DePIN | The New Crypto Narrative
DePIN: Decentralized Physical Infrastructure Networks
The concept of ‘DePIN’ has been part of the crypto narrative since the end of 2022, when it was recognized by renowned research firms such as Messari Crypto and Pantera Capital.
Leading research firms and influencers have even chosen ‘DePIN’ as one of the most important keywords for 2024, alongside ‘AI’.
DePIN(Decentralized Physical Infrastructure networks) are, to borrow a phrase from Messari’s report, networks that use token incentives to coordinate the buildout & operation of critical infrastructure efficiently.
DePIN encompasses a wide range of projects that are not specific to any one sector.
It refers to things that can be built in a decentralized form in the physical world, such as decentralized Wi-Fi, decentralized storage, decentralized payment systems, etc.
To make ‘DePIN’ more relatable, it means leveraging blockchain technology to build decentralized infrastructure rather than centralized in the real world.
Success as a DePIN can be easily understood through a virtuous cycle called the ‘DePIN Flywheel’.
The six essential components of a DePIN
To function as a DePIN, It will need the following 6 components
- Physical infrastructure
- Token incentive model
- Tokens
- Users and consumers
- DAO community
- Consensus protocol
Let’s take a look at how these components work in the DePIN Flywheel.
DePIN Flywheel
As you can see in the image above, the ‘DePIN Flywheel’ is a virtuous cycle that fulfills 4 conditions.
1. Ecosystem participants can be attracted through token rewards.
2. As the infrastructure network grows, it will be able to attract more developers, builders, end users, etc.
3. Fees generated from end users attract more service providers.
4. The protocol token model creates a relationship between network usage and token price.
This 1–4 structure becomes a virtuous cycle, and also economies of scale are achieved through token incentives.
Why is DePIN important, and why has it become one of the most recognizable keywords in crypto?
The importance of “Decentralization” is a core value not only for DePIN, but for blockchain as a whole, from the inception of Bitcoin.
Even physical infrastructure built in the real world can be decentralized to empower the public, and by providing token incentives, DePIN projects can motivate people to work together to improve public infrastructure.
Wealth and power centralized in untrustworthy public institutions, incompetent and corrupt bureaucrats, etc. can be returned to citizens and communities.
DePIN’s Challenges and Future
DePIN has become one of the most important future foods for thought in the crypto industry, but there are still challenges ahead.
It needs to convince the general public, who are still resistant to crypto/blockchain technology, and sometimes even enable them to use it without even realizing it.
The token incentive model can collapse at any time, and this has happened to many projects in the last 2–3 crypto winters.
The success of the token incentive model will inevitably play a role in the motivation of participants/users, and the tokenomics of the DePIN economic model will need to be very tightly woven to ensure a virtuous cycle.
Nevertheless, the good news is that there is still consumer demand for DePIN, especially ‘Decentralized’, and the market is growing.
As long as this demand continues to exist, the future of DePIN will be successful, and DePIN projects should strive to make it happen through technical and development innovation.
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