Produced by: CGV Research
Author: Cynic, Shigeru
Preface: Since its inception, the concept of DePIN has consistently drawn attention from major investment institutions. In the outlook for 2024, investment entities such as Messari, Coinbase, and Spartan Group have placed their bets on the DePIN track; recently, DePIN tokens like $DIMO, $MOBILE, and $HONEY have seen significant gains, further attracting market attention; the AI concept has increased the demand for DePIN due to the popularity of LLM. CGV remains bullish on the development of the DePIN track, hence this article to share an understanding of the DePIN track.
Origin: Decentralization Moves from Virtual to Physical
DePIN, short for Decentralized Physical Infrastructure, was a term first coined by Messari in 2022, yet projects that fit the DePIN definition had already existed. By name, any physical device that meets decentralization requirements can be called DePIN, with the Bitcoin network being the earliest example. However, a more suitable benchmark may be a decentralized network that provides services in the physical (non-virtual) world, including storage, computation, bandwidth, sensors, energy, etc. It is generally believed that Filecoin, which emerged in 2014 as a decentralized storage solution, is the first successful DePIN project.
The reason for the emergence of DePIN is the dissatisfaction with traditional physical infrastructure. Typically, due to their enormous scale, key resources such as communication networks, electricity, and water are monopolized by large companies, leaving no alternative for users. With the advent of the Internet era, computing resources such as computing power and storage are similarly controlled by large corporations, forcing users to choose between a few oligarchs. The emergence of Web3 brings hope for a solution to this dilemma.
In 2008, Bitcoin burst onto the scene, and cryptocurrencies demonstrated the possibility of decentralizing the financial system; years later, DePIN attempted to revolutionize traditional physical infrastructure with decentralization. From pure Crypto to DePIN, from finance to tangible entities, the wave of decentralization has finally taken a step towards reality.
Operation: Perfect Integration of On-Chain and Off-Chain
The structure of DePIN can be divided into on-chain and off-chain parts.
The on-chain part is responsible for coordinating distributed resources, providing a trustless, permissionless decentralized ledger, ensuring that both supply and demand sides can obtain reliable results. This part uses blockchain as a ledger, with operations of both parties recorded via smart contracts, and cryptocurrency as the medium of exchange, while also providing token rewards to incentivize users to supply resources.
The off-chain part deals with the actual supply of resources, with users offering their idle physical resources in exchange for token rewards. High-operation computing resources can often be supplied by installing designated software, while more complex resources require specific hardware.
On-chain handles economic consensus, while off-chain handles physical resource scheduling. The operation of DePIN projects relies on the perfect combination of on-chain and off-chain, virtual and real elements.
Characteristics: Tokens Disrupt Traditional Paradigms
In traditional physical infrastructure construction, it is often large companies/governments that use massive capital for initial investment, a top-down centralized model with high costs, long duration, and low efficiency. This leads to high charges to offset the opportunity costs once the infrastructure is built.
DePIN completely overturns this traditional paradigm. Through tokenomics, DePIN distributes startup costs among individual participants, using a crowdfunding model to pay for the construction costs of infrastructure. Project developers only need to design the tokenomics appropriately, and the economic incentives will drive individuals to invest their resources in the DePIN network, building up the infrastructure network from the bottom up, in a decentralized manner.
Decentralized infrastructure possesses the property of self-expansion: once running, the revenue is fed back to the providers, encouraging more users to join the network to supply resources. As the infrastructure’s resources become more abundant, more users will use the infrastructure, generating more revenue, further accelerating the increase in supply. This creates a virtuous cycle.
Key: Practicality Drives Cost Reduction and Efficiency
We emphasize that in DePIN, tokens play a significant role as the market’s regulatory signal, providing greater stability for the protocol. However, we must not overemphasize tokens and neglect real value. Pure speculation cannot sustain the long-term operation of the protocol; practicality is key in DePIN projects.
On one hand, practicality comes from the permissionless nature of decentralization, which ensures users can access services without censorship and on equal terms. On the other hand, practicality comes from the cost reduction and efficiency of distributed self-hosting, which eliminates the structural costs (management, maintenance, labor, etc.) of centralized platforms, and the feature of reusing idle resources greatly reduces costs.
According to historical data from the last cycle, DePIN’s on-chain revenue is the most resilient, which is the core value driven by practicality.
Current State: Extensive Coverage with Flourishing Diversity
This is a potential real-world scenario:
At 7 am, Satoshi wakes up and his smart home is supported by the Internet of Things (IoT) from IoTex. He turns on his computer to check emails using a wireless network connected through WiFi Map, consults the Arkeen app to monitor his rooftop solar power generation, and puts his accumulated carbon credits up for sale. After breakfast, Satoshi drives to work, navigating with maps from Hivemapper. Along the way, DIMO records his driving data, earning him passive income, while his mobile network is provided by Helium Mobile. At work, as a software engineer, Satoshi begins his programming tasks, using Bittensor to select high-quality AI models for programming assistance, with the models trained by Gensyn, GPU power supplied by Akash, and data stored on Filecoin. After work, Satoshi picks a movie to watch on the Livepeer platform. After the movie, he plays some video games, with the rendering for the high-definition AAA games provided by Render Network.
After years of development, we have witnessed the Cambrian explosion-like growth of DePIN in a wide range of categories such as energy, logistics, surveying, and telecommunications. Human daily life can now be entirely covered by DePIN.
Case Study: Seeking Early Investment Opportunities
Deeper Network
Deeper Network is a decentralized bandwidth sharing network, committed to building a more open, fair, and trustworthy Internet, achieving democratization of the network and sovereignty over personal data. On the Deeper Network platform, users can establish decentralized VPNs, share bandwidth, access decentralized applications, all services based on blockchain technology for trust, security, and decentralization.
On the software level, Deeper Network uses its self-developed AtomOS to ensure network security. As the world’s first lock-free network operating system, AtomOS brings high reliability, scalability, and performance to Deeper Network. In addition, the Trident Protocol, as Deeper Network’s core communication protocol, provides an excellent user experience with its adaptive tunneling, intelligent routing, IP multiplexing, and tunnel congestion control mechanisms, preventing network censorship.
On the hardware level, Deeper Network has developed and produced Deeper Connect, featuring plug-and-play and zero-configuration properties, allowing users to enjoy uncensored secure network services without any professional knowledge, while also earning token rewards.
On the blockchain level, Deeper Network has built the Deeper Chain, adopting the NPoW consensus mechanism. NPoW fully utilizes Deeper Network’s two-layer structure; device nodes complete tasks to gain credit, which is then used to elect verification nodes by providing credit guarantees, creating an efficient, scalable, and secure block generation process. Compared to PoW, NPoW effectively reduces the consumption of computational resources.
Deeper has issued the platform token DPR, with a total supply of 10 billion. DPR is mainly used for incentives and service payments within the Deeper Network ecosystem, with a current FDV of $14 million. 60% of the total DPR will be obtained through NPoW mining, with mining rewards halving each year since 2021. On January 25, 2024, DPR completed its latest halving milestone. Just as Bitcoin halving can trigger a rise in price, the DPR halving combined with the bullish market expectations for 2024 could trigger a new surge in price.
Network3
Network3, as a DePIN project within the AI ecosystem, has built an AI Layer2 to assist in AI model training, through methods like edge computing, federated learning, and model compression, Network3 aims to democratize AI in an efficient, scalable way, enhancing privacy and security for users’ data.
Unlike most decentralized computing platforms, Network3 focuses on low-power, low-cost edge computing devices (such as IoT) rather than high-end industrial graphics cards. On one hand, the limited computing power of edge devices restricts the size of local models, so the computations performed by Network3 at the edge can only support smaller model parameters. On the other hand, the accessibility of edge devices means that every user has the conditions to use them, so they can process their private data locally and conduct joint training through federated learning.
In fact, with strong demand for AI in endpoints (smart homes, smart manufacturing, smart health monitoring) and the inability to afford the expenses of large models, Network3’s solution has the potential to fill this gap. Currently, Network3’s software has been downloaded 50 million times, with two million MAUs, more than 58,000 active nodes in the network, serving over 2PB of network traffic.
HPChain
HPChain is a DePIN protocol aimed at decentralizing high-performance GPU computing to support AI and cloud gaming developers.
Amid geopolitical influences, Nvidia has restricted chip imports to certain countries, and centralized cloud computing platforms (AWS, Azure) have limited usage in some countries, making a decentralized high-performance computing platform particularly important at this time, a decentralized high-performance computing platform seems particularly crucial.
Currently, HPChain possesses over 1000 GPU cards, and its cloud computing and cloud service platforms have already been launched. It is also formulating collaboration plans with entities like Cambridge University, Toronto University, and companies such as M1 and TikTok. The significance of this development is that it provides an alternative to centralized computing resources, which can be critical for developers in regions affected by import restrictions or service limitations.
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About Cryptogram Venture (CGV):
CGV (Cryptogram Venture) is a crypto investment institution headquartered in Tokyo, Japan. Since 2017, its fund and predecessor funds have participated in investing in over 200 projects, including the incubation of the licensed Japanese yen stablecoin JPYW. CGV is also a limited partner in several globally renowned crypto funds. Since 2022, CGV has successfully hosted two editions of the Japan Web3 Hackathon (TWSH), supported by Japan's Ministry of Education, Culture, Sports, Science and Technology, Keio University, NTT Docomo, and other institutions and experts. CGV has branches in Hong Kong, Singapore, New York, Toronto, and other locations. Additionally, CGV is a founding member of the Bitcoin Tokyo Club.
About AIFocus:
AIFocus is an entrepreneurial project accelerator based in Hong Kong, co-initiated by CGV (Cryptogram Venture) and Web3 Labs. It is dedicated to in-depth exploration of the AI and Web3 domains, selecting teams with forward-thinking ideas and creativity, and providing support in terms of technical talent, resources, and funding. AIFocus adheres to the service principle of investing first and then accelerating, aiming to unearth outstanding projects and propel them to rapid success.
Disclaimer:
The information and materials introduced in this article are sourced from public channels, and our company does not guarantee their accuracy or completeness. Descriptions or predictions involving future situations are forward-looking statements, and any advice and opinions provided are for reference only and do not constitute investment advice or implications for anyone. The strategies our company may adopt could be the same, opposite, or unrelated to the strategies readers might speculate based on th
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