN is divided into two main areas: digital resource networks and physical resource networks. Digital resource networks include storage, computing, and bandwidth, while physical resource networks focus on hardware-related fields such as wireless networks, geospatial networks, mobile networks, and energy networks.
According to data, the DePIN sector currently includes 45 issued coin projects, ranking 25th among all sectors, with a total value of 9.7 billion USD, surpassing sectors such as AMM and AI, and only behind the oracle and P2E sectors.
Reports predict that the total potential market size of the DePIN sector is approximately $2.2 trillion and could reach $3.5 trillion by 2028.
In addition to its outstanding performance in the secondary market, DePIN is gradually gaining favor with the market and institutions. For example, in April 2023, the decentralized camera network Natix Network secured $3.5 million in funding; in November 2023, DePIN provider Grove completed $7.9 million in funding. Additionally, Solana, which is very focused on DePIN, had 5 related products such as Shaga and Dain receive prize funding at its hackathon event in November 2023. The IoTeX Foundation has previously provided nearly a million dollars in development funding to 15 DePIN-related projects.
The top 10 companies in the DePIN ranking include the "Server Network" category of digital resource network (DRN) such as Filecoin, Arweave, Sia, and Storj, belonging to the "Wireless Network" category of physical resource network (PRN) like Helium and Pollen Mobile, "Sensor Network" Hivemapper and DIMO, and "Energy Network" React Protocol and Arkreen. Below is a brief introduction to the representative projects currently in the DePIN track:
Filecoin & Arweave
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 have created dilemmas for users and enterprises. Additionally, there are risks such as data breaches. Filecoin and Arweave break through this by offering lower prices through decentralized storage methods, providing different services to users.
Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space through tokens. Within about a month of the testnet going live, its storage space reached 4PB, and Chinese miner ( as a storage provider ) played an important role. Currently, the storage space has reached 24EiB.
Filecoin is built on top of the IPFS protocol, which is already a widely recognized distributed file system. Filecoin achieves decentralized and secure data storage by storing user data on nodes within the network. Leveraging the advantages of IPFS, Filecoin has strong technical capabilities in the field of decentralized storage, and it also supports smart contracts, enabling developers to build various storage-based applications.
Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises. For example, NFT.Storage uses Filecoin to provide a simple decentralized storage solution for NFT content and metadata, while the Shoah Foundation and the Internet Archive utilize Filecoin to back up their content. The world's largest NFT marketplace, OpenSea, also uses Filecoin for NFT metadata storage, further promoting the development of its ecosystem.
Arweave has similarities with Filecoin in terms of incentivizing the supply side by using tokens to encourage users to provide storage space, with the reward amount depending on the amount of data stored and the frequency of access to that data. The difference is that Arweave is a decentralized permanent storage network; once data is uploaded to the Arweave network, it will be permanently stored on the blockchain.
How does Arweave incentivize users to provide storage space? Its core uses a mechanism called "Proof of Access" that aims to prove the accessibility of data within the network. Simply put, it requires miners to provide a randomly selected previously stored data block during the block creation process as "proof of access".
Render Network
The business of Render Network can be simply described as matching computing power with the demands of artistic rendering. The role of computing power suppliers is called node operators, and this number has remained stable, with currently 326 Render node operators providing computing power.
Render Network was originally deployed on the Polygon network. In March 2023, the community decided through a proposal to migrate from Polygon to Solana and build the BME( Burn and Mint Equilibrium) model on Solana. The BME model describes a state of relative balance between burned tokens and minted tokens in an ideal process and specific consumption market. It is already a mature token model applied in projects like Helium.
In this model, users purchase GPU rendering services using RNDR tokens. The tokens used after the task is completed will be burned, and the service providers' rewards will be issued in newly minted tokens. The rewards are based not only on the metrics of task completion but also on other comprehensive factors such as customer satisfaction. As a result, RNDR tokens have more consumption scenarios within the entire economy, while the supply and demand of the tokens can be balanced and adjusted according to the algorithm between the burning and minting of tokens. The entire business model has evolved from a simple C2C to a more managed B2C model.
On November 2, 2023, the Render Foundation announced that Render Network has successfully upgraded its core infrastructure from Ethereum to Solana and launched an incentive program to encourage users to upgrade their $RNDR from Ethereum to the new token $RENDER on Solana.
Helium
Helium is one of the oldest and most well-known DePIN projects, a decentralized wireless network protocol that incentivizes users to deploy gateways and promotes a global network based on LoRaWan technology. Initially, it built its own Layer 1 network, but adoption faced obstacles. In April 2023, it completed the migration to the Solana network, hoping to reach a larger user base and liquidity through this opportunity and fully leverage the efficiency of the Solana network for further expansion.
$HNT is the main economic asset in the Helium ecosystem, and the only way to pay for network data transmission fees is to burn $HNT. Currently, its market value is $1.29 billion, and it was delisted from spot trading pairs on a certain exchange in October 2022.
In 2023, Helium issued two new tokens, $Mobile and $IOT, which are the governance tokens of the Helium Mobile and Helium IOT subDAOs, respectively, aimed at achieving governance separation. The $Mobile earned from the 5G hotspot business of Helium Mobile; while $IOT is used to reward nodes focused on running the Internet of Things. $HNT remains the primary asset in the Helium ecosystem, serving as the only token that can pay for network data transmission.
Hivemapper
Hivemapper is a blockchain-based mapping network where contributors can collect data by installing Hivemapper's dashcam, while earning tokens $HONEY as rewards. The issuance and settlement of tokens are conducted on the Solana network. In Hivemapper, the dashcam is similar to a mining machine, connecting with the Hivemapper application to upload street view images as data.
In just one year since its establishment, Hivemapper has mapped approximately 91 million kilometers of road, covering 10% of the total road mileage worldwide, with over 6 million kilometers being unique. With the delivery of more than 8,000 dashcams globally, drivers are helping to create the freshest maps in the world every day.
Hivemapper's revenue comes from two sources: selling dash cams and selling map data APIs. The price of each dash cam is $300( for the standard model and $649) for the advanced model. The annual revenue is conservatively estimated to exceed two million dollars. The price of the $Honey token cannot be too low; otherwise, the demand for dash cams will decline, the maps cannot be effectively expanded, and the entire business will be stuck. The token has not yet been listed on mainstream exchanges and is mainly traded on a certain DEX, with a high FDV currently at $2.4B, but the circulation is only 2.6%. Projects with high FDV and low circulation have been a notable characteristic of tokens associated with certain well-known individuals, making the prices very susceptible to wild fluctuations.
Tekkon
Tekkon is a Japanese project that allows users to earn token rewards by taking photos of local infrastructure such as utility poles and manhole covers, or by reporting damaged infrastructure, while also helping to improve their community.
Whole Earth Coin(WEC) is the reward token of Tekkon, and in Japan, WEC can be exchanged for cash on Line Pay.
Its initial issuance was 300 million tokens, with no maximum limit. When the initial tokens are exhausted, if the number of users continues to grow, the system will issue new tokens to reward users. Among the initially issued 300 million tokens,