DePIN
The Next Evolution of Web3 Distributed Hardware Networks
By: Alpen Sheth, Arul Murugan and Alvaro Gracia
A new paradigm of innovation has emerged that leverages web3 incentive models to crowdsource, fund and scale a global network of physical infrastructure for real-world utility. “DePIN” is defined by decentralized protocols operating non-fungible physical hardware at the edge of the network built on crypto-economic incentives and markets.
The most prominent DePIN networks include Helium, Wifi Dabba, Giant Protocol, PlanetWatch, Geodnet, Hivemapper, DIMO, WeatherXM, Tram, Tempo, Render Network, Orchid, Mysterium, Sea Nexus, Wayru, Birdbot, Livepeer, and Filecoin. In each instance, the network provides participants a stake via governance rights, asset ownership, and cryptocurrency rewards that help to bootstrap and expand its footprint and overall market share. These networks provide familiar forms of “real world utility” to a broad swath of consumers, businesses and market participants, which has typically been elusive for many crypto products and services. The NYT article entitled “Maybe There’s a Use for Crypto After All’ hints at the practical promise of decentralized services.
As the world moves from billions of active devices to trillions of active devices, we believe this will necessitate a fundamental reimagination of the approach to building next generation hardware and software towards web3-based decentralized (edge) computation. DePIN networks compete on the basis of four key factors: rapid network growth via token-based incentives, crowdsourced hardware (capex) costs, hardware with embedded financial systems, and open-sourced innovation and competition.
Importantly, web3 non-fungible hardware networks operate differently from typical cryptocurrency mining networks. For example, the bitcoin network is location-agnostic and incentivized for returns to scale, which often results in physical consolidation and geographic centralization in search of the lowest and most efficient energy supplies. Even decentralized web3 networks such as Filecoin, Render, Arweave, and Livepeer, are currently fungible and operate primarily through centralized data centers, though that may evolve over time.
As Sami Kassab of Messari Research explains, “compute and storage protocols would fall into this [fungible] category, since their services don’t depend on where the servers/nodes are hosted. One terabyte of storage in Hong Kong equals one terabyte of storage in Singapore. On the other hand, the location of a wireless network hotspot matters, making it and any other location-dependent hardware non-fungible” (source).
Location matters for non-fungible web3 hardware infrastructure. So, they use their token design (tokenomics) to both promote and autonomously reward particular types of decentralization to create valuable infrastructure, to source valuable data, or to achieve contiguous global geographic coverage (e.g. to build a borderless 5G wireless network). In this context, crypto provides a robust financial layer (protocols, rights and assets) to catalyze networks of edge devices and edge computation globally.
In the next section, we explore the broader landscape of DePIN protocols and the emerging thematic areas where we at Borderless see high potential value. Following that, we dive deeply into the details of the Helium network. The Helium network has set a benchmark for real-world scalability of DePIN networks and, as active participants and investors in the Helium network, we identify key catalysts for Helium’s success as well as several challenges we observe at this stage that if addressed can help unlock sustained growth for its network. We believe that these insights and lessons can be relevant to other DePIN protocols more broadly.
Emerging themes across DePIN Protocols & dApps
In the current landscape, there are several thematic areas of innovation where we see high potential value. The diversity of network types is growing rapidly and encompasses wireless IoT and cellular / 5G networking, mobility and spatial location collection, file storage, edge computing, and weather and pollution monitoring, among others.
Wireless Networking
Wireless networking is by far the largest and one of the earliest DePIN categories accounting for over 90% of the deployed hardware devices that process data on chain, encompassing IoT, cellular / 5G and WiFi networks. This category was initially established by Helium co founded in 2013 by Amir Haleem, a game developer, and world champion esports player, Sean Carey who is current co-founder and CTO of BlockJoy, and Napster founder, Shawn Fanning with the goal of building a global wireless network. Helium introduced novel innovations in verifying physical network activity on chain (i.e. “Proof of Coverage”) and achieved unprecedented scaling for IoT wireless connectivity by incentivizing the global deployment of approximately 950K IoT hotspots in less than 3 years (the latest data is available here). IoT networks have historically faced a persistent challenge for gaining adoption given the lack of compatible sensors and use cases and this the challenge facing Helium as well. Given this, the more immediate opportunity for growth is in cellular / 5G connectivity and Wi-Fi.
Another innovative network in this category is Wayru, a decentralized Internet Service Provider focused in Latin America. By the end of this year, Wayru will deploy 60 miles of fiber Optics (fixed broadband) and at least 1,000 Hotspots across the cities of Quito and Guayaquil in Ecuador by leveraging Algorands blockchain technology to tokenize the hotspots into groups of 1,000 or more, which are called Hotspot Pools. Anyone who wants to support the network can back the hotspot pools by purchasing ‘Pool tokens’ and get rewards based on the ownership of the pool. This model ensures an optimal deployment but may face scalability challenges. Another model are the Genesis Hotspots, which anyone can buy and set up, to earn rewards based on uptime and traffic.
Wifi-Dabba was founded in 2017 by Karam Lakshman and Shubhendu Sharma in order to lower the cost of deploying broadband infrastructure and they will be leading the Helium WiFi SubDAO. Focusing initially in India, the team is creating a mesh network of WiFi hotspots that are available for anyone to use. In particular, WiFi Dabba leverages lasers as the backhaul for some of their deployments. The project utilizes the new WiFi 6 standard to enable Helium to expand to many countries where public frequencies such as CBRS are not available.
There are several other protocols in stealth mode or at early build that are focusing on decentralized wireless space and we expect this category to continue to grow and expand globally.
Mobility and Mapping
Another DePIN category is decentralized mobility and spatial data collection. These protocols are building new data governance models, innovative hardware and software as well as entirely new business models. As a notable example, Hivemapper is the world’s first crypto-enabled dashcam that mines HONEY to build a map of the world as you drive. Today, global maps are largely controlled by a few centralized companies because they are extremely expensive to build. Instead, Hivemapper represents a fundamental shift in how maps are built at the edge of the network via token incentives. The Hivemapper network is a system that incentivizes map coverage, freshness, and quality with ownership. By installing a simple dashcam on a car or truck, a contributor can earn a new cryptocurrency, own part of the decentralized global map, and support the world’s critical geospatial infrastructure in a cost-effective way. Privacy is going to be a major concern and Hivemapper needs to address this concern to scale globally.
Most mobility data such as automotive data is collected by a handful of firms (such as OEMs) and either sold or stored away. DIMO is a web3 IoT platform that allows drivers to stream their vehicle data in exchange for tokens by either using their car’s software or a hardware device you can easily plug into your car. DIMO then makes that data useful by allowing developers to build on top of it and rewards the drivers based on data sales.
New companies are also beginning to build actual applications and use cases that go beyond infrastructure. Tram is a human mobility tracking application that rewards users for sharing their location data and for opting to take carbon reducing trips. Tram uses advanced software on the mobile device to differentiate between different modalities and rewards people accordingly. Meanwhile, Tempo is redesigning the entire business model for mobility by using blockchain-based networks to simplify the financing of electric micro mobility with daily payments in stablecoins. Tempo is also creating a new DeFi asset class, cash flow generating, asset backed and carbon negative bonds.
Environmental monitoring (Weather and pollution)
Global, real-time, high-resolution data and analytics are valuable for a wide range of applications by individuals, companies, institutions and governments. One company addressing this is PlanetWatch, founded in 2020 by Claudio Parrinello as a spin-off of the European Organization for Nuclear Research (CERN). PlanetWatch has built a global network of outdoor and indoor air quality sensors network using blockchain and cryptocurrency to reward people, businesses and institutions with PLANETS tokens for air monitoring data that is mined from air sensors. Similar to the Helium network, the token incentive aligns the interests of hosts to pay for sensor deployments thereby reducing the capital outlay required for traditional environmental monitoring systems. The PlanetWatch sensor network was launched at the beginning of 2021 on the Algorand blockchain and is one of the largest global air quality sensor networks reaching over 72.8K deployments across over 5,000 cities and 100 countries.
WeatherXM is a community powered weather station oracle network that utilizes crypto incentives to improve the accuracy of forecasts. WeatherXM has built a web3 weather station that is low cost, easy to deploy, autonomous, open source, stores sensor data directly to IPFS, connects to weather-related smart contracts and enables weather data mining. These stations allow owners to become weather station operators and earn rewards for collecting and validating data. The company says that this decentralized internet of things model should result in increased accuracy of forecasts particularly for areas that lack weather infrastructure.
Decentralized VPNs (dVPNs)
A growing category is privacy tools such as decentralized virtual private networks (dVPN). VPNs encrypt a user’s online browsing activity making it impossible for outside parties to track what you are doing. dVPNs can circumvent some of the flaws that plague standard VPNs. The greatest and most visible vulnerability is that when all internet traffic is routed via a single provider, that provider has the capacity to utilize and misuse the data. dVPNs have many more nodes than centralized providers. This topology improves performance, privacy and resilience. The leading protocols in this category are Orchid and Mysterium Network.
Decentralized Storage and Computing
The cloud storage market has many similarities to Helium. In fact, Filecoin was one of the main inspirations for Helium’s token model. The premise of filecoin is to enable a competitive global market for storage resources and tokens enable a financial layer that is global, frictionless, instant in settlement and minimizes trust. Filecoin is a decentralized data storage network built by Protocol Labs that allows users to sell their excess storage on an open platform. It acts as the incentive and security layer for IPFS (InterPlanetary File System), a peer-to-peer network for storing and sharing data files. Filecoin turns IPFS’ storage system into an “algorithmic market,” where users pay storage providers in Filecoin’s native token, FIL, to store and distribute data on the network. Filecoin is the leader in decentralized storage, with an 82% market share on the decentralized storage market and 45 PiB of used capacity.
Arweave’s primary focus is to make permanent, low-cost storage a reality. The company aims to accomplish its goal with the Arweave network, a block-based data structure called a “blockweave”. Arweave’s blockweave underpins the Arweave permaweb, an array of data, websites, and applications that are hosted on the blockweave. Since the Arweave protocol is built on top of the HTTP protocol, the permaweb is accessible via modern web browsers like Brave or Google Chrome. Aiming to store data on the network in perpetuity, the Arweave protocol enables individuals with spare hard drive space to store data in exchange for AR tokens. Arweave anticipates that the cost of storage will continue to decrease and uses a formula to calculate how much it will cost to store a particular piece of data.
Launched in June 2020, Render (RNDR) is a crypto project focusing on providing a decentralized GPU-based rendering solution. Render is a network that can connect artists and studios in need of GPU compute power with mining partners willing to rent their GPU capabilities and create content, with the aim of democratizing GPU cloud rendering, building an efficient, scalable, and robust rendering network. The project aims to provide tools and render power to GPU-intensive tasks like graphics, animations and videos and to shorten the time it takes creators to render quality videos by utilizing a distributed network of nodes. The project was started by Jules Urbach, a pioneer in computer graphics, streaming, and 3D rendering.
Importantly, when combined, these types of networks are highly complementary. Synergies are starting to arise, as some protocols use Helium for connectivity and location certainty or Filecoin or Arweave for secure storage. For example, while Helium provides a global “supply” of distributed IoT network connectivity, PlanetWatch’s air quality sensors located in cities across the world activate “demand” for such distributed connectivity, with the ability to leverage the web3 economic model.
Disruptive Dimensions of DePIN Protocol Networks
We have been an early investor and participant in the Helium network as well as many of the newer DePIN networks operating globally each with their own growing and committed communities. Already, these networks combined have deployed over 1M hardware nodes in a relatively short time frame and several of these networks are now operating at significant scale with traditional operators. In some cases, the cryptocurrency incentives offered represent actual economic value that has been newly created or displaced from centralized incumbent providers, by lowering costs, increasing competition and empowering all network participants. But the adoption and usage of these networks are still at very early stages.
We see a tremendous opportunity in DePIN, the intersection of edge computing and decentralized finance. Taken together, we believe that these networks are a new frontier for disruptive and exponential innovation for hardware-based infrastructure along four key dimensions:
- Rapid network growth
- Distributed hardware (capex) costs
- Hardware with embedded financial systems
- Open competition and innovation.
The Case of the Helium Network
Helium was the earliest DePIN protocol formed in order to achieve the goal of building a global wireless network. As Amir Haleem, Helium’s CEO, states, “not coming from the wireless space is an advantage and we thought of a lot of different ways to build this, until we saw the need for cryptocurrency.” With HNT, Helium figured out a way to reward its users for building a wireless network. They were searching for a new approach to build out the network where individuals can contribute and, at the same time, to reduce coordination costs that are too expensive for a centralized firm to take on. Helium’s token model serves to coordinate logistics and delivery through the use of market incentives, even in harder-to-service locations.
Helium’s network has several key advantages over legacy networks:
- An order of magnitude in connectivity: A sensor sending one data packet every hour on the Helium Network costs $0.09 per year, compared to the $3–6 per month from legacy IoT offerings.
- A global contiguous network: it no longer matters where a device is, as long as there is Helium coverage the cost is the same and the device can be roaming between countries without extra charges.
The Helium protocol has enabled an unprecedented, immense LoRaWAN IoT network with over 950,000+ LoRa transmission sites in over 45,000 cities and 170 countries. Helium now has the largest IoT wireless network globally which is a great achievement the community reached in less than 3 years. While the company started with the Long-range (LoRa) standard for internet of things (IoT) communications it has expanded its focus to become a “network of networks” to include 5G networks and expects to deliver 40,000 5G small cells by the end of 2022 which we think is an aggressive target at the current market. The immediate focus will be indoor Citizens Broadband Radio Service (CBRS) installations in the U.S. targeting stadiums, offices, malls, hotel convention centers, food courts, cafés, and other higher-volume venues.
The projection of 40,000 Helium 5G CBRS small cells would be more than the 30,000 Verizon ended 2021 with, and over two-thirds of the 110,000 total macro cell towers that T-Mobile operates as it merges its operations with Sprint’s network. Later in 2022, Helium plans to launch Wi-Fi 6 that will be available globally (and not be limited by CBRS spectrum). In this context, Helium has also augmented its tokenomics to include IoT and mobile tokens in addition to the native HNT.
Rather than viewing networks like Helium solely through the framework of competition, traditional companies and utilities can benefit from directly utilizing these networks to accelerate deployment of IoT and 5G services without any capital outlay. Take the example of Amazon and Comcast that both operate aggregated Wi-Fi networks that at least appear similar on the surface to the one Helium is building.
- The Wi-Fi routers sold by Comcast to its customers are designed to also allow other Comcast users to roam onto them. The primary difference is that Comcast does not reward its users for providing those roaming services, whereas Helium does
- Similarly, Amazon has also adopted the peer-to-peer LoRa network plan with its Sidewalk network, which uses radios embedded in Amazon gear that can piggyback on a consumer’s Wi-Fi network, but the network doesn’t provide any sort of incentive for a consumer to share their Wi-Fi network.
According to Helium COO, Frank Mong, “What we’ve done is, we’ve used blockchain technology as a means to create an incentive for any individual, anywhere in the world, to participate. And their participation is really providing wireless coverage, sharing their internet backhaul.” The tangible use case of using crypto incentives to bootstrap a wireless network also helps to explain why Helium has attracted more individuals to cryptocurrency mining than any other blockchain.
As with Bitcoin, Helium mining is now in a different phase and is maturing, shifting from retail users and hobbyists to companies that are providing services using the Helium LoRaWAN network. This transition has intensified with the reduction of hotspot profitability due to the recent market correction and the exponential growth that the network has recently experienced. We expect a migration and reallocation of hotspots away from locations where the coverage is redundant, and where the use cases are lacking, to places where the connectivity will be used for productive applications, where the token rewards will be seen as a subsidy to help offset deployment costs. Helium will also need to invest much more meaningfully in tooling and infrastructure that has been lacking to attract more sensors to the network. This process will be painful and costly in the short term but will improve the quality of hotspot setups, bring adoption, increase data transfers and achieve a higher application utility for the network.
We believe that longer-term scalability will require mainstream adoption via major carriers. To Helium’s advantage, larger carriers and telecommunication companies need to invest in new 5G (and Wi-Fi 6) infrastructure and Helium’s lower capital expenditure and rewards model is more economical. Helium has sought out similar partnership beginning with their integration with DISH and more recently their widely-anticipated partnership with T-Mobile. As Chris Ergen, head of the DISH Office of Innovation, stated “Helium is among the leading innovators who have demonstrated that the blockchain incentive works by creating the largest decentralized, unlicensed wireless network across the U.S.…as we build out DISH’s 5G facilities-based network, we will continue to look for innovative technologies and business models that complement or support our wireless business.”
We also expect more capable hardware, edge computing and new mining solutions to provide cellular and Wi-Fi connectivity where there are inefficiencies and dead spots. For example, the completion of Starlink’s constellation could mean having a ubiquitous backhaul for networks like Helium and Pollen. At a global scale, such synergies have the potential to help address the digital divide and connectivity gap, which affects between 3 to 3.7 billion people — almost half the world’s population. The cost of connecting the poorest communities also tends to be higher, as they lack other fundamental infrastructure, such as electricity or roads. The Helium network’s relatively low cost of deployment, token incentive model which rewards last-mile coverage, and globally accessible data credits could bring billions online.
Lessons from the Helium network’s experience for the broader DePIN sector
There are also a few key lessons and insights from the Helium network’s recent evolution for the broader DePIN sector. Although, the deployment of Helium devices has grown at an unprecedented rate, the actual utilization of the network is still very early and still not meaningful. Therefore, DePIN protocols will need to go beyond incentivizing users to deploy devices and focus more on deploying devices that maximize adoption, usage and real application utility.
Another observation is that Helium and the other DePIN protocols will continue to face the difficult task of evolving and pivoting while also being reasonably democratic and loyal to their investors and early stakeholders. The overall aim should be to keep the incentives aligned and fair. As Helium recently proposed and passed HIP 51, and as more wireless standards and tokens are introduced onto Helium network, subDAO tokens like MOBILE and IOT will compete for incentives with a documented programmatic treasury formula. This will set a market-based mechanism for wireless standards and their utility to the network over a long period of time. In the short run, we expect the IoT network to reduce its size temporarily causing some financial losses for more recent IoT miners. The risk is that major shifts like this could drag down the network if handled poorly; however, if executed well, the new approach could drive the Helium network to tens of billions of dollars of market capitalization in coming years.
Overall, Helium has already proven that blockchain-based protocols and crypto incentives can power the largest physical infrastructure across the globe at a much lower cap-ex by coordinating human efforts. Helium’s growth dwarfs all previous attempts over the last decade. The next opportunity in front of Helium is to prove that it can both launch new wireless networks while expanding adoption on its massive IoT wireless network deployed across the globe.
Conclusion
We strongly believe in the DePIN category and will remain an activist investor to bring more adoption to Helium and other DePIN networks. We believe that the unique competitive advantages of this new model will translate into widespread adoption of these protocols.
We are working closely with many of the new DePIN protocols mentioned in this report and are very encouraged by the approach they are taking.
As they mature, we believe DePIN networks will become a distinct web3 frontier both for adoption and investment. These networks are key to unlocking the global adoption of web3 technologies and economies because they link digital currencies and contracts with the “retail” familiarity of tangible real-world utilities and physical assets. While innovative token economics drive the early growth of these networks, their longer term value stems from actually deployed hardware infrastructure as well as actual usage and real application utility at scale. Over time we believe that this will result in compounding value that, from an investment perspective, offers a defensive opportunity to derisk cryptocurrency portfolio risk.
At Borderless, we have a deep conviction in the exponential value of web3 hardware infrastructure that rewards activity at the edge of the network and we invest across the DePIN category. We believe that DePIN will lead the next phase of crypto adoption based on real world “proof of physical work” (see Multicoin thesis here) and agree with Messari that this category–Proof of Physical Work (POPW) can be the catalyst for the next bull cycle.
Disclosure: Borderless Capital is heavily invested and has significant skin-in-the-game in Helium and the broader DePIN ecosystem. As a disclosure, we operate a Helium ecosystem fund and run 5000+ helium miners, 150+ validators, hold significant amounts of HNT tokens long term and are also investors in the equity of Nova Labs ($5M). Also the founding Managing Partners of Borderless Capital hold a significant position in HNT and run validators. We are committed to the Helium network among other DePIN networks and are taking several measures to bring use cases and utility. We are also collaboratively launching new initiatives to address the lack of usage by working with local communities and institutions to build social scalability of DePIN protocols in a more sustained manner. Our DePIN fund also holds equity and / or token of the most of the DePIN decentralized protocols and companies discussed in this report.
