After the rollercoaster crypto had been riding the past few years, it’s hard to hold back a grin when a new buzzword drops, no matter how much you believe in the Web3 dream. So when Messari rolled out a new name for something that had been around Web3 for a while — DePIN, Decentralized Physical Infrastructure Networks — commentators met it with its fair share of memes and snarks. That is the way, after all: Bulls and bears come and go, but memes are eternal.
As much as I love memes, though, the reality is that DePIN’s are Web3’s hands-down best shot at not just another bull run, but actual real-world adoption. And the stories of its poster children, riddled with mishaps and misfortunes, should be a lesson for the sector, but not a bell tolling its passing.
The craze to be
In essence, a DePIN uses blockchain and tokens to incentivize the crowd-sourcing of infrastructure meant to deliver real-world services and value. Here’s an example: Imagine we’re launching a new Internet Service Provider (ISP) business. To provide our end users access, we have to invest billions on purchasing and deploying the hardware and hiring countless staff to maintain our grid.
If we opt to go the DePIN way instead, we’d offer both private individuals and businesses a token-based incentive to deploy their own infrastructure and link it with our network. We’d also grant them a marketplace to offer their services on and implement a mechanism that would root our token’s value in the real-world value these businesses generate. Staying with the ISP example, we’d introduce a mechanism allowing end users to convert our token into a stable-valued token to pay for their connectivity. This mechanism would protect our end users from market fluctuations, ensuring the services never get unreasonably pricey.
What we end up with in this scenario is a community-powered infrastructure grid with decentralized ownership and a self-reinforcing incentive loop. It can scale at a lightning pace, it promotes individual ownership and empowerment, and can enter markets that fall beneath the legacy names’ preferred costs to revenue ratio. A whole array of projects are now moving in this direction, and investors are taking note, looking out for ideas that can disrupt industries starved for true innovation. For all of this potential, though, so far, the tale of DePINs has not been without its downturns.
The bear market cometh
When discussing all things DePIN, it’s hard to avoid all the elephant in the room — especially since it makes everyone’s voices so squeaky and funny. Yes, it’s Helium, the People’s Network.
Helium is a DePIN focusing on providing Internet of Things connectivity, which enables users to set up access points using the hardware they purchase from it and earn on their use. Once hailed as a hero of real-world blockchain adoption, it has taken some flak in the wake of some very concerning allegations revealed in a Forbes investigation. Besides that, while Helium’s supply-side hardware scaled fast to just under a million hotspots according to its own website, the demand for LoRaWAN connectivity is simply not yet enough to warrant such massive infrastructure.
Another famous example is Filecoin, a decentralized data storage platform that works as a Web3 rendition of services like Dropbox. Despite a somewhat rough start, the project launched its mainnet in late 2020 and recently posted some pretty solid figures suggesting growth and adoption.
Skeptics might point at the fact that these projects’ respective tokens have not been immune to the bear market, but with initiatives like these, tokens don’t tell the whole story. By now, even those who normally don’t read financial news know that the macro-economy is not in its best shape. The past year has been pretty atrocious for the economy across the board, which would naturally prompt investors to pull money out of riskier assets. As brilliant as your idea might be, it can only do so much to protect you from war, supply chain plights, post-pandemic inflation, and whatever black swans 2023 may be about to throw in our faces.
The true metric here is the scaling. Helium’s case may be shadier than Filecoin’s, but they both prove the underpinning model’s capability to incentivize rapid growth and deployment in markets hitherto dominated by centralized entities. They shot from zero to thousands of devices on their respective networks at a fast tempo without having to hire armies of staffers to deploy and maintain those and enabled communities to own the infrastructure that serves them.
Projects bringing this model into markets with established demand do have an uphill battle to fight against the entrenched legacy names, but the competitive advantages inherent to their model will likely help them get a solid beachhead. With some business smarts and perseverance, this inclusive and egalitarian model could give the old corporate entities a run for the money — all the while keeping the service financially feasible for both end users and infrastructure suppliers. It’s a difficult balancing act, but what isn’t.
Is this enough for the ultimate bull run that buys everyone a Lambo straight to the Moon? Only time will tell. But what’s for sure is that this model is Web3’s best chance at actual real-world adoption, and the real-world value it provides is a healthier foundation for sustainable growth than wild speculation.