Produced by: CGV Research Author: Shigeru "In my opinion, Japan's current development in the Web3 space is akin to the Japanese proverb 'Making a Buddha statue but not putting in the soul' , which means: 'They made a Buddha statue, but didn’t breathe life into it.' Although the Japanese government has done a lot of work in drafting Web3 policies and setting standards, there are clear shortcomings in actual implementation and critical steps." — Steve, Founding Partner of Japanese crypto fund CGV As CGV Founding Partner Steve has pointed out, while Japan has quickly embraced Web3 technologies and rolled out supportive policies, the deeply ingrained conservative culture and complex bureaucratic systems have made the pace of innovation unusually slow. This cultural tendency is rooted in Japan’s societal preference for stability and risk avoidance. Both companies and government institutions often opt for the safer path rather than boldly exploring emerging technologies. As a result, despite Japan's rapid adoption of new technologies on the global stage, the commercialization process often lags behind, making progress slow and halting. I. Japan’s Historical Lessons: The Reality of “Tech Enthusiasm” vs “Slow Transformation” The Meiji Restoration: Technology Introduction and Modernization Challenges The Meiji Restoration (1868) was a pivotal moment in Japan’s modernization. By importing Western military, industrial, and educational systems, Japan initiated rapid modernization. However, this process came with significant challenges in absorbing and transforming these technologies. While Japan learned advanced technologies from the West, fully internalizing them into indigenous innovation capabilities was a lengthy process. For instance, during Japan’s industrialization, large-scale adoption of British and German railway technologies led to frequent breakdowns and high maintenance costs due to a lack of local expertise. It wasn’t until the early 20th century that Japan gradually mastered railway technology, achieving localized innovation and improvements. Post-WWII Technological Imports: From Imitation to Independent Innovation After WWII, Japan experienced rapid development through its “economic miracle,” one of the key factors being the rapid importation and application of external technologies. In the 1950s, Japan imported automotive and electronics technologies from the U.S. and, within just a few decades, became a global leader in these fields. However, this journey was not without its hurdles. In the early post-war years, much of Japan’s automotive and electronics production was a direct imitation of Western designs, lacking independent R&D capabilities. For example, Toyota’s early post-war production lines closely mimicked those of American companies Ford and General Motors. Yet through continuous improvements, Japan developed "lean manufacturing" and eventually established global leadership. In the electronics industry, Sony is a prime example. In the early 1950s, Sony introduced its first transistor radio, a technology initially developed by Bell Labs in the U.S. By improving its size and sound quality, Sony successfully penetrated international markets and became one of the iconic examples of Japanese innovation. Through ongoing imitation, improvement, and innovation, Japanese companies transformed from mere followers into global leaders—a process that took decades and significant resources. The Lost Three Decades: Waning Innovation and Gradual Loss of Competitiveness The burst of the economic bubble in the 1990s marked Japan's entrance into what is often called the “Lost Three Decades,” during which its economy stagnated, and innovation and global competitiveness declined. From 1990 to 2020, Japan’s GDP growth remained sluggish, while emerging economies like South Korea and China surged ahead, surpassing Japan in many high-tech sectors. For example, in 1995, Japan’s semiconductor industry held over 50% of the global market share, but by 2020, this figure had plummeted to less than 10%. The reasons for this stagnation lie in Japan’s overly conservative approach to technological commercialization, with sluggish reactions to new markets and emerging technologies. For instance, electronic giants like Panasonic and Toshiba failed to adjust their strategies in the face of smartphones and new semiconductor technologies, eventually being outpaced by global competitors like Apple and Samsung. At the same time, Japan’s bureaucratic system exacerbated this innovation paralysis, as companies often spent years navigating government approvals, licenses, and compliance processes, rendering many projects sluggish and unresponsive to market changes. In the automotive sector, although Japan maintained competitiveness through the late 20th century, the electric vehicle (EV) revolution allowed newcomers like Tesla to capture market share rapidly. Japanese companies such as Toyota and Nissan were slow to respond, only beginning to roll out EV models in recent years. In 2020, Japan’s market share of electric vehicles was only 1.1% globally, compared to China’s 44% and Europe’s 28%. This slow transition illustrates Japan’s conservative approach to technological shifts, further contributing to its loss of competitiveness during the “Lost Three Decades.” In summary, while Japan historically experienced rapid starts by importing external technologies, transforming these technologies into independent innovation capabilities has faced challenges rooted in culture, systems, and markets. These lessons offer profound insights for the development of Web3 today—if Japan cannot swiftly break free from its conservative culture and bureaucratic constraints, it risks missing out on the next wave of technological revolution. II. The Current State of Japan’s Web3 Development: Quick Response, Slow Implementation? Policy-Driven Quick Response and Strategic Intent In 2023, the Japanese government released the “Japan Web3 White Paper,” detailing its development plans for blockchain and digital assets, aiming to create an environment conducive to Web3 technology through policy support. In 2024, the government passed a bill allowing venture capital and investment funds to hold crypto assets. These policies reflect Japan’s strategic intent to leverage Web3 technologies for its digital economic transformation. The rapid rollout of policies is also driven by the need to compete with other countries, such as Singapore and South Korea, which have made significant strides in blockchain and digital assets. Japan aims to attract global Web3 companies and talent to avoid being marginalized in the new technology race. Mainstream Corporate Participation: Web3 Initiatives from SONY to SBI Several major Japanese companies are actively involved in the Web3 space. For instance, Sony has established a dedicated department focused on blockchain technology and NFTs, leveraging its strong presence in the entertainment industry to explore new business models that combine digital assets with music, film, and more. In August 2024, Sony’s Singapore-based subsidiary, Sony Block Solution Labs Pte. Ltd, launched a second-layer scaling system for Ethereum called Soneium. SBI Holdings (formerly the financial investment division of SoftBank Group) is one of the first Japanese financial institutions to enter the cryptocurrency space, with investments in blockchain payments, digital asset management, and more. SBI Holdings also collaborates with Ripple to enhance cross-border payment systems using blockchain technology. Additionally, SBI has established a dedicated blockchain investment fund to drive innovation in Japan’s blockchain sector. The NTT Group, meanwhile, is focusing on infrastructure, with plans to develop a high-performance communications network to support Web3 applications, ensuring sufficient bandwidth and stability for future blockchain applications. In 2024, NTT announced partnerships with several Web3 projects to explore the use of blockchain in smart cities and IoT solutions. Delayed Regulatory Implementation: Complex Legal Framework and Compliance Challenges Despite the Japanese government’s proactive policies supporting Web3, the complex regulatory and compliance framework presents significant obstacles for many businesses. The Financial Instruments and Exchange Act (FIEA) and the Payment Services Act impose stringent requirements on crypto assets, including strict anti-money laundering (AML) and Know Your Customer (KYC) obligations. This regulatory complexity means companies face high costs and long delays in obtaining licenses and approvals. According to 2024 data, over 70% of Web3 companies cited compliance costs as a major barrier to market entry, with compliance spending averaging over 20% of total costs. These high costs, especially for resource-constrained startups, are a significant burden. Moreover, listing new projects on Japanese exchanges faces rigorous regulatory scrutiny. The Financial Services Agency (FSA) requires exchanges to thoroughly vet each project before listing. According to industry surveys, the average time for listing a new project on a Japanese exchange is 9 to 12 months, whereas in other countries, the process typically takes only 3 to 4 months. Lack of Innovation Capacity: Talent Shortages and Global Competition Japan is facing a significant talent shortage in emerging fields like Web3, especially compared to other countries. According to LinkedIn’s 2023 Global Blockchain Talent Report, Japan has only one-tenth the blockchain talent of the U.S. and less than one-quarter of South Korea’s. This shortage of skilled developers and technical experts is a key bottleneck in Japan’s Web3 industry development. The root of this talent gap lies in Japan’s education system, which has placed insufficient emphasis on emerging technologies. While Japanese universities excel in traditional engineering disciplines, they have been slow to invest in blockchain, smart contracts, and other cutting-edge fields. Additionally, Japan’s conservative corporate culture makes it difficult to foster and retain innovative talent, as many young people lack the courage to take risks and embrace failure. III. How Can Japan Break Free from the “Making a Buddha statue but not putting in the soul” Dilemma? Enhance Policy Execution: Streamline Processes and Improve Interdepartmental Coordination To address the issue of delayed policy execution, the Japanese government needs to take specific measures to enhance its policy enforcement. First, the approval processes should be simplified to reduce unnecessary bureaucratic hurdles, especially in the regulatory treatment of innovative technologies. For example, a dedicated Web3 fast-track approval process could be established to provide accelerated approval services for blockchain and digital asset projects, thus shortening the time from project inception to implementation. Furthermore, improving interdepartmental cooperation is crucial. The government can establish cross-departmental working groups specifically tasked with driving Web3 policy implementation, ensuring smoother collaboration across agencies and reducing friction and delays.At the same time, Japan could draw on successful experiences from regions like Singapore and Hong Kong by introducing a “sandbox” regulatory model. This would allow companies to test new business models and technologies under temporary, relaxed regulatory conditions, enabling more flexible experimentation and fostering innovation. Encouraging Enterprises to Innovate Boldly: Tax Incentives and Government Funding To encourage enterprises to innovate boldly in the Web3 sector, the Japanese government needs to introduce a series of incentive measures. First, tax incentives can be used to encourage companies to increase their investment in research and development. For example, tax deductions for research expenses can be provided to companies investing in blockchain technology, thereby reducing their innovation costs. Additionally, a dedicated innovation fund could be established to provide financial support for small and medium-sized Web3 enterprises, helping to bridge the funding gap these companies face in their early development stages. Similar government funding programs have achieved significant success in the United States and South Korea, where government support and collaboration with businesses have successfully nurtured multiple unicorn companies. Enhancing International Cooperation: Choosing the Right Partners and Models International cooperation is crucial for Japan's breakthroughs in the Web3 sector. To address its shortcomings in blockchain technology, Japan needs to actively seek collaboration with other countries and enterprises. First, Japanese companies can establish strategic partnerships with firms from countries and regions that are leaders in blockchain technology (such as the U.S. and China) to gain the latest industry knowledge and experience through technological exchanges and project collaborations. For example, they could work with regulatory authorities in Hong Kong to jointly promote the implementation of regulatory sandbox projects, or partner with U.S. blockchain companies to explore innovations in mechanisms such as virtual asset user protection and cryptocurrency transaction monitoring. Additionally, strengthening collaborations with overseas universities and research institutions is also very important. Japanese universities can partner with top international institutions (such as Stanford University, the University of California, Berkeley, and the Hong Kong University of Science and Technology) to conduct research on blockchain technology and jointly cultivate high-end talent, thus filling the domestic talent gap in the Web3 field. Conclusion Web3 technology offers Japan the potential for a "digital revival" but whether it can break free from the historical dilemma of "Making a Buddha statue but not putting in the soul" depends on the efficiency of policy execution, the strength of corporate innovation, and the ability to attract global talent. If Japan remains trapped in a conservative culture and a complex bureaucratic system, the Web3 industry may become another lost opportunity in the "lost thirty years." In the global wave of Web3, Japan faces significant challenges and opportunities. Only by truly breaking free from the constraints of conservative cultural norms and bureaucratic limitations, and seizing the opportunities presented by technological transformation, can Japan keep pace with other countries on the road to digital revival and achieve long-term sustainable development. ---------------------- 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. 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

Produced by: CGV Research Author: Shigeru , Satou Introduction PayFi, short for Payment Finance, refers to an innovative technology and application model in the blockchain and cryptocurrency sector that integrates payment functions with financial services.  The essence of PayFi lies in its focus on the processes of sending, receiving, and settling cryptocurrencies, rather than mere transactional activities. This model encompasses not only cryptocurrency payments and trades but also extends to lending, wealth management, and cross-border payments among various financial activities. Utilizing decentralized technology, PayFi enables quicker, more secure financial activities while reducing the frictions and costs associated with traditional financial systems, thus promoting seamless value transfer and financial inclusivity on a global scale. The concept of PayFi was first introduced by Lily Liu, Chair of the Solana Foundation, at the EthCC conference in July 2024. She views PayFi as a novel way of constructing financial markets, centered around the Time Value of Money (TVM) to create financial primitives and product experiences that are challenging, if not impossible, to achieve in traditional and even Web2 finance. The vision of PayFi is to revolutionize payment systems using blockchain technology, enabling more efficient, low-cost transactions and offering a novel financial experience. This, in turn, facilitates the creation of more complex financial products and applications, constructing an integrated value chain that forms a new financial cluster.  The CGV Research team believes that with the advancement of high-performance blockchain technologies, the true value of PayFi will rapidly expand and scale within this ecosystem. This expansion will accelerate the integration of payment and financial services, enhancing the practicality and efficiency of cryptocurrencies in everyday transactions and more complex financial operations. In the future financial ecosystem, PayFi is poised to be a key driving force. PayFi: Inheriting and Expanding Bitcoin’s Payment Vision The inception of Bitcoin was marked by Satoshi Nakamoto's revolutionary white paper "Bitcoin: A Peer-to-Peer Electronic Cash System," which introduced the concept of decentralized payment. This idea not only introduced a new form of currency—Bitcoin—but more importantly, it envisioned a global payment system without intermediaries that could circumvent traditional financial institution constraints, facilitating more efficient and transparent value transfer. Nakamoto’s vision aimed to fundamentally reform the existing payment system by eliminating high transaction fees, lengthy settlement times, and financial exclusivity. However, despite Bitcoin's success in leading the cryptocurrency revolution, its initial purpose as a daily payment medium was not fully realized.  Bitcoin is often regarded more as a store of value rather than a currency for daily transactions. Over time, the emergence of stablecoins filled this gap. By mapping the value of fiat currencies onto the blockchain, stablecoins bridged the gap between the cryptocurrency and the real-world financial systems, promoting the first practical application scenario for blockchain payments. Since 2014, the exponential growth of stablecoins has demonstrated a strong market demand for blockchain payments. Stablecoins allow users to enjoy the transparency and decentralization benefits of blockchain technology while avoiding the risks associated with cryptocurrency price volatility. To date, stablecoins support approximately $2 trillion in payments annually, nearing the annual payment processing volume of Visa. However, while stablecoins have advanced blockchain payment capabilities, several challenges remain, such as poor user experience, transaction delays, high costs, and compliance issues. These challenges restrict the widespread adoption of blockchain payments as a mainstream payment medium. The further expansion of the payment ecosystem, particularly relies on the promotion of financial instruments and financing mechanisms.  In the traditional financial system, tools like credit cards, trade financing, and cross-border payments significantly facilitate global payment applications by providing liquidity and financing options. As an emerging industry, blockchain does not necessarily need to completely rebuild a market but can offer more valuable products and solutions based on existing markets through blockchain technology. It is in this context that PayFi has emerged. By leveraging the high performance and low-cost transaction characteristics of advanced public blockchains, PayFi not only promises to surpass traditional financial mechanisms but also aims to create a more liquid and adaptive global financial market. This evolution represents both a return to Bitcoin’s original intentions and a significant innovation built on Bitcoin’s foundation.  Through PayFi, the blockchain payment system will truly unleash its potential, pushing the global financial system towards a more efficient and inclusive future. Core Concept of PayFi: Time Value of Money (TVM) "Time is more precious than money; you can get more money, but you cannot get more time." The Time Value of Money (TVM) is a fundamental concept in finance, emphasizing the value difference of money at various points in time. The basic principle of TVM is that the value of money in the present is generally higher than that of an equal amount in the future. This is because money held now can be immediately invested to generate returns or used for consumption, providing instant utility. Simply put, the important concept behind the time value of money is "opportunity cost." If the holder of money does not use it immediately, they lose the potential investment opportunity and the possible returns. Therefore, the present value of money must reflect these foregone opportunities. For example: - Loans and Mortgages: In bank loans, interest rates are calculated based on TVM, where the interest paid by borrowers essentially compensates for the use of funds provided by the bank. - Investment Assessment: When evaluating investments such as stocks, bonds, or real estate, investors consider the present value of future earnings to determine the attractiveness of the investment. - Capital Budgeting: When conducting capital budgeting, companies evaluate the future cash flows of different projects and calculate their present value through discounting, aiding management in making the most advantageous investment decisions, among other things. PayFi, through blockchain technology, allows users to realize the time value of money on the chain in an extremely cost-effective and efficient manner. By leveraging smart contracts and decentralized platforms, PayFi enables users to manage and invest funds without intermediaries, thus maximizing the efficiency of fund utilization. This new model not only significantly reduces transaction costs but also shortens transaction times, allowing funds to quickly re-enter the market for reinvestment or other purposes. Furthermore, PayFi's infrastructure enables the development of more complex on-chain financial products, such as on-chain credit markets, installment payment systems, and automated investment strategies based on smart contracts. These innovations are expected to expand into more complex financial products and application scenarios, creating an integrated value chain and forming a new "financial cluster." Gluing RWA + DeFi: Building a New Financial Cluster Centered on PayFi In the financial system, Real-World Assets (RWA) and Decentralized Finance (DeFi) each possess unique advantages and face their own challenges: RWA has a vast market size and stable value but relatively low liquidity, and lacks transparency and transaction efficiency; DeFi boasts efficient transaction mechanisms and global liquidity, but primarily relies on cryptographic assets, lacking a direct connection to the real economy. Contrary to some industry perspectives that suggest "PayFi is a sub-category within the RWA track," CGV Research believes that RWA is a part of the PayFi ecosystem. Beyond RWA, PayFi also encompasses a broader range of cryptographic assets, smart contract-driven financial services, and decentralized payment and settlement systems. The introduction and application of RWA through DeFi are crucial components of realizing PayFi's core functionalities. RWA requires DeFi to enhance liquidity and transaction efficiency, through digitalization and smart contracts on the blockchain for rapid, low-cost global financing, and to increase transparency and security of transactions. Simultaneously, DeFi enriches its asset categories by incorporating RWA, reducing volatility risks, providing stable sources of income, and connecting to the real economy, promoting its practical application and development globally. Through PayFi, RWA and DeFi are no longer independently developing financial systems but are interdependent and complementary wholes, achieving the integration and innovation of real assets with on-chain financial services. - Digitalization and On-Chain Integration: Bringing RWA onto the blockchain. The PayFi platform first digitizes RWA through smart contracts, enabling representation and trading on the blockchain. This process ensures the transparency and security of RWA's value and ownership on-chain. In this way, traditional RWA can be fragmented into smaller units, facilitating global trading and investment. - Smart Contracts and Payment Systems: Enabling efficient transactions and settlements. Once RWA is digitized, the PayFi platform uses smart contracts to automate the trading and settlement processes. This not only speeds up transactions and reduces costs but also ensures the transparency and security of transactions. Moreover, PayFi's on-chain payment system simplifies the transfer and payment of these assets, addressing common issues of settlement delays and high fees in traditional finance. - Liquidity Pools and Financing Channels: Providing financial support for RWA. PayFi's liquidity pools offer ample funding for RWA, enabling these assets to receive financing from global investors. By using RWA as collateral, PayFi allows investors to participate in financing activities on DeFi platforms, providing a stable source of funds for RWA. This model not only increases the liquidity of RWA but also brings diversified investment opportunities to DeFi investors. - Risk Management and Transparency: Enhancing market trust. Through blockchain technology, PayFi ensures the transparency and verifiability of all RWA transactions, reducing information asymmetry and operational risks. The automatic execution of smart contracts reduces the risk of human intervention, while the immutability of the blockchain ensures the security of transaction records. All these enhance market trust, promoting further integration of RWA and DeFi. In the future, PayFi will play an increasingly important role in enhancing global asset liquidity, reducing transaction costs, and enhancing market transparency. In Lily Liu's view, PayFi’s integration of RWA and institutional finance into on-chain liquidity pools, creating an integrated value chain, constitutes a "new financial cluster" and may be the biggest theme in the cryptocurrency market this cycle. Why Is PayFi Flourishing on Solana? Why does PayFi happen on Solana rather than on other Layer 1 (L1) blockchains or Layer 2 (L2) solutions? Lily Liu's answer highlights Solana’s three key advantages: high-performance blockchain capabilities, capital liquidity, and talent mobility, which together form a competitive edge that is difficult for rivals to surpass at this stage. Firstly, high-performance blockchain. Solana’s core technological advantage is its unique Proof of History (PoH) consensus mechanism, which enables it to process over 65,000 transactions per second (TPS) with an average confirmation time of around 400 milliseconds. This performance far exceeds Ethereum’s 10-15 TPS and longer confirmation times, and even L2 solutions on Ethereum, like Optimistic Rollups, struggle to match Solana in terms of latency and throughput. Although Visa claims its servers can handle up to 56,000 TPS, in practice, Visa averages only 1,700 transactions per second. By comparison, Solana is fully capable of meeting the actual payment demands. Secondly, capital liquidity. As of August 30, 2024, the total value locked (TVL) in the Solana ecosystem has surpassed $10 billion, attracting significant investments from top venture capital funds including Andreessen Horowitz (a16z), Polychain Capital, and Alameda Research. This capital liquidity provides strong financial support for the expansion of PayFi. Lastly, talent mobility. The Solana Foundation actively promotes the development of its developer community, organizing over 500 hackathons and global developer education programs. By 2024, there are more than 5,000 active developers within the Solana ecosystem, making it one of the fastest-growing blockchain developer communities in the world. This robust talent pool supports the development of various innovative projects and continues to attract new technology and financial talent to the ecosystem, laying a solid foundation for the development of PayFi. PayFi leverages programmable payments to bridge the traditional and blockchain worlds, making it possible to scale credit finance on-chain through smart contracts. Solana's advantages not only support the development of PayFi but also position it strongly for future competition in the global payment and financial markets. For instance, PayPal chose Solana as the new public blockchain for PYUSD payments, primarily valuing Solana's rapid settlement capabilities, low transaction fees, and robust developer ecosystem. Solana's token extension features, including confidential transfers, transfer hooks, and memo fields, provide the necessary flexibility and commercial utility for PYUSD. As PayPal states, "These features are not just nice to have. If we want PYUSD to play a role in a broader range of commercial domains, they must be provided to merchants." Today, Solana has become the main platform for PYUSD, holding a 64% market share, while Ethereum holds only 36%. Moreover, as early as September 2023, Visa had already expanded USDC settlement functions from Ethereum to Solana. Application Scenarios and Typical Projects of PayFi The essence of PayFi is to reshape and upgrade the traditional financial system using advanced cryptographic technology, making it necessary to reimagine all financial scenarios with PayFi. Cross-border Payments and Trade Traditional cross-border payments face challenges due to the segregated nature of centralized sovereign currency systems, affected by foreign exchange controls and national monetary policies, leading to cumbersome processes, long transaction times, and high costs. Initially, cryptocurrency payments were seen as an excellent solution for traditional cross-border payments, but enterprise-focused solutions still have many shortcomings. Today, the cross-border payment industry still heavily relies on prefunded accounts to achieve same-day settlements. Currently, over $4 trillion is locked in prefunded accounts, representing a significant hidden cost for financial institutions and the global payment industry. PayFi can optimize this by leveraging traditional credit finance to enable cryptographic services. Arf（@arf_one）: The world's first regulated, transparent short-term liquidity solution for supporting cross-border payments, based in Switzerland. By providing operational capital and settlement services based on digital assets, along with local entry and exit capabilities for licensed money service businesses and financial institutions, Arf eliminates the capital-intensive business model institutions in the cross-border payment industry. Arf provides a unified liquidity network for cross-border payments and trade, eliminating the need for prefunding and offering 24x7 transparent and compliant services. As of now, Arf's on-chain transaction volume has recently exceeded $1.6 billion with no defaults, becoming one of the fastest-growing stablecoin use cases. Supply Chain Finance  Supply chain finance combines financial services with supply chain management, based on trade relationships and transactions within the supply chain. It involves managing and controlling the flow of information, logistics, and funds to provide systemic financial products and services to upstream and downstream enterprises. Traditional supply chain finance is hindered by complex contracts and legal work, and the financing process is slow and automated evaluation is difficult, significantly affecting the financing turnover of small and medium-sized enterprises. PayFi greatly simplifies the process of purchasing accounts receivable and other services, easing the financing difficulties of businesses. Isle Finance(@isle_finance)： the first project to offer an RWA PayFi network for supply chain payments, introduces real-time Web3 liquidity into supply chain finance, providing liquidity providers with competitive, high-grade returns. By combining supply chain payments with blockchain technology for real-time settlement and liquidity management, Isle enables supply chain participants to process payments and settlements more swiftly, improving capital efficiency. Meanwhile, on-chain liquidity providers can anchor to the payment stability of high-credit buyers and share in early payment discounts offered by suppliers. Isle's main clients include high-net-worth individuals (HNWIs), crypto-native users, DAO treasuries, asset managers, and family offices. The platform also allows regular users to stake ISLE tokens to earn liquidity mining rewards. Consumer Finance PayFi for end-consumers, which may be of more interest to users, primarily occurs in the consumer finance sector. This was a focus emphasized by Lily Liu in her PayFi discussions, "Buy Now, Pay Never." Users can cover current expenses by pledging future earnings, with enforcement facilitated by on-chain smart contracts. In consumer finance, the key to PayFi is connecting the merchant network's service providers who act as acceptors, enabling consumers to access a sufficiently diverse range of consumption scenarios. Huma Finance (@humafinance): A pioneer in proposing the PayFi Stack, an open stack designed to build compliant payment financing solutions and advocating industry leaders to optimize solutions to meet the unique needs of PayFi. The initial stack includes the following layers: transactions, currency, custody, financing, compliance, and applications. For example, the financing layer includes credit rating, underwriting, and RWA oracles. As a representative project in the financing layer, Huma focuses on common short-term financing in the payment field. As of August 26, 2024, Huma has financed a total of over $280 million, with a default rate of 0%. CrediPay (@Credix_finance): Helps businesses increase sales volumes and improve cash flow efficiency through seamless and risk-free credit services. Sellers offer flexible payment terms to buyers at attractive prices and charge prepayments. We manage and protect customers from any credit and fraud risks, allowing them to focus on what matters most: increasing sales volume and profitability. Currently, CrediPay's services are mainly focused in Latin America, such as accounts receivable factoring. Opportunities and Challenges of PayFi Market Growth Potential The primary aim of PayFi is to bring the time value of money onto the blockchain and restructure the financial system in a more programmable, sub-custodial, and decentralized manner. With the rapid increase in the number of global stablecoins and continuous improvements in cryptocurrency infrastructure, PayFi is poised to be a significant force in transforming traditional finance. According to data from Statista, The total volume of global digital payment transactions in 2023 is expected to reach approximately $9.46 trillion, with projections to continue growing to about $14 trillion by 2027. Additionally, data from Mordor Intelligence estimates that the DeFi market size will be $46.61 billion in 2024, expected to reach $78.47 billion by 2029, with a forecasted compound annual growth rate of 10.98%. Calculations by the CGV Research team suggest that if PayFi can capture 10% of the global digital payment transaction volume (a conservative estimate) by 2030, the PayFi market size (projected at $1.8 trillion) could be 20 times that of the DeFi market size ($87 billion). This indicates that PayFi has tremendous market potential and is likely to play a significant role in the global digital payment sector. Regulatory and Compliance Challenges As the issuance of global stablecoins continues to increase, central banks are gradually easing their stance on stablecoins. Broadly speaking, fiat-pegged stablecoins can be seen as a digital extension of fiat currency. PayFi, mainly involving payment services mediated by stablecoins, is still subject to the regulatory framework of the sovereign currency system. On one hand, current PayFi projects emphasize compliance, typically allowing only licensed institutions to participate, while individual users must undergo strict KYC procedures and scrutiny. On the other hand, many PayFi projects tend to expand business in third-world countries, where local regulations are often less robust and regulatory barriers lower, thereby posing relatively smaller compliance risks. Technological and Security Risks Despite years of DeFi development and many security vulnerabilities being identified and audited, security issues have not been completely eradicated. However, the security of on-chain PayFi has essentially reached parity with traditional DeFi's security after stringent audits. The main technical challenges lie in the off-chain segment. Since PayFi requires extensive integration with real-world assets, ensuring the enforcement of off-chain logic remains an unresolved issue. The current solution often involves an intermediary entity to manage the alignment between on-chain and off-chain operations, but this solution still requires further refinement. Conclusion PayFi, as a new wave in payment finance, is reshaping the global financial ecosystem with its unique charm. It not only inherits Bitcoin's payment vision but also elevates the efficiency and inclusiveness of financial services to new heights through blockchain technology innovations. Supported by high-performance blockchains like Solana, the market size of PayFi is expected to grow exponentially, becoming a major driving force in the future financial market. As Lily Liu envisioned, PayFi tightly integrates RWA and DeFi, constructing an integrated value chain and forming a new financial cluster. This revolutionary innovation is poised to drive the global financial system towards greater efficiency and inclusiveness. ---------------------- 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. 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

On August 27, from 2 PM to 5 PM Tokyo time, the WebX side event titled ‘Bridging Real & Virtual: Global Meets Local in WebX,’ co-hosted by CGV, XStar, and Starbase and co-sponsored by mizu, Aylab, and LayerPixel, successfully concluded. The event brought together top Japanese enterprises, projects, and communities, along with leading industry institutions and projects, to explore the Japanese Web3 market and share insights on how to achieve growth in the Japanese market. Here is a review of the event. Host Speech | CGV、XStar、Starbase CGV (Cryptogram Venture) is a cryptocurrency investment firm headquartered in Tokyo, Japan. Partner YZ provided an overview of CGV’s overall development background and investment activities: since 2017, its funds and predecessor funds have invested in over 200 projects, including the investment and incubation of the licensed yen stablecoin JPYW. Additionally, CGV FoF is a limited partner in several globally renowned cryptocurrency funds. CGV is also actively focused on the development of Japanese Web3 startup projects, and since 2022, it has successfully hosted two editions of the Japan Web3 Hackathon (TWSH), which have received joint support from institutions and experts such as the Japanese Ministry of Education, Culture, Sports, Science and Technology, Keio University, and NTT Docomo. Recently, CGV invested in and incubated the ML KOL Club and RONA. ML KOL Club is a service organization that brings together outstanding global opinion leaders and boasts a large community. The team members come from regions such as Japan, Hong Kong, Singapore, and Vietnam, and have extensive project experience and a wide network of KOL resources in areas such as cryptocurrency investment and research, community management, brand development, and marketing. RONA is a high-performance Web3 gaming ecosystem dedicated to combining advanced hardware with blockchain technology to offer players an immersive gaming experience and opportunities to earn income through gameplay. By integrating gameplay, cryptocurrency mining, and AI computing power sharing, RONA creates a new ecosystem where players can enjoy the fun of gaming while also achieving economic gains. Currently, CGV has branches in Hong Kong, Singapore, New York, and Toronto, and is also a founding member of the Tokyo-based Bitcoin Tokyo Club. XStar is an omnichain identity protocol for proof of humanity. Founder and CEO Ervin introduced how XStar’s decentralized identity system (DID) combines with proof of humanity to counter sybil attacks. Starbase is a Web 3.0 accelerator focused on GameFi and AI. Founder Vivian introduced Starbase’s core operational model, including project investment, incubation, and acceleration. Starbase has invested in over 100 projects across various trending sectors and provides funding support for startups. Keynote | Aylab: Web3 User Acquisition At Scale Aylab CEO Robert Zhang mentioned that Aylab is building the Aylab Traffic Loop (ATL), an innovative Web3 advertising engine designed to help Web3 projects acquire a large number of mobile users from both Web2 and Web3. Panel Panel 1: Navigating Japan’s Web3 Market Japan’s proactive Web3 policies, unique market atmosphere, and the influence of KOLs and vibrant community culture are gradually making it an important market. An increasing number of emerging companies are actively expanding, seeking opportunities in this market. Panel 1 was a Japanese-language session hosted by Anome’s Japan Ambassador, Kaori, and featured guests from well-known Japanese companies, projects, and communities: Hara, CEO of JANCTION and CFO of JASMY; Kab, Director of ACG Worlds; Mack Suzuki, CEO and Founder of LEGENDARY HUMANITY; and Keisuke Horiguchi, Founder of GuildQB. The panelists shared their perspectives on the development of Web3 in Japan and insights on how overseas projects can enter the Japanese market. Panel 2: AI Meets Crypto: Beyond the Hype, Into Real-World Application AIxCrypto has quickly become a significant narrative in the current market. As this trend develops, related applications, protocols, and infrastructure are continuously emerging. Panel 2 was moderated by XStar’s Strategy Lead, Alex, and featured guests from renowned VC firms and projects: Kobby Chen, Investment Director at Fenbushi Capital; Kevin Qi, Investment Director at Mask Network; Jane, Director at CGV; and Sam, Co-founder of mizu. The panelists engaged in an in-depth discussion on the current landscape of the AIxCrypto sector, its broad application areas, and the potential and prospects for future development. Special thanks to all the following partners for their support of this event. About Cryptogram Venture (CGV): CGV (Cryptogram Venture) is a crypto investment firm headquartered in Tokyo, Japan. CGV and it’s predecessors invested more than 200 crypto projects since 2017. CGV also incubated a licensed Japanese yen stablecoin JPYW. Additionally, CGV FoF is a limited partner in several globally renowned cryptocurrency funds. Since 2022, CGV has successfully held two Japan Web3 Hackathon (TWSH) and gained joint support from institutions and experts such as Keio University, Sony and NTT Docomo. Currently CGV has branches in Hong Kong, Singapore, New York, and Toronto.Furthermore, CGV is one of the founding members of the Bitcoin Tokyo Club, based in Tokyo, Japan.

Produced by: CGV Research Author: Shigeru Blinks technology, a revolutionary innovation within the Solana ecosystem, allows users to interact directly with the blockchain via a simple URL or QR code, eliminating the need for complex wallet setup or transaction processes. This innovative interaction method significantly lowers the barrier to entry into the blockchain world, expands the application boundaries of blockchain technology, and promotes the deep fusion and transformation of the Solana ecosystem with the Internet world. The “Solana Internet” is more than just a new concept; it represents a brand-new network ecosystem. As the slogan on the Blinks official website states: “It’s time to connect Solana to the entire internet.” Through Blinks technology, the vision of connecting Solana to the entire internet is gradually becoming a reality. The CGV research team has deeply analyzed the intrinsic link between Solana Actions and Blinks technology and their potential applications across various scenarios, projecting how this technology can drive wider adoption of Solana and blockchain technology. Understanding Blinks: Why You Can’t Ignore Solana Actions? Before exploring how Blinks technology revolutionizes our interaction with the blockchain, we must first understand its foundational technology — Solana Actions. Just like a skyscraper needs a solid foundation, the convenience and powerful functionalities of Blinks rely on the support of Solana Actions. (1)Actions allow the use of complex business logic (on-chain and off-chain) to build transaction message APIs, which can be previewed, signed, and sent by clients. Native buttons, QR codes, or URLs (Blinks) can initiate Actions. Examples of Actions: Staking SOL to help secure the Solana network, including liquid staking tokens. Allowing customers to scan a QR code to pay at retail stores. Token-Gated minting experiences where only verified users can participate or enjoy specific resources and benefits. Enabling e-commerce websites to accept cryptocurrency payments directly from product pages. Recharging a trading account before margin calls. Integrating blockchain functionalities into gaming platforms for in-game asset purchases and trading. (2)Blinks are a way to interact with Actions. Blinks allow users to execute blockchain transactions directly from URLs, enabling access to decentralized applications from any platform or device. Examples of Blinks: Tipping content creators on social media without complex wallet setups. Minting custom NFTs or participating in governance votes directly from a URL. Allowing users to vote on community policies through links in newsletters. (3)The Relationship Between Actions and Blinks Imagine Actions as a “kitchen” where you can prepare a variety of complex and delicious dishes (i.e., blockchain transactions). You can add various ingredients (on-chain and off-chain logic) and follow recipes (API specifications) to cook. This kitchen is very flexible, capable of making a wide range of dishes to meet different needs. Blinks, on the other hand, are like a “delivery service.” When you have prepared the dishes in the kitchen, you can deliver them to customers (users) through the delivery service (Blinks). Customers do not need to come to the kitchen or know how the dishes are prepared; they only need a simple link or QR code to enjoy these delicacies. In summary, the relationship between Actions and Blinks is akin to that of a “kitchen” and a “delivery service.” Actions are responsible for preparing transactions, while Blinks deliver these transactions to users, enabling them to execute these transactions easily and quickly. This approach greatly simplifies the user experience, making blockchain technology more accessible and user-friendly. Blinks’ “Reducing Jumps”: The Secret Weapon for Solana to Achieve Massive Crypto Adoption? From first principles, Blinks simplify user operations by “reducing jumps,” enhancing user experience, expanding blockchain technology application scenarios, and promoting the adoption of decentralized applications. These features significantly enhance the convenience and usability of the crypto ecosystem, driving broader blockchain technology adoption. (1) From the user psychology perspective, “reducing hops” helps: Simplify the decision-making process: Each hop or additional click increases the user’s cognitive burden and decision-making time. Simplifying the process reduces the user’s thinking time, allowing them to make purchase decisions more quickly. Reduce drop-off points: Each step is a potential drop-off point; users may give up due to long page loading times or complex operations. Reducing the number of hops can significantly reduce this attrition. (2) Looking at successful internet product cases, see how “reducing hops” significantly improves conversion rates and user experience: TikTok’s video shopping feature allows users to purchase products directly within the video through embedded shopping links or shopping carts. In 2023, the number of TikTok users shopping in the US increased by 72.3%, reaching 23.7 million; 67% of TikTok users said they were inspired to make purchases by the content on the platform without the intention to shop; 68% of Generation Z consumers said they are more willing to purchase directly on TikTok. After Amazon introduced the One-Click Purchase feature, the conversion rate increased significantly. Industry experts estimate that this feature has increased the conversion rate by at least 70%. This simplified purchasing process has also been followed by many other e-commerce platforms. About 70% of shopping cart abandonment rates are partly due to complex checkout processes. After introducing the “one-click purchase” feature, the average consumption of users increased by 28.5%, the purchase frequency increased by 43%, and the types of purchased products increased by 36%. The Right Fit is the Best: Recommended Typical Application Scenarios for Blinks (1) Social Media Tipping: Example 1: A famous YouTuber like MrBeast posts a charity challenge video on his channel. Viewers can tip the related charity directly using a Blinks link in the video description. Example 2: Ethereum founder @VitalikButerin shares his views on Ethereum’s future development via a tweet. Fans can use the Blinks link in the tweet to tip and show support. (2) Crowdfunding: Example 1: GoFundMe launches a charity crowdfunding project to support Ukrainian refugees. Supporters can donate instantly using the Solana Actions button on the project page. Example 2: A Reddit community initiates a crowdfunding project to restore a historic monument. Community members can participate through a Blinks link in the Reddit post. (3) On-Chain Voting: Example 1: A well-known blockchain project like Uniswap initiates a community vote via a tweet to decide the priority of new feature development. Community members can vote through the Blinks link in the tweet. Example 2: A Reddit community discusses whether to introduce new rules through a post with a Blinks link for on-chain voting, ensuring transparency and fairness in the voting process. (4) NFT Minting and Bidding: Example 1: Artist Beeple announces his latest work on Twitter and provides a Blinks link for fans to mint and bid on the NFT directly. Example 2: SEND, currently the flagship application of the Blinks ecosystem, was promoted multiple times by Solana’s founder. The series of NFTs became the first freemint NFT project in the Blinks ecosystem, surpassing BAYC and Punks in trading volume and becoming the top project. The token $SEND was oversubscribed by over 700 times, setting a Solana presale record. However, as the community token powering the Blinks ecosystem, SEND still needs more content and time to enrich its story and development. (5) Cryptocurrency Trading: Example 1: In Facebook’s Marketplace, users find a post selling cryptocurrency. Buyers can directly purchase the seller’s cryptocurrency through Solana Actions in the post. Example 2: Famous trader @CryptoCobain shares information about an upcoming meme token via a tweet. Fans can purchase it directly using the Blinks link in the tweet. (6) Token-Gated Content: Example 1: Netflix releases a Token-Gated series, where only members holding specific tokens can watch exclusive content. Members can verify their token holdings through the Solana Actions integrated within the Netflix app. Example 2: Medium, a well-known blogging platform, allows authors to set Token-Gated content, where only readers holding specific tokens can access premium articles. (7) Advertising and Promotions: Example 1: Airbnb posts an advertisement on Instagram promoting its latest travel experiences. Users can book the experience or learn more details directly through the Blinks link in the ad. Example 2: Tesla releases its latest electric vehicle model on Twitter. Users can directly pre-order or learn more about the product through the Blinks link in the tweet. (8) Gaming Interactions: Example 1: EA Sports announces new features for FIFA 23 on Twitter. Fans can directly experience some interactive features of the game through the Blinks link in the tweet. Example 2: Blockchain gaming platform Decentraland announces a virtual world exploration event on social media. Users can join the game directly through the Blinks link and participate in the event. (9) Enhancing Community Interactions: Example 1: A LinkedIn professional community is hosting a discussion on blockchain technology. Participants can join the on-chain Q&A or share their insights through the Blinks link in the LinkedIn post. Example 2: A Reddit community discusses cryptocurrency investment strategies. Community members can vote on the strategy through the Blinks link in the post. (10) One-Click On-Chain Operations: Example 1: UNICEF launches an emergency fundraising campaign on its official website. Supporters can donate with a single click using the Solana Actions button on the website, supporting global children’s education projects. Example 2: Decentralized Autonomous Organizations (DAOs) like Bankless DAO announce events on social media. Members can participate in voting or donate with a single click via the Blinks link, simplifying the participation process. PayFi and Blinks: The Perfect Fusion of Financial Innovation and User Experience It’s worth emphasizing that the financial innovation direction of the Solana ecosystem, PayFi, is highly compatible with the user experience optimization brought by Blinks. PayFi, as defined by Solana Foundation Chair Lily Liu, is a groundbreaking financial concept focused on optimizing settlement times. Unlike DeFi, it emphasizes the advantages of instant settlement, which holds significant value for investment trading and financial markets. Combining Blinks’ functionalities can help promote PayFi in creator monetization, invoice financing, payment processing risk management, and fostering global private credit pools on Solana. Creator Monetization: Creators can monetize their content through Blinks links, allowing users to tip or purchase content without complex wallet setups, providing convenience for PayFi’s creator monetization scenarios. Invoice Financing: Through Blinks, businesses can quickly complete invoice financing operations, simplifying the financing process and improving efficiency. Payment Processing Risk Management: Blinks’ instant transaction functionality can help PayFi achieve more efficient settlement and risk control in payment processing risk management. Credit Loans: Users can submit credit loan applications via Blinks links, with credit pools automatically assessing credit conditions and making real-time loan decisions. Invoice Financing: Businesses can submit invoice financing applications via Blinks links, with credit pools quickly assessing based on business credit data and providing financing services. Cross-Border Credit Services: Users in different countries and regions can apply for and evaluate credit through Blinks links, achieving consistent global credit services. Through these application scenarios, we can see that Blinks is not just a technical tool; it is a bridge connecting users, creators, businesses, and financial markets. The combination of Blinks and PayFi heralds a new era of more efficient, convenient, and secure financial transactions. In mid-July, the Solana Foundation announced a major initiative: a $400,000 grant for open-source developers working on Solana Actions and Blinks Tools. This grant program has officially launched, inviting innovative projects from developers worldwide. Simultaneously, the Send project team launched the “Blinkathon” hackathon series for developers, aiming to inspire creativity in building and promoting the Blinks ecosystem supported by SEND. These initiatives not only provide financial support for developers but also offer a broad stage for the innovation and application of Blinks technology. The CGV team believes that the “Solana Internet” is not just about technology integration; it also represents a conceptual revolution. It embodies the perfect fusion of blockchain technology and the Internet spirit, signaling the arrival of an open, interconnected, and shared digital world. As Blinks technology continues to mature and its application scenarios expand, we are witnessing the dawn of a new blockchain era. Let us watch closely as the “Solana Internet” reshapes our digital lives. ---------------------- 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. 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

Produced by: CGV Research Author: Satou In the blockchain space, The Open Network (TON) has been making significant strides in the payment sector due to its unique advantages and substantial user base. In 2024, the TON ecosystem has demonstrated robust growth across multiple areas. According to recent data, as of July 21, 2024, over 730M USDT has been issued on the TON network, serving as a crucial driver for the development of the TON payment ecosystem. Additionally, TON gaming platforms like Notcoin, Hamster Kombat, and Catizen have achieved remarkable success, attracting 35 million, 230 million, and 25 million users, respectively. As the TON ecosystem continues to mature and expand, its application prospects in DeFi, GameFi, and SocialFi are becoming increasingly clear. The CGV research team delves into TON’s “ambitions” in the payment sector, exploring how it leverages its strengths, overcomes challenges, and strives for long-term development in crypto asset management and DeFi. Unique Advantages of TON: Backed by Telegram’s Massive User Base According to Statista, as of April 2024, Telegram boasts 900 million monthly active users, ranking eighth among global social networks. In comparison, the blockchain with the highest number of monthly active addresses, Solana, has an estimated 14 million monthly active addresses, which is just 2% of Telegram’s user base From a regional distribution perspective, aside from its origins in Russia and Ukraine and the diverse population of the United States, Telegram users are primarily located in developing countries such as Southeast Asia, Africa, and Latin America. Based on user demographics, Telegram has a massive user base, but the average income per user is relatively low, making Telegram more suitable for traffic-related businesses rather than serving high-net-worth individuals. Unlike other social network projects, Telegram introduced its own encrypted public chain very early on and tightly integrated it with its social network. In 2017, Telegram founders Pavel Durov and Nikolai Durov began developing the blockchain project named Telegram Open Network (TON) and planned to launch its native cryptocurrency, Gram. In 2018, they raised approximately $1.7 billion through an ICO, which also attracted the attention of the U.S. Securities and Exchange Commission (SEC). In 2020, due to regulatory issues, Telegram announced its withdrawal from the TON project, returning development work to the community. The project was taken over by the TON Foundation, renamed “The Open Network,” and the token was renamed Toncoin, with ICO funds refunded. After several twists and turns, in 2023, Telegram officially announced TON blockchain as its preferred Web3 infrastructure and plans to integrate it into the Telegram app interface. In contrast, Facebook’s Libra (Diem) cryptocurrency network, after two and a half years of various setbacks and regulatory pressures, announced it would no longer launch. Additionally, Telegram’s emphasis on privacy and lack of regulation makes it more crypto-friendly, to some extent supporting gray industries that cannot pass regulatory scrutiny, which were early widespread applications of cryptocurrencies. As a result, Telegram hosts a large number of crypto users. Overall, TON’s ecosystem has leveraged Telegram’s advantages from the start, giving it a head start in developing cryptocurrencies. Monetizing Traffic: Overview of TON Mini-Games Compared to fully on-chain games that were once popular on Ethereum, the recent hit on TON might be fully off-chain games. These casual (and sometimes slightly juvenile) mini-games attract users through economic incentives. Fully on-chain games adopt a grand narrative of autonomous worlds, attracting users through potential cultural identity, but often fail to gain widespread adoption. TON’s mini-games are more straightforward: open your phone, tap a few times, and you can earn a point, which can be exchanged for tokens with real value in the future. Recently, the explosion of TON game projects seems to reveal the infinite potential of the industry. Notcoin : With extremely simple gameplay, users earn coins by tapping the phone screen, which can be exchanged for Notcoin tokens. It has attracted over 35 million game users, launched on Binance and OKX, with its token price soaring post-listing, reaching a market cap of nearly $3 billion. Hamster Kombat : Also using the Tap to Earn model, it offers additional ways to earn rewards through card purchases/synthesis, daily check-ins, social media tasks, and referrals. It has gained over 230 million registered users in less than four months. Catizen : A casual cat-raising game that combines game monetization with airdrops to directly establish cash flow. It has over $10 million in revenue, more than 25 million players, and has converted 1.4 million on-chain users. Notcoin has opened up the imagination space for the track, Hamster Kombat is leading the way in traffic, and Catizen represents a more refined and sustainable approach, hinting at the future direction: it’s not just about tapping but establishing a cash flywheel from day one. On one hand, simple game design allows more users to participate, leading to better user data. On the other hand, due to the simplicity, the cost of brushing data is low, so the data might be significantly inflated. In the future, TON mini-game projects will inevitably shift from competing for simple user traffic to competing for user traffic conversion rates. This requires not only better game design but also a sophisticated monetization system to generate sustainable cash flow and maintain the capability for sustainable development. Insights from Official Channels According to the TON official website, Mini Apps, GameFi, and DeFi are the key product types they wish to onboard. The TON Foundation’s Grants program explicitly mentions supporting these categories and provides examples for each. Here are some key statements: Telegram Mini Apps: Social Web3 Use Cases SocialFi: Creator economy E-commerce: Trade market for electronic or physical goods Utility: Daily tools with embedded Web3 elements Community & Brand management: Tools for managing Telegram communities Onboarding platforms: Bringing new users to @wallet or custodial TON wallets through simple scenarios DeFi Lending protocols Derivatives DEXs DEXs with weighted pools (like Balancer.fi ) Yield aggregators Liquidity layers Restaking GameFi We are always happy to support web3 games with easy onboarding, viral social mechanics, referral programs, elements of competition (squads, leaderboards, group challenges), and exciting gameplay. From the above content, it’s clear that Mini App support for Social Web3 use cases will be a development focus. For DeFi, the TON ecosystem aims to enrich the types of DeFi applications. For GameFi, the TON ecosystem can assist games with user onboarding, viral social mechanics, referral systems, competitive elements, and engaging gameplay. Predicting the Near-Term Future of TON: The Reds and Blacks Why [Temporarily] Not DeFi The explosion of the DeFi sector depends on a key metric: TVL (Total Value Locked). Currently, Ethereum leads with a DeFi TVL of $60 billion, surpassing the combined TVL of all other blockchains. This is due to Ethereum’s high native asset value (ETH), a complete DeFi ecosystem where nearly all DeFi innovations occur, the introduction of wBTC to supplement DeFi liquidity, and the release of large amounts of LST/LRT through staking & restaking mechanisms, significantly boosting TVL. For TON, the largest asset on-chain is Toncoin, with a market cap of about $17.5 billion. The second-largest asset is USDT authorized by Tether, surpassing 730M as of July 21, ranking fifth among all blockchains. According to DefiLlama, TON’s current TVL is $757 million, indicating a clear shortfall. From the CGV Research team’s perspective, TON’s DeFi ecosystem lacks the following conditions for an explosion: Onboarding of BTC and ETH: The most traded assets on CEXs are usually BTC and ETH. Therefore, a high-security, low-slippage, low-fee cross-chain bridge for BTC and ETH is needed to bring a large amount of BTC and ETH into the TON ecosystem. Currently, TON’s cross-chain bridge infrastructure is still under construction. More diverse liquid staking products: TON transitioned from PoW to PoS, with initial supply distributed to miners and the team. After transitioning to PoS, it can only choose to reward PoS miners through an annual inflation rate of 0.6%. Compared to other PoS blockchains, TON’s staking rate is less than 10%, which is not high. Therefore, more liquid staking products are needed to increase staking levels, enhance chain security, and boost TVL. More secure wallet infrastructure: The @wallet wallet built into Telegram is a custodial wallet, and given Telegram’s unregulated nature, high-net-worth individuals often do not trust TON’s security. TON needs to introduce more secure wallet infrastructure, such as MPC wallets, and undergo thorough audits to gain the trust of high-net-worth users. These conditions are unrelated to Telegram’s biggest advantage — user traffic — meaning that it might be an uphill battle. Why Payments Native USDT is being issued on the TON network at a very high growth rate. As of July 21, over 730M USDT has been issued. The blockchain with the most USDT issued is Tron, with over 60B TRC20-USDT issued. Tron’s data reveals the vast potential of the stablecoin payment track. The TRON network has over 235 million users, with over 7.8 billion transactions and $450 million in annual fees (network revenue). On average, 2–3 million user accounts transfer over $10 billion daily. Most USDT holders on Tron are “retail” or small holders. Holders with balances below $1,000 number 52.6 million, even growing during the 2022 bear market. In contrast, the $1K-$10K group has 359,000 holders. From on-chain activity, Tron’s transactions are primarily USDT transfers, with minimal DeFi adoption, almost no NFTs, and none of the hot LST/LRT or Memecoins from other blockchains. Yet, it sustains 7.8 billion transactions. Tron can be described as a blockchain designed for stablecoin payments. The reasons for Tron’s large-scale stablecoin payment adoption are: Lower transaction fees, faster speeds, and higher TPS than Ethereum Early adoption triggering a positive feedback loop of users and merchants Long-term stable service earning user trust TON’s payment business has the following advantages over Tron: Higher TPS: With sharding, it can support up to millions of TPS, with cheaper fees than Tron Closer to users: TON wallets are directly integrated into Telegram, making them more convenient and versatile, comparable to WeChat Pay More diverse on-chain activities: TON has more applications that can retain funds on-chain, not just simple fund transfers. The TON Foundation is also actively promoting USDT usage on TON: 5 million TON allocated to reward USDT Farming Pool, with up to 50% APY in Toncoin for USDT deposits On July 1, Tether partnered with Web3 shopping and infrastructure company Uquid, allowing Filipino citizens to pay social security funds with USDT on TON Fee-free, instant USDT transfers using the built-in Telegram wallet, with the ability to transfer USDT to friends without needing addresses Products like subscriptions, VPNs, gaming platforms, and eSIMs on Telegram can be paid directly with USDT on TON Payments will also serve as a key primitive, empowering Telegram Mini Apps and various types of Social Web3 Use Cases. For instance, the creator economy (SocialFi) requires payments for subscriptions and tipping; e-commerce needs payments for goods purchases. More importantly, Telegram Mini Apps could become a Web3 version of the AppStore, requiring payment functionality for managing paid apps. Telegram may follow Apple’s example by charging fees for paid services of apps listed on its AppStore, further diversifying its revenue model. Currently, TON has integrated multiple third-party payment service platforms, enabling merchants to accept payments in various ways. However, compared to WeChat Pay, TON’s payment business still has risks. The most critical is that Telegram’s privacy protection and unregulated characteristics may prevent many legitimate businesses from integrating TON payments due to compliance issues. The TON Foundation is actively seeking solutions, such as requiring KYC for rewards in the USDT Farming Pool, indicating a proactive attitude towards compliance. Conclusion In summary, the CGV Research team believes that TON’s rise in the payment sector is not accidental but the result of its strong user base, technical advantages, and ecosystem strategy. Although there are still many challenges, such as regulatory issues and user trust, TON showcases strong growth potential with its innovative payment solutions and close integration with Telegram. In the future, with more high-quality applications and user traffic conversion, TON is poised to secure a significant position in the global payment market, becoming a vital force in the blockchain payment field. — — — — — — — — — — — 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 in Tokyo, Japan. 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 this article.

Recently, CGV officially announced its participation in the seed round financing of the innovative CeDeFi platform BitFi. BitFi completed this round of financing with a valuation of $50 million. Other confirmed investors include Fundamental Labs, IBC Group Ventures, TyreGate Capital Group, and Citizen Journalism Network Accelerator (CJNA). BitFi was founded by Liu Han, the former co-founder and CTO of Ascendex Exchange. Since the early access launch on June 25, the platform has reached a peak Total Value Locked (TVL) of $400 million within just one month. BitFi combines the strengths of centralized and decentralized financial solutions. By leveraging multi-chain adaptability and complex off-chain trading strategies, it provides users with secure staking yields and multi-level yield generation, maximizing returns on various assets including BTC. Led by a team with Wall Street backgrounds and deep expertise in quantitative trading, BitFi offers consistent, low-risk returns through neutral quantitative strategies, passive income across multiple chains, and BitFi-specific platform rewards. This comprehensive approach makes BitFi the preferred choice for BTC holders seeking to optimize returns and secure asset management solutions. CGV believes that CeDeFi represents a deep integration of centralized and decentralized finance, poised to become a key force in driving traditional financial institutions to join the crypto ecosystem. As a pioneer in the CeDeFi space, BitFi provides BTC holders with a one-stop asset management solution through secure staking mechanisms and innovative synthetic assets. While ensuring asset security, BitFi significantly enhances asset yields through a combination of on-chain and off-chain innovative strategies, demonstrating vast growth potential. This investment in BitFi represents CGV's continued commitment to the CeDeFi and crypto asset management sectors. In the future, CGV will fully leverage its industry resources to support BitFi's growth in various aspects such as investment, incubation, and business expansion, jointly promoting the prosperity and development of the CeDeFi ecosystem. — — — — — — — — — — — 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 in Tokyo, Japan.

Produced by: CGV Research Author: Shigeru Introduction： With the arrival of the summer of 2024, the TON network has shown unprecedented growth momentum, with daily active addresses, transaction volume, and total value locked (TVL) reaching new highs. These achievements indicate that the golden decade of the TON ecosystem has set sail. The CGV Research team deeply explores “the explosion of the TON ecosystem,” analyzing the key drivers from both internal innovations and external market factors that have propelled it to become a leading blockchain platform. As we enter June 2024, every day sets new records for the TON in terms of users, transaction volume, and TVL: — The number of daily active addresses on TON has surpassed Ethereum for several consecutive days; — TON’s total value locked (TVL) has broken through $600 million, increasing a thousandfold since 2024; — In 47 days, $450 million in $USDT was issued on TON; — Steve, the chairman of the TON Foundation, suggested that a hallmark of crypto’s mass adoption is the creation of the first TON mini-app with 100 million Telegram users; Hamster Kombat achieved this the very next day. The CGV Research team believes that the arrival of TON summer 2024 benefits from both “internal” and “external” positives of TON. Internal Drivers from TON Eco — Wallet Innovation: In July 2023, TON launched a new wallet payment feature, allowing users to conduct various transactions and payments through the TON wallet, enhancing the user experience. In September, TON launched TONSpace, a self-hosted wallet allowing users to manage their own private keys and assets. By December, a secondary wallet entry was added to the Telegram app, making it more convenient for users to use the TON wallet within Telegram. — Token Lock-Up Strategy: Early in 2023, the TON community and validators decided through on-chain voting to freeze the wallets of inactive miners, which accounted for about 21% of the total supply, locked until February 2027. In October, the community launched the TON Believers Fund, a five-year lock-up plan where users could choose to donate their tokens or deposit them into a smart contract. This action locked up 26% of the supply, totaling about 47% of TON tokens locked for three to five years, effectively reducing the market’s circulating supply and stabilizing the token price. — Native USDT Deployment on TON: In April 2024, Tether announced the introduction of USDT to the TON network, adding USDT-related transactions and financial activities to TON, providing strong support for DeFi applications. The issuance of USDT on TON quickly surpassed that on Cosmos and Near, becoming the network second only to Tron, Ethereum, Solana, and Avalanche. — Blockchain Performance Breakthrough: On October 31, 2023, TON reached a peak of 104,715 transactions per second in a public performance live test, processing a total of 107,652,545 transactions. This performance, verified by CertiK, marked TON as one of the fastest and most scalable blockchains globally. — Market Promotion: In the spring of 2024, by launching the #OpenLeague Super League with a total prize pool of $150 million, TON attracted a large number of users and market attention. Additionally, the revenue-sharing strategy implemented by the TON Foundation and Telegram, along with the listing of Notcoin on several major exchanges, greatly enhanced its market performance and brand influence. External Factors for TON Eco — Significant Investment from Pantera: In May 2024, Pantera made the largest single investment in history in the TON network, not only demonstrating recognition of TON’s technology and market potential but also likely attracting more capital attention and strengthening market confidence in the TON ecosystem. — Global Competitive Environment and Market Demand: With Musk’s X app planning to introduce crypto payment features in mid-2024, TON faces pressure from global competitors. Moreover, the entire crypto market urgently needs new narratives and directions, and the TON ecosystem, relying on its innovative technology and applications, injects new vitality into the market. — Demand for New Narratives: The crypto industry needs new narratives and directions. The social fission and flywheel effect brought by TON, leading to user and transaction volume growth, provides new vitality to the market. In conclusion, the CGV Research team believes that the TON ecosystem may exhibit four major development trends in the future. These trends will shape the unique position of the TON ecosystem and may have a profound impact on the entire crypto industry. TON Eco Next Step Trends 1. Telegram’s Full Ecosystem Expansion Bringing a Black Hole Effect: Originally an instant messaging tool, Telegram has now evolved into a multi-functional platform integrating social, payment, service subscription, and mini-app functions. With TON joining, Telegram is rapidly advancing along a similar development trajectory. - Upstream (Infrastructure and Development Platform): TON provides robust infrastructure and software development kits (SDKs), attracting developers to build and deploy decentralized applications (DApps), which may weaken other blockchain platforms’ development resources. - Midstream (Application Layer and Services): Custom stablecoin solutions and micropayment systems within the TON ecosystem, along with the ability to seamlessly integrate mainstream crypto assets through official cross-chain bridges, provide users with a one-stop asset management and trading platform. - Downstream (User Adoption and Market Expansion): Telegram’s large user base provides a market access point for TON. By establishing relationships with financial institutions, media companies, and retailers, Telegram can integrate crypto technology into broader economic activities. 2. Unregulated Barriers + Fastest Public Chain + Flywheel Effect, Making the TON Ecosystem Limitless: TON’s global service capability, unrestricted by specific national or regional financial regulations, combined with its high performance and user growth flywheel effect, indicates that the potential of the TON ecosystem may have no upper limit. - Traffic Monetization: Telegram’s traffic advantage will bring significant monetization potential to TON, especially in decentralized markets like Fragment, which has already facilitated significant transaction volumes. - NFT Market: Telegram’s stickers turned into NFTs and traded via the TON blockchain indicate a massive emerging market. - Web3 Project Revenue Realization: TON’s mini-apps are expected to become high-revenue Web3 projects, leveraging their large daily active user base. 3. Joining of Global Financial Giants: Mainstream Recognition of the TON Ecosystem: As the TON platform matures and achieves cross-chain functionality, it may attract the attention of traditional financial institutions, encouraging them to explore blockchain technology and collaborate with TON. - Financial Service Innovation: Financial institutions may migrate their services to TON or collaborate with TON, taking advantage of its low costs and high efficiency. - Stablecoins and Financial Products: Financial institutions may develop new loan, insurance, and investment products on TON, or even create stablecoins linked to specific assets. 4. Shift in Investment Logic: Non-Essentiality of Token Economy: The maturation of the TON ecosystem may change the investment logic of the primary market, making tokens no longer a mandatory element for crypto projects. - Technology and Business Models: Projects may rely on more mature technology and business models to attract users and investors, rather than solely depending on the token economy. - Regulatory Adaptability: Projects that do not issue tokens may more easily adapt to regulatory environments, avoiding potential legal risks. - Investment Analysis: Future evaluations of TON ecosystem projects may focus more on actual user data and business performance, such as daily active users (DAU), user retention, and average revenue per user (ARPU), rather than just focusing on token unlocks and distributions. These trends indicate that the TON ecosystem will not only consolidate its position in the crypto field but may also attract a wider user base and participation from traditional financial institutions, marking a new stage of development. Conclusion The rise of the TON ecosystem signals the future direction of cryptocurrency and blockchain technology. With Telegram’s deep integration and TON’s innovation-driven approach, we foresee a new ecosystem forming, which will not only change our understanding of financial services, social interaction, and digital assets but will also bring unprecedented convenience and opportunities to global users. — — — — — — — — — — — 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 in Tokyo, Japan. 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 this article.

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. Reference: https://messari.io/report/state-of-depin-2023 https://www.deeper.network/ https://network3.io/ https://www.hpchain.ai/ https://medium.com/@permadao/scp%E7%A0%94%E6%8A%A5-depin-x-arweave-%E7%9A%84%E7%BB%84%E5%90%88%E6%80%A7-%E6%89%93%E9%80%A0%E7%89%A9%E7%90%86%E4%B8%96%E7%95%8C%E7%9A%84%E5%BD%B1%E5%88%86%E8%BA%AB-1902f3af86a1 ---------------------- 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

Produced by: CGV Research Author: Cynic, Shigeru Leveraging the power of algorithms, computational power, and data, the advancement of AI technology is redefining the boundaries of data processing and intelligent decision-making. Meanwhile, DePIN represents the paradigm shift from centralized infrastructure to decentralized, blockchain-based networks. As the world accelerates its digital transformation, AI and DePIN (Decentralized Physical Infrastructure) have become fundamental technologies driving transformation across all industries. The integration of AI and DePIN not only promotes rapid technological iteration and widespread application but will also initiate more secure, transparent, and efficient service models, bringing profound changes to the global economy. DePIN: Decentralized Real-World Implementation, A Pillar of the Digital Economy DePIN stands for Decentralized Physical Infrastructure. In a narrow sense, DePIN mainly refers to distributed networks of traditional physical infrastructures supported by distributed ledger technology, such as power grids, communication networks, and positioning networks. Broadly speaking, any distributed network supported by physical devices can be considered DePIN, including storage and computing networks. from: Messari If Crypto has brought decentralized transformation at the financial level, then DePIN is the decentralized solution in the real economy. It can be said that PoW mining machines are a type of DePIN. From day one, DePIN has been a core pillar of Web3. The Three Pillars of AI — Algorithms, Computational Power, and Data, Two of Which Are contributed by DePIN The development of artificial intelligence is generally considered to depend on three key elements: algorithms, computational power, and data. Algorithms refer to the mathematical models and program logic that drive AI systems, computational power refers t-o the computing resources required to execute these algorithms, and data is the foundation for training and optimizing AI models. Which of the three elements is the most important? Before the appearance of ChatGPT, people generally thought it was algorithms, otherwise academic conferences and journal papers wouldn’t be filled with one algorithmic tweak after another. But after the debut of ChatGPT and its supporting large language models (LLM), people began to realize the importance of the latter two. Massive computational power is a prerequisite for the birth of models, and the quality and diversity of data are crucial for building robust and efficient AI systems, making the demand for algorithmic refinement less critical than before. In the era of large models, the shift from fine-tuning to leveraging substantial resources has increased the demand for computational power and data, and DePIN can provide exactly that. Token incentives leverage the long-tail market, and the vast amount of consumer-grade computational power and storage will become the best nourishment for large models. Decentralization of AI Is Not an Option, But a Necessity Of course, some may ask, with computational power and data available in AWS data centers, which offer stability and a better user experience, why choose DePIN over centralized services? This viewpoint has its reasons, as currently, almost all large models are directly or indirectly developed by large internet companies — ChatGPT is backed by Microsoft, Gemini by Google, and almost every large internet company in China has its own large model. Why? Because only large internet companies have enough quality data and financially supported computational power. But this is not right; people no longer want to be manipulated by internet giants. On one hand, centralized AI carries data privacy and security risks, and may be subject to censorship and control; on the other hand, AI produced by internet giants further strengthens dependence, leading to market centralization and raising barriers to innovation. from: https://www.gensyn.ai/Humanity should not need a Martin Luther of the AI era; people should have the right to speak directly with the divine. A Business Perspective on DePIN: Cost Reduction and Efficiency Increase are Key Even if we set aside the ideological debate between decentralization and centralization, from a business standpoint, there are compelling reasons to use DePIN in AI. Firstly, it is important to recognize that despite the fact that internet giants possess a massive amount of high-end graphics card resources, the combination of consumer-grade graphics cards scattered among the public can also form a considerable computational power network, which is the long-tail effect of computing power. These consumer-grade graphics cards have actually a very high idle rate. As long as the incentives provided by DePIN exceed the cost of electricity, users will be motivated to contribute computational power to the network. In addition, since all the physical infrastructure is managed by the users themselves, the DePIN network does not have to bear the operational costs that centralized providers inevitably incur and can focus solely on the protocol design itself. Regarding data, the DePIN network can unlock the availability of potential data and reduce transmission costs through edge computing and other means. Moreover, most distributed storage networks have automatic deduplication functions, which reduce the workload of cleaning AI training data. Finally, the crypto-economic models introduced by DePIN enhance the fault tolerance of the system, with the hope of achieving a win-win-win situation for providers, consumers, and the platform. from: UCLA In case you doubt, the latest research from UCLA indicates that decentralized computing has achieved 2.75 times the performance of traditional GPU clusters at the same cost. To be specific, it’s 1.22 times faster and 4.83 times cheaper. A Thorny Path: What Challenges Will AIxDePIN Encounter? We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard. — — John Fitzgerald Kennedy Building artificial intelligence models with DePIN’s distributed storage and distributed computation without trust still poses many challenges. Work Verification Essentially, computing deep learning models and PoW (Proof of Work) mining are both forms of general computation, fundamentally based on signal changes between logic gates. On a macro level, PoW mining is considered “useless computation,” as it attempts to produce a hash value with a prefix of n zeros through countless random number generations and hash function computations; whereas the computation in deep learning is seen as “useful computation,” which calculates the parameters of each layer through forward and backward propagation, thereby constructing an efficient AI model. The reality is that “useless computations” like PoW mining use hash functions, which are easy to calculate from the original image to the hashed image, but difficult to reverse, making it easy for anyone to quickly verify the validity of the computation. In contrast, for computations in deep learning models, due to their hierarchical structure, with each layer’s output serving as the input for the next layer, verifying the validity of the computation requires redoing all previous work and cannot be done simply and effectively. from: AWS Work verification is extremely crucial; otherwise, the provider of the computation could submit a randomly generated result without performing any actual computation. One idea is to have different servers perform the same computational tasks and verify the work’s authenticity by repeatedly executing and checking for consistent results. However, most model computations are non-deterministic, meaning that even in the same computational environment, it is impossible to reproduce identical results; only statistical similarity can be achieved. Moreover, repeated computations would lead to rapidly increasing costs, which contradicts the key goal of cost reduction and efficiency improvement in DePIN. Another idea is the Optimistic mechanism, which initially trusts that the results are from valid computations, while allowing anyone to verify the results. If errors are found, a Fraud Proof can be submitted, the protocol will penalize the fraudster, and reward the whistleblower. Parallelization As previously mentioned, DePIN primarily leverages the long tail of the consumer-grade computing power market, which implies that the computing power provided by a single device is limited. Training large AI models on a single device would take a very long time, necessitating the use of parallelization to shorten the required training time. The main challenge in parallelizing deep learning training is the dependency between tasks, which makes parallelization difficult to achieve. Currently, parallelization in deep learning training is mainly divided into data parallelism and model parallelism. Data parallelism involves distributing the data across multiple machines, with each machine holding a complete set of model parameters and training using its local data, followed by aggregating the parameters from all machines. Data parallelism is effective with large amounts of data but requires synchronous communication for parameter aggregation. Model parallelism is used when the model is too large to fit on a single machine, allowing the model to be split across multiple machines, with each machine holding a part of the model’s parameters. Communication between different machines is required during forward and backward propagation. Model parallelism has advantages when the model is large but incurs significant communication overhead during propagation. For gradient information between different layers, there can be either synchronous or asynchronous updates. Synchronous updates are straightforward but increase waiting time; asynchronous update algorithms have shorter wait times but can introduce stability issues. from: Stanford University, Parallel and Distributed Deep Learning Privacy A global movement is underway to protect personal privacy, with governments around the world strengthening the protection of individual data privacy. Although AI heavily uses public datasets, what really distinguishes different AI models is the proprietary user data of various companies. How can we reap the benefits of proprietary data during the training process without exposing privacy? How can we ensure that the parameters of the AI models constructed are not leaked? These are two aspects of privacy: data privacy and model privacy. Data privacy protects the users, while model privacy protects the organizations building the models. In the current climate, data privacy is much more important than model privacy. Various solutions are being explored to address the issue of privacy. Federated learning protects data privacy by training at the source of the data, keeping the data local and only transmitting model parameters; while zero-knowledge proofs may emerge as a promising new solution. Case Study: What are some high-quality projects in the market? Gensyn Gensyn is a distributed computing network for training AI models. The network uses a layer-1 blockchain based on Polkadot to verify whether deep learning tasks have been executed correctly and triggers payment through commands. Founded in 2020, Gensyn disclosed a $43 million Series A funding round in June 2023, led by a16z. Gensyn uses metadata from a gradient-based optimization process to build certificates of the work performed, and this work is uniformly executed by a multi-granularity, graph-based precision protocol and cross-evaluators to allow re-running of verification work and consistency comparison, with the validity of the calculations ultimately confirmed by the chain itself, ensuring computational effectiveness. To further enhance the reliability of work verification, Gensyn introduces staking to create incentives. There are four types of participants in the system: submitters, solvers, verifiers, and challengers. Submitters are the end users of the system, providing tasks to be computed and paying for the completed work units. Solvers are the main workers of the system, executing model training and generating proofs for verification. Verifiers are key to linking the non-deterministic training process with deterministic linear computation, replicating part of the solver’s proof and comparing the distance to an expected threshold. Challengers are the last line of defense, checking the verifiers’ work and issuing challenges, receiving rewards when the challenges are successful. Solvers need to stake, and challengers check the solvers’ work. If any foul play is discovered, they issue a challenge, and if the challenge is successful, the staked tokens of the solver are confiscated, and the challenger receives a reward. According to Gensyn’s predictions, this approach is expected to reduce training costs to 1/5 of those of centralized providers. from: Gensyn FedML FedML is a decentralized collaborative machine learning platform for decentralized and collaborative AI anywhere and at any scale. More specifically, FedML provides an MLOps ecosystem for training, deploying, monitoring, and continuously improving machine learning models, while collaborating on a combination of data, models, and computational resources in a privacy-preserving manner. Established in 2022, FedML disclosed a $6 million seed round in March 2023. FedML consists of two key components: FedML-API and FedML-core, representing the high-level API and the low-level API, respectively. FedML-core includes two independent modules: distributed communication and model training. The communication module is responsible for underlying communication between different workers/clients and is based on MPI; the model training module is based on PyTorch. FedML-API is built on top of FedML-core. With FedML-core, new distributed algorithms can be easily implemented through a client-oriented programming interface. The FedML team’s latest work demonstrates that using FedML Nexus AI for AI model inference on consumer-grade GPU RTX 4090 is 20 times cheaper and 1.88 times faster than on A100. from: FedML Future Outlook: The Democratization of AI with DePIN One day, as AI evolves into AGI, computational power will become the de facto universal currency, and DePIN will have made this process happen sooner. The fusion of AI and DePIN has opened a new technological growth point, offering tremendous opportunities for the development of artificial intelligence. DePIN provides AI with a vast amount of distributed computational power and data, which helps in training larger-scale models to achieve stronger intelligence. At the same time, DePIN also makes AI develop in a more open, secure, and reliable direction, reducing dependence on single centralized infrastructure. Looking to the future, AI and DePIN will continue to develop in synergy. Distributed networks will provide a strong foundation for training super-large models, which will play an important role in the application of DePIN. While protecting privacy and security, AI will also help optimize DePIN network protocols and algorithms. We look forward to AI and DePIN bringing about a more efficient, fairer, and more trustworthy digital world. Reference: https://web.cs.ucla.edu/~harryxu/papers/dorylus-osdi21.pdf https://web.stanford.edu/~rezab/classes/cme323/S16/projects_reports/hedge_usmani.pdf https://gensyn.ai/ https://blog.fedml.ai/scalellm-unlocking-llama2-13b-llm-inference-on-consumer-gpu-rtx-4090-powered-by-fedml-nexus-ai/ ---------------------- 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

Produced by: CGV Research Author: Cynic Introduction In the rapidly advancing era of technology, the convergence of Web3 and Artificial Intelligence (AI) is becoming an inevitable trend. These two domains are no longer independent parallel lines but are increasingly intertwined, jointly shaping our digital future. Web3, as a decentralized and distributed network concept, provides a more equitable and transparent digital space. Its core idea empowers users with control over their data through blockchain and encryption technologies. AI, on the other hand, serves as a major driving force propelling this era forward. By learning and mimicking human intelligence, it enhances the speed and quality of decision-making, optimizes user experiences, and plays a significant role in data processing and analysis. When these two elements come together, we anticipate a new internet experience. In this world driven by AI and supported by Web3, we not only witness more personalized and intelligent services but also experience unprecedented data security and transparency. AI can leverage its analytical and predictive capabilities within the Web3 framework, while Web3 provides AI with a decentralized and tamper-resistant data platform. This fusion heralds a more intelligent and decentralized digital future, where technology not only serves humanity but is intricately connected to human lifestyles, values, and goals. The combination of Web3 and AI is not just a technological integration but also an anticipation and shaping of future societal forms and cultures. The CGV Research team will release a series of reports focusing on the “Integration of Web3 and Artificial Intelligence (AI),” exploring the combination of AI technology with Web3 applications such as DeFi, NFTs, computing power, data management, and discovering practical and cutting-edge Web3×AI solutions. Web3: The Next Generation Internet Upholding Individual Sovereignty Web3 is the next-generation internet centered around decentralization and blockchain technology, aiming to construct a new value system where users possess digital sovereignty. The development goal of Web3 is to break the monopolization of data by internet giants, allowing users to control the content and data assets they create. The internet’s principles are openness, freedom, and sharing. While Web2’s internet giants diverged from these principles by using centralized servers to extract user data, the open, transparent, and decentralized nature of Web3 returns control and ownership of data to individual users — a Renaissance in the new era. Early Web3 primarily focused on financial scenarios, with cryptocurrency and decentralized finance (DeFi) as the main applications. Today, the application scope of Web3 has greatly expanded, with gaming, social interactions, and governance becoming new growth points for Web3, and various traditional industries shifting towards Web3. AI: A New Era of Industrial Revolution Driven by Data and Computing Power AI simulates human intelligence through computer systems, endowing computers with cognitive abilities, focusing on reasoning, learning, and self-correction. Early AI used specialized models trained on single-domain datasets for specific tasks, including computer vision (CV) and natural language processing (NLP) — referred to as AI 1.0. The emergence of large language models (LLMs) like ChatGPT represents the advancement of AI technology into the 2.0 era. AI 2.0 utilizes vast cross-domain datasets with powerful computing support to train general models with high generalization capabilities, applicable to various tasks. Large models tailored for specific application scenarios can be fine-tuned with low marginal costs, making them more suitable for large-scale commercial use. AI 2.0’s general artificial intelligence excels in seven dimensions: text generation, language understanding, knowledge retrieval, logical reasoning, mathematics, code processing, and multimodality. It has greatly expanded productivity, becoming a new growth engine for human society after the internet revolution. Web3 x AI: The Inevitable Trend of Digital Economic Development From a macro perspective, Web3 and AI may seem to have opposing cores — Web3 emphasizes decentralization, while AI often requires significant centralized computing power for model training. However, they are not mutually exclusive; instead, they complement each other. Web3 represents advanced production relations, where individuals truly own their data, content, and property, reclaiming sovereignty. AI represents advanced productivity, liberating humans from tedious repetitive work. Their combination is the inevitable trend of digital economic development. On one hand, Web3 brings decentralized production relations to AI, addressing user incentive issues through the blockchain’s openness, transparency, and verifiability. Generative AI significantly lowers the barrier for creating high-quality content, and Web3 allows users to reap the benefits of their valuable content. With blockchain, all user contributions can be publicly, transparently, and immutably recorded, providing a platform for individual creativity. On the other hand, AI makes Web3 intelligent, enhancing productivity, broadening application scenarios, and improving user experiences. Generative AI accelerates the creative process, enhancing content quality and diversity, endowing individuals with greater productivity, expanding innovation boundaries, and allowing Web3 innovations to emerge at lower costs. With the help of AI, Web3 products can offer more intelligent services, reducing user participation barriers and driving mass adoption. The Renaissance of Industries: Landing Scenarios for Web3 x AI After years of research and development, the Web3 and AI industries are poised for large-scale deployment. The singularity of the digital economy is approaching, and various domains are embracing the synergy of Web3 x AI, sparking new vitality. At the physical layer, Proof-of-Work (PoW) mining machines can integrate with AI model training, fully unleashing computing power. As large models like ChatGPT rise, computing power becomes a critical factor limiting AI development, with only a few giants obtaining massive computing power, hindering further innovation in the AI field. In this context, a decentralized network named DePIN emerges. DePIN integrates cutting-edge technologies, including blockchain, effectively consolidating global decentralized computing resources and data, creating an open and shared computing infrastructure. This network provides a sustainable and reliable ecosystem for AI models, making training and running AI models more feasible and sustainable. At the data layer, Web3 incentivizes users to generate higher-quality data, further enhancing the quality of AI models. AI’s underlying components are algorithms, computing power, and data, with data being the most crucial factor determining the quality of AI models. Current AI models mostly rely on publicly available data for training, with low costs but compromised quality. Higher-quality data forms the foundation for efficient AI models, and Web3 allows users to regain data sovereignty, benefitting from it, and positively incentivizing the creation of higher-quality content. At the application layer, AI empowers past Web3 applications with higher intelligence, optimizing user experiences. The security of DeFi has always been a Damocles sword hanging over everyone’s head; AI-empowered contract audits will significantly reduce the likelihood of contract security vulnerabilities. In the realms of NFTs and gaming, AIGC can lower the difficulty of material creation and accelerate innovation. In DAO governance, AI can not only provide suggestions as an assistant to governance participants but also directly participate as a governance member, adding another dimension to governance. Conclusion The year 2023 marks the birth of a miracle, with widespread adoption of Web3, breakthrough projects in the social and gaming sectors creating a ripple effect; AI officially enters the 2.0 era, empowering various industries through large language models, heralding an innovation singularity. The CGV Research team believes that the fusion of AI and Web3 not only opens up new technological frontiers but also foreshadows profound changes at the societal, economic, and cultural levels. This integration endows individuals with greater digital sovereignty and creative power while bringing about more efficient and intelligent productivity and services for the entire society. With continuous technological advancements, we are poised to embrace a more decentralized, intelligent digital future, where the value and contributions of individuals receive full respect and reward. CGV firmly believes that Web3 x AI is an inevitable trend in the digital economy, potentially giving rise to more unicorn projects. Standing together with Builder, CGV has established the AIFocus Accelerator, providing comprehensive support for builders in the Web3 x AI space, collectively constructing the future of Web3 x AI. At the intersection of Web3 and AI technologies, AIFocus Accelerator warmly invites innovators and developers worldwide to join this historic journey. ---------------------- 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

Produced by: CGV Research Author: Cynic Bitcoin, as the first successful decentralized digital currency, has been at the core of the cryptocurrency field since its inception in 2009. Serving as an innovative means of payment and store of value, Bitcoin has sparked widespread global interest in cryptocurrency and blockchain technology. However, as the Bitcoin ecosystem continues to mature and expand, it faces various challenges, including transaction speed, scalability, security, and regulatory issues. Recently, the script ecosystem, led by BRC20, has taken the market by storm, with various scripts experiencing over a hundredfold increase. Bitcoin on-chain transactions are severely congested, with average Gas reaching over 300 sat/vB. Simultaneously, the airdrop from Nostr Assets further captures market attention, and protocol design whitepapers like BitVM and BitStream are proposed, indicating the burgeoning potential of the Bitcoin ecosystem. The CGV Research team, through a comprehensive review of the current state of the Bitcoin ecosystem, covering technological advancements, market dynamics, legal regulations, etc., conducts an in-depth analysis of Bitcoin technology and examines market trends. We aim to provide a panoramic perspective on the development of Bitcoin. The article begins by revisiting the fundamental principles and developmental history of Bitcoin, then delves into the technological innovations of the Bitcoin network, such as the Lightning Network and Segregated Witness, while making predictions about its future development trends. Asset Issuance: Starting with Colored Coins The essence of the Script ecosystem lies in providing ordinary individuals with the right to issue assets with low barriers, accompanied by simplicity, fairness, and convenience. The emergence of the script protocol on Bitcoin occurred in 2023, but as early as 2012, there existed the concept of utilizing Bitcoin for asset issuance, known as Colored Coins. Colored Coins: Early Attempts Colored Coins refer to a set of technologies using the Bitcoin system to record the creation, ownership, and transfer of assets other than Bitcoin. This technology can be employed to track digital assets and tangible assets held by third parties, facilitating ownership transactions through colored coins. The term “colored” refers to adding specific information to Bitcoin UTXOs, distinguishing them from other Bitcoin UTXOs, thereby introducing heterogeneity among homogeneous bitcoins. Through the Colored Coins technology, issued assets possess many characteristics identical to Bitcoin, including prevention of double-spending, privacy, security, transparency, and resistance to censorship, ensuring the reliability of transactions. It’s worth noting that the protocol defined by Colored Coins is not implemented by typical Bitcoin software. Specific software is required to identify transactions related to Colored Coins. Clearly, Colored Coins only hold value within communities that recognize the Colored Coins protocol; otherwise, the colored attributes of heterogeneous Colored Coins will be lost, reverting to pure satoshis. On one hand, Colored Coins recognized by small-scale communities can leverage many advantages of Bitcoin for asset issuance and circulation. On the other hand, it is almost impossible for the Colored Coins protocol to be merged into the largest consensus Bitcoin-Core software through a soft fork. Open Assets In late 2013, Flavien Charlon introduced the Open Assets Protocol as one implementation of Colored Coins. Asset issuers use asymmetric cryptography to calculate asset IDs, ensuring that only users with the private key for the asset ID can issue identical assets. For asset metadata, the OP_RETURN opcode is used to store the metadata in the script, referred to as the “marker output,” which stores colored information without contaminating UTXOs. Since it utilizes Bitcoin’s public-private key cryptographic tools, asset issuance can be performed through multisignature mechanisms. EPOBC In 2014, ChromaWay introduced the EPOBC protocol, which stands for Enhanced, Padded, Order-Based Coloring. The protocol comprises two types of operations: genesis and transfer. The genesis operation is used for the issuance of assets, while the transfer operation facilitates the transfer of assets. The asset type cannot be explicitly encoded or differentiated, and each genesis transaction issues a new asset, determining its total quantity during issuance. EPOBC assets must be transferred using the transfer operation, and if an EPOBC asset is used as an input in a non-transfer operation transaction, the asset will be lost. Additional information about EPOBC assets is stored through the nSequence field in Bitcoin transactions. The nSequence field is a reserved field in Bitcoin transactions consisting of 32 bits. Its lowest six bits are used to determine the transaction type, and bits 6–12 are used for padding to meet the anti-dust attack requirements of the Bitcoin protocol. The advantage of using the nSequence field to store metadata information lies in not requiring additional storage. As there is no asset ID for identification, each transaction involving an EPOBC asset must be traced back to the genesis transaction to determine its category and legitimacy. Mastercoin/Omni Layer Compared to the aforementioned protocols, Mastercoin has seen more successful commercial implementation. In 2013, Mastercoin conducted the first-ever ICO in history, raising 5000 BTC and ushering in a new era. The widely known USDT, initially issued on the Bitcoin blockchain, was introduced through the Omni Layer. Mastercoin exhibits a lower degree of dependency on Bitcoin, opting to maintain most of its state off-chain, with only minimal information stored on-chain. Mastercoin essentially treats Bitcoin as a decentralized log system, using any Bitcoin transaction to broadcast changes in asset operations. The validation of transaction effectiveness involves continuously scanning the Bitcoin blockchain and maintaining an off-chain asset database. This database preserves the mapping relationship between addresses and assets, with addresses reusing the Bitcoin address system. Early Colored Coins primarily used the OP_RETURN opcode in scripts to store metadata about assets. After the SegWit and Taproot upgrades, new derivative protocols have more options. SegWit, short for Segregated Witness, essentially separates the Witness (transaction input script) from the transaction. The main reason for this separation is to prevent nodes from attacking by modifying the input script. However, it comes with a benefit: effectively increasing block capacity, allowing for more storage of witness data. Taproot introduces an important feature called MAST, enabling developers to include metadata for any asset in outputs using Merkle Trees. It leverages Schnorr signatures to enhance fungibility and scalability, and supports multi-hop transactions through the Lightning Network. Ordinals & BRC20 and Simulated Trading: A Grand Social Experiment In a broad sense, Ordinals consist of four components: A BIP for sequencing sats An indexer that uses the Bitcoin Core Node to track the position (ordinal) of all satoshis A wallet for handling ordinal-related transactions A block explorer to identify ordinal-related transactions Of course, the core is the BIP/protocol itself. Ordinals define a sorting scheme (starting from 0 based on the order they are mined), assigning numbers to the smallest unit in Bitcoin, Satoshis. This imparts heterogeneity to originally homogeneous Satoshis, introducing scarcity. It can reuse the infrastructure of BTC, including single signatures, multi-signatures, time locks, height locks, etc., without the need to explicitly create ordinal numbers. It offers good anonymity and leaves no explicit on-chain footprint. However, the drawbacks are evident, as a large number of small and unused UTXOs can increase the size of the UTXO set, potentially leading to what is known as a dust attack. Additionally, the space occupied by the index is significant, requiring specific information each time spending a particular sat: Blockchain header Merkle path to the coinbase transaction that created that sat Coinbase transaction that created that sat To prove that a specific sat is included in a specific output. Inscription, in this context, is engraving arbitrary content onto sats. The specific method involves placing the content into the taproot script-path spend scripts, completely on-chain. The inscribed content is serialized according to the HTTP response format, pushed into non-executable scripts in spend scripts, known as “envelopes.” Specifically, inscription involves adding OP_FALSE before conditional statements, placing the inscribed content in a non-executable conditional statement in JSON format. The size of the inscribed content is limited by the taproot script, totaling no more than 520 bytes. Since taproot spending scripts require existing taproot outputs to be spent, inscription requires two steps: commit and reveal. In the first step, a taproot output committing to the inscribed content is created. In the second step, the inscribed content and the corresponding Merkle Path are used to spend the taproot output from the previous step, revealing the inscribed content on-chain. The original purpose of inscription was to introduce non-fungible tokens (NFTs) to BTC. However, new developers have created BRC20, mimicking ERC20 on its basis, bringing the ability to issue fungible assets to Ordinals. BRC20 includes operations like Deploy, Mint, Transfer, etc., with each operation requiring both commit and reveal steps. The transaction process is more complex, with higher costs. Using real data as an example: [Example data not provided] The selected part is the inscribed content, and the result after deserialization is as follows: The ARC20 protocol derived from Atomicals aims to simplify transactions by binding each unit of ARC20 tokens to satoshis, reusing the Bitcoin transaction system. After issuing assets through commit and reveal steps, transfers between ARC20 tokens can be directly accomplished by transferring the corresponding satoshis. The design of ARC20 aligns more with the literal definition of Colored Coins — adding new content to existing tokens to create new tokens, where the value of the new token is no lower than the original token, resembling gold and silver jewelry. Client-Side Validation (CSV) and Next-Generation Asset Protocols Client-side validation, proposed by Peter Todd in 2017, involves off-chain data storage, on-chain commitments, and client-side verification. Currently, asset protocols supporting client-side validation include RGB and Taproot Assets (Taro). RGB In addition to client-side validation, RGB uses Pedersen hash as a commitment mechanism and supports output blinding. When requesting a payment, the UTXO receiving the token does not need to be publicly disclosed; instead, a hash value is sent, enhancing privacy and resistance to censorship. When spending the token, the blinded value needs to be revealed to the recipient to verify transaction history. Additionally, RGB introduces AluVM for increased programmability. During client-side validation, users not only verify incoming payment information but also receive all transaction history from the payer, tracing back to the asset’s genesis transaction for finality. Verifying all transaction history ensures the validity of received assets. Taproot Assets: Developed by Lightning Labs, Taproot Assets enable the instant, high-volume, low-cost transfer of issued assets on the Lightning Network. Designed entirely around the Taproot protocol, it enhances privacy and scalability. Witness data is stored off-chain, verified on-chain, and can exist locally or in information repositories called “Universes” (similar to Git repositories). Witness verification requires all historical data from asset issuance, disseminated through the Taproot Assets gossip layer. Clients can cross-verify using a local blockchain copy. Taproot Assets use the Sparse Merkle Sum Tree to store the global state of assets, incurring high storage costs but offering efficient verification. Proof of inclusion/non-inclusion allows verification of transactions without backtracking asset transaction history. Scalability: Bitcoin’s Eternal Proposition Despite having the highest market value, security, and stability, Bitcoin deviates from its initial vision of a “peer-to-peer electronic cash system.” Limited block capacity makes Bitcoin unable to handle large and frequent transactions, prompting various protocols to address this issue over the past decade. Payment channels and Lightning Network: The Bitcoin Orthodox Solution The Lightning Network operates by establishing payment channels. Users can create payment channels between any two parties, connect channels to form a more extensive payment channel network, and even make payments indirectly between users without a direct channel. For example, if Alice and Bob want to conduct multiple transactions without recording each on the Bitcoin blockchain, they can open a payment channel between them. They can perform numerous transactions within this channel, only requiring two blockchain recordings: once when opening the channel and another when closing it. This significantly reduces waiting times for blockchain confirmations and alleviates the burden on the blockchain. Currently, the Lightning Network has over 14,000 nodes, 60,000 channels, and a total capacity exceeding 5000 BTC. Sidechains: The Ethereum Approach in Bitcoin Stacks Stacks positions itself as Bitcoin’s smart contract layer, using its native token as the Gas token. Stacks employs a micro-block mechanism, evolving in sync with Bitcoin, where their blocks are confirmed simultaneously. In Stacks, this is referred to as an “anchored block.” Each Stacks transaction block corresponds to a single Bitcoin transaction, achieving higher transaction throughput. With blocks generated simultaneously, Bitcoin acts as a rate limiter for creating Stacks blocks, preventing denial-of-service attacks on its peer network. Stacks achieves consensus through the dual-spiral mechanism of Proof of Transfer (PoX). Miners send BTC to STX stakers to compete for the right to mine blocks, and successful miners receive STX rewards after successfully mining a block. During this process, STX stakers receive a proportionate amount of BTC sent by the miner. Stacks aims to incentivize miners to maintain the historical ledger by issuing native tokens, although incentivization can still be achieved without native tokens (as seen in RSK). For transaction data in the Stacks blockchain, the hash of transaction data is stored in the Bitcoin transaction script using the OP_RETURN bytecode. Stacks nodes can retrieve Stacks transaction data hashes stored in Bitcoin transactions through Clarity’s built-in functionalities. Stacks can be considered as almost a Layer 2 chain for Bitcoin; however, there are still some flaws in the movement of assets across borders. After the Nakamoto upgrade, Stacks supports sending Bitcoin transactions to complete asset movements, but the complexity of transactions makes them unverifiable on the Bitcoin chain. Asset movements can only be verified through a multisignature committee. RSK RSK utilizes a merged-mining algorithm, where Bitcoin miners can assist RSK in block production at almost no cost, earning additional rewards. RSK does not have a native token and continues to use BTC (RBTC) as the Gas Token. RSK has its own execution engine compatible with the Ethereum Virtual Machine (EVM). Liquid Liquid is a federated sidechain of Bitcoin with permissioned node access, overseen by fifteen members responsible for block production. Assets are transferred using the lock-and-mint mechanism, where assets are sent to the multisignature address on Liquid using BTC, enabling the assets to enter the Liquid sidechain. To exit, L-BTC is sent to the multisignature address on the Liquid chain. The security of the multisignature address is set at 11 out of 15. Liquid focuses on financial applications and offers developers an SDK related to financial services. The Total Value Locked (TVL) on the Liquid network is currently approximately 3000 BTC. Nostr Assets: Centralization Reinforced Nostr Assets, originally named NostrSwap, serves as a BRC20 trading platform. Upgraded to Nostr Assets Protocol on August 3, 2023, it supports the transfer of all assets within the Nostr ecosystem. Lightning Network handles asset settlement and security. Nostr Assets enables users to send and receive Lightning Network assets using Nostr public and private keys. Transactions on the Nostr Assets protocol, excluding deposits and withdrawals, are gas-free, encrypted, and stored on the Nostr Protocol relay using IPFS for fast and efficient access. It supports natural language interaction, eliminating the need for complex interfaces. Nostr Assets provides users with a simple and convenient way to transfer and trade assets, potentially finding significant applications in conjunction with the traffic effects of the Nostr social protocol. However, fundamentally, it is a method of controlling (custody) wallets using Nostr messages. Users deposit assets into the Nostr Assets relay by transferring them on the Lightning Network, akin to depositing assets into a centralized exchange. When users want to transfer and trade assets within Nostr Assets, they send messages signed with Nostr keys to the server. After verification, the server records the transactions internally, bypassing execution on the Lightning Network or the mainnet, achieving zero gas fees and high TPS. BitVM: Programmability and Infinite Scaling “Any computable function can be verified on Bitcoin.” — Robin Linus, creator of BitVM BitVM, proposed by Robin Linus, the founder of ZeroSync, utilizes existing Bitcoin OP Codes (OP_BOOLEAN, OP_NOT) to form AND and NOT gate circuits, breaking down programs into primitive AND and NOT gate circuits. It places the root of the spend script into Taproot transactions for low-cost on-chain storage. According to computational theory, all logical computations can be constructed using AND and NOT gate circuits, theoretically making BitVM Turing complete and capable of performing all computations on Bitcoin. However, there are many practical limitations. BitVM operates in a P2P mode, following the concept of OP Rollup. There are two roles: prover and verifier. In each transaction, both prover and verifier collaboratively build a transaction, depositing collateral. The prover provides results, and if the verifier calculates different results, they submit a fraud proof to the chain to penalize the prover. BitVM’s primary use case is for minimal trust bridges and ZKP scaling (ZK Rollup). BitVM’s proposal is a compromise due to the difficulty of gaining support in the Bitcoin community for increasing OP_CODE complexity. It utilizes existing OP_CODEs to implement new functionalities. BitVM introduces a new paradigm for scaling, but there are numerous challenges in practice: - Too Early: While EVM has a comprehensive VM architecture, BitVM has only one function to verify if a string is 0 or 1. - Storage Overhead: Constructing programs with NAND gates may require hundreds of megabytes of data, with billions of taproot leaves. - P2P: The current model involves interactions between two parties, and the prover-challenger structure has incentive issues. There are considerations to extend to 1-N or N-N, similar to the ideal OP Rollup (single honest assumption). Conclusion A comprehensive review of the text reveals that due to the limitations in the mainnet’s processing capacity and computational abilities, Bitcoin must move computations off-chain to foster a more thriving and diverse ecosystem. On one hand, off-chain computation and client-side verification solutions utilize certain fields in Bitcoin transactions to store crucial information, treating the Bitcoin mainnet as a distributed logging system, leveraging its censorship resistance and reliability to ensure the availability of critical data. In a sense, this approach is similar to Sovereign Rollups. It does not require modifications to Bitcoin’s protocol layer, allowing for the construction of protocols as needed, offering higher feasibility in the current scenario but not fully inheriting Bitcoin’s security. On the other hand, efforts are underway to advance on-chain verification, attempting to use existing tools to achieve arbitrary computations on Bitcoin, subsequently utilizing zero-knowledge proof technology for efficient scaling. However, these current solutions are still in very early stages, with high computational costs, and are not expected to be implemented in the short term. Of course, some may wonder why not shift to Ethereum, which, along with other blockchains, possesses high computational power. Why go through the process of re-implementing things on Bitcoin? Because It’s Bitcoin. Reference： https://wizardforcel.gitbooks.io/masterbitcoin2cn/content/appdx8.html https://github.com/chromaway/ngcccbase/wiki/EPOBC_simple https://github.com/OpenAssets/open-assets-protocol/blob/master/specification.mediawiki https://twitter.com/LNstats https://twitter.com/robin_linus/status/1723472140270174528 https://github.com/fiksn/bitvm-explained https://bitcoinmagazine.com/technical/the-big-deal-with-bitvm-arbitrary-computation-now-possible-on-bitcoin-without-a-fork https://mirror.xyz/0x5CCF44ACd0D19a97ad5aF0da492AC0388469DfE9/_k3vtpI7a5cQn5iISH7-riECpyudfI4BTeeeBMwNYDQ ---------------------- 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. 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

Produced by: CGV Research Author: Cynic ，Shigeru TL;DR — — The concept of DePIN ： Exploring the concept of Decentralized Physical Infrastructure Network (DePIN), emphasizing the intersection of digitization and decentralization. DePIN combines physical hardware and blockchain technology, representing a new era of fusion between digital technology and the physical world. The article underscores the importance of DePIN in terms of data, power, and control redistribution, envisioning a more democratic, fair, and transparent future. — — DePIN’s “chicken and egg” problem： Discussing one of the main challenges DePIN faces in its development, the “chicken and egg” problem. This problem describes a dilemma: to establish a robust decentralized network, a significant amount of hardware devices is needed to participate. However, to attract these devices, there must already be an established and well-functioning network. The article highlights the need to provide some form of incentive to attract early participants to the network. — — How DePIN works ： Introducing the working principles of DePIN, including its decentralized nature relying on individual hardware devices and the use of blockchain technology to manage and secure the network. Blockchain, as a public, transparent, and tamper-proof digital ledger, records all transactions and interactions on the network, ensuring all nodes adhere to the network’s rules. Additionally, DePIN employs an incentive mechanism, typically based on cryptocurrency, to encourage nodes to participate and contribute their resources. — — Applicable industry of DePIN： Exploring the potential applications of DePIN in industries such as telecommunications, energy, data storage, the Internet of Things, and supply chain. For example, in the telecommunications industry, DePIN offers a decentralized solution, allowing devices to communicate directly without intermediaries. In the energy sector, DePIN provides a decentralized energy grid solution, enabling direct power exchange between nodes. — — Market explosion singularity of DePIN： Discussing the impact of increased technological maturity on the DePIN market, primarily due to advancements in blockchain and IoT technologies. High-throughput blockchain solutions, enhanced security and privacy protection, the development of cross-chain technologies, and the growth and maturation of IoT devices all provide DePIN with more nodes and data, strengthening its network effects. 1.The connotation of DePIN As technology advances, we are at a crossroads of digitization and decentralization. Decentralization is not just a technological trend; it represents a redistribution of power, control, and data ownership. In this context, the Decentralized Physical Infrastructure Network (DePIN) has emerged, offering us a fresh perspective on the interaction between the physical and digital worlds. This interaction goes beyond data and is primarily about power and control. Through DePIN, we can envision a more democratic, fair, and transparent future where everyone can participate and benefit. DePIN, also known as a Decentralized Physical Infrastructure Network, is an emerging technological concept that combines physical hardware and blockchain technology. These networks, also referred to as Proof of Physical Work (PoPW), Token Incentivized Physical Infrastructure Networks (TIPIN), and Edgefi Networks, represent a new era of fusion between digital technology and the physical world. In this era, data is no longer passive digits; it’s closely intertwined with the physical world. Through DePIN, we can see a decentralized future where data, power, and control are all redistributed, and everyone can participate and benefit. For example, in wireless networks, there are WiFi hotspots, or in energy networks, there are solar-powered home batteries. These networks are built in a decentralized manner by contributors from around the world. In return, these individuals and entities receive financial compensation and network ownership through token incentives. 2. Analyzing the Inherent Value of DePIN from the “Chicken and Egg” Problem In the course of technological evolution, we often encounter a series of challenges, with the “chicken and egg” problem being one of the most classic. This problem describes a dilemma: to achieve a certain goal, you need to have A first, but to have A, you also need to achieve that goal first. In the context of DePIN, this problem becomes particularly prominent. To establish a strong decentralized network, we need a substantial number of hardware devices to participate. However, to attract these devices, we need an already established and well-functioning network. 2.1 Why is the “Chicken and Egg” Problem Crucial in DePIN? The value of a decentralized network lies in its participants. The strength and stability of a decentralized network are directly related to the number and quality of its nodes. More nodes mean higher redundancy, better data distribution, and greater system resilience. However, for most hardware device owners, joining a new, unproven network carries risks. They may need to invest time and resources without a clear guarantee of returns. Therefore, to attract these early participants, the network needs to provide some form of incentive. 2.2 How Does DePIN Address This Challenge? DePIN’s solution is to provide incentives to early participants. These incentives can take various forms, from cryptocurrency rewards to special privileges within the network. For example, a DePIN might offer additional cryptocurrency rewards to its early nodes or grant them greater influence in network decision-making. This incentive system encourages more hardware devices to join the network, accelerating its growth and stability. In DePIN, incentives are not only about solving the “chicken and egg” problem; they are also essential for ensuring the health and stability of the network. A healthy DePIN requires its participants to continuously provide and maintain their resources. To ensure this, the network needs to offer sufficient incentives to encourage such behavior. This may include providing cryptocurrency rewards, granting special privileges within the network, or other forms of rewards. 2.3 Design Challenges and Opportunities Although DePIN provides a solution to the “chicken and egg” problem, it doesn’t mean it lacks other challenges. For instance, how to ensure the fairness of the incentive system? How to prevent malicious participants from exploiting the incentive system? How to ensure the long-term stability and health of the network? These questions require deep consideration and solutions from DePIN’s designers and operators. However, at the same time, DePIN offers us a unique opportunity to rethink how to build and operate networks. Through innovative incentive systems and decentralized design principles, DePIN presents a more equitable, transparent, and democratic future. 3. How DePIN works DePIN’s Operating Principles DePIN’s operation is based on decentralization and blockchain technology. Firstly, DePIN relies on individual hardware devices, which are also referred to as nodes. These nodes can be personal computers, dedicated servers, or IoT devices. Together, these devices form a decentralized network without any central nodes or authoritative entities. This decentralized characteristic makes DePIN more secure and transparent. Secondly, DePIN utilizes blockchain technology to manage and protect the network. Blockchain is a public, transparent, and tamper-proof digital ledger that records all transactions and interactions on the network, ensuring that all nodes adhere to the network’s rules. Furthermore, to encourage node participation and resource contribution, DePIN employs an incentive mechanism. This mechanism is typically based on cryptocurrency, allowing nodes to earn rewards by participating in the network and contributing their resources. DePIN flywheel effect diagram (Source: IoTeX) Advantages of DePIN Compared to Traditional Physical Infrastructure Networks Shared Ownership: DePIN encourages participants to collectively invest in the deployment and maintenance of infrastructure through a token reward mechanism. This bottom-up approach results in network ownership being shared among all participants rather than controlled by a few shareholders. Cost Distribution: Decentralized physical infrastructure networks effectively reduce operational costs and expenses by mobilizing the shared resources of network participants. Decentralized Features: Compared to traditional centralized infrastructure networks, decentralized networks offer higher security and resilience. The decentralized construction makes the network less susceptible to the negative impacts of corruption, tampering, hacking, and other potential issues associated with centralized control. Open Competition and Innovation: DePIN brings opportunities for innovation to various industries. By eliminating the entry barriers set by traditional infrastructure networks, it incentivizes new participants to compete in markets traditionally dominated by a few large enterprises. 4. Which industries is DePIN best suited for? With the rapid advancement of technology, the concept of Decentralized Physical Infrastructure Network (DePIN) is gradually becoming a reality. This network model, combining physical hardware and blockchain technology, offers countless opportunities across various industries. 4.1 Telecommunications Industry The telecommunications industry is a prime area for DePIN. Traditional telecom networks rely on centralized base stations and switches for data transmission. However, with the increasing number of IoT devices and the widespread adoption of 5G technology, this centralized model becomes increasingly inadequate. DePIN provides a decentralized solution that allows devices to communicate directly without the need for central nodes. This not only improves network efficiency and resilience but also reduces maintenance and upgrade costs. 4.2 Energy Industry The energy industry is also an ideal field for DePIN. With the development of renewable energy technologies, more households and businesses are generating their own power. However, traditional electrical grids are centralized and not suitable for this decentralized energy production model. DePIN offers a decentralized energy grid solution that allows various nodes (such as households, businesses, or small power plants) to directly exchange power. This not only enhances the efficiency of the grid but also provides new economic opportunities for participants. 4.3 Data Storage Industry With the explosive growth of data, data storage has become a significant challenge. Traditional cloud storage solutions rely on centralized data centers, which not only increase costs but also pose security risks. DePIN provides a decentralized storage solution that allows various nodes to offer storage space and receive corresponding rewards. This model not only reduces storage costs but also enhances data security and reliability. 4.4 Internet of Things (IoT) Industry IoT is another ideal field for DePIN. With the increasing number of devices, traditional centralized networks are becoming increasingly unstable and unreliable. DePIN offers a decentralized network solution that allows devices to communicate directly without the need for central nodes. This not only improves network efficiency and resilience but also provides devices with new functionalities and services. 4.5 Supply Chain Industry Supply chain management is a complex process involving multiple participants and extensive data exchange. Traditional supply chain solutions rely on centralized databases and applications, which increase costs and complexity. DePIN provides a decentralized supply chain solution that allows various participants to exchange data directly without the need for central nodes. This not only improves supply chain efficiency and transparency but also provides new economic opportunities for participants. 4.6 Transportation Industry With the development of autonomous driving technology, the transportation industry is undergoing significant changes. Traditional traffic management systems rely on centralized control centers and sensor networks. However, this model may no longer be suitable in the future of autonomous driving. DePIN offers a decentralized traffic management solution that allows vehicles to communicate directly without the need for central nodes. This not only improves traffic efficiency and safety but also provides vehicles with new services and functionalities. DePIN provides countless opportunities across various industries. Through decentralized means, DePIN not only enhances efficiency and resilience but also offers new economic opportunities for participants. With technological advancement and market development, we can anticipate that DePIN will play an increasingly important role in the future. 5. Market explosion singularity of DePIN： In the ever-evolving landscape of technology, innovation stands as the pivotal force propelling progress. Particularly in the domain of DePIN, the advancement of technological maturity is not only a milestone but also a turning point. It signifies the transition of DePIN from theory to practice, from concept to reality. The critical technological advancements behind this turning point will collectively shape the future of DePIN and pave the way for its market explosion. 5.1 The Advancement of Technological Maturity 5.1.1 Progress from Blockchain Technology High-Throughput Blockchain Solutions: With the emergence of next-generation blockchain protocols, such as sharding technology and sidechains, blockchain networks have significantly increased their processing speed and throughput. This enables DePIN to handle more transactions and data, enhancing its practicality and efficiency. Enhanced Security and Privacy Protection: By introducing advanced technologies like zero-knowledge proofs and homomorphic encryption, blockchain networks have bolstered their security and privacy protection capabilities. This provides DePIN with a more secure and reliable environment for data exchange and storage. Development of Cross-Chain Technology: The development of cross-chain technology allows different blockchain networks to communicate and exchange data with each other. This provides DePIN with broader interoperability, allowing it to integrate more resources and services. (Source: ：Messari ） 5.1.2 Progress from IoT Technology IoT Technology: The growth and maturation of IoT devices will provide DePIN with more nodes and data, enhancing its network effects. According to Gartner’s predictions, the global number of IoT devices is expected to reach 25 billion by 2025. This growth will offer DePIN more nodes and data, further strengthening its network effects. Proliferation of Smart Sensors and Devices: As the cost of IoT sensors and devices decreases, their applications in various fields become increasingly common. This provides DePIN with a wealth of data sources and nodes, enhancing its network effects. Development of Edge Computing: The development of edge computing technology allows data processing to occur near IoT devices, reducing data transfer latency and costs. This enables DePIN to more efficiently handle and analyze data from IoT devices. Enhanced IoT Security: With advancements in IoT security technology, such as stronger encryption methods and security protocols, the security of IoT devices and networks has improved. This provides DePIN with a more secure infrastructure and data source. 5.2 Support from Policies and Regulations If governments and regulatory bodies can create favorable policies and regulations that encourage the development of DePIN, it will create conducive conditions for its widespread application, including but not limited to: Innovative Tax Incentive Policies: Governments can implement tax incentives for DePIN projects. For example, they can offer tax reductions or tax credits to businesses and individuals deploying eco-friendly technologies or renewable energy facilities within the DePIN network. Streamlined Permit and Approval Processes: Governments can simplify the permit and approval processes for DePIN projects, particularly for those involving cross-border or multiple administrative regions. This will reduce barriers to project initiation and operation, accelerating innovation. Establishment of DePIN Innovation Funds: Governments can establish dedicated funds to support research and innovation projects related to DePIN. These funds can be used to finance startups, research institutions, or public-private collaboration projects. 5.3 Support from Enterprises and Industries If major companies and industry leaders can support and adopt DePIN, it will provide significant momentum. Strategic Investments by Industry Giants: Imagine if tech giants like Google and Amazon started investing in DePIN projects or established partnerships with DePIN startups. Such actions would not only provide financial support to DePIN but also enhance its visibility and reputation within the industry. Supply Chain Integration: Large manufacturing and retail companies can improve efficiency and transparency by integrating DePIN technology into their supply chain management. For example, using DePIN-based solutions to track the entire process from production to delivery. Energy Management Innovation: Energy giants can optimize energy distribution and trading by adopting DePIN technology. For example, establishing a decentralized energy trading platform that allows users to directly trade renewable energy. 5.4 Expansion of Technological Collaboration and Partnerships Collaboration and integration with other technologies and platforms, such as 5G and edge computing, will provide more possibilities for DePIN applications. For example: Integration of 5G with DePIN: Combining the high-speed and low-latency features of 5G networks, DePIN can achieve faster data transmission and real-time communication. For example, establishing an intelligent traffic system based on DePIN that utilizes 5G networks for instant communication and data sharing between vehicles, enhancing road safety and traffic efficiency. Combining Edge Computing with DePIN: By integrating edge computing technology into DePIN, data processing can occur where it’s generated, reducing reliance on centralized data centers. This is especially useful for applications that require rapid response, such as security monitoring and emergency response systems in smart cities. Collaboration of IoT Devices with DePIN: IoT devices can serve as nodes within the DePIN network, collecting and transmitting data. By combining IoT with DePIN, more secure and efficient data management can be achieved. For example, in agriculture, data collected by IoT devices can be analyzed through DePIN to optimize crop planting and resource allocation. Fusion of AI with DePIN: Combining AI technology with DePIN can enable more intelligent data analysis and decision support. For example, in healthcare, patient data collected through DePIN can be deeply analyzed with AI to provide personalized treatment plans. 5.5 Strengthening Globalization and Cross-Border Cooperation The concept and application of DePIN are not limited by geographical boundaries. A global perspective and cross-border cooperation will bring more significant markets and opportunities. For example: Global Disaster Response Network: Imagine a global DePIN system for disaster response. In the event of earthquakes, floods, or other natural disasters, this decentralized network can rapidly mobilize global resources, including drones, sensors, and communication devices, to provide real-time data and support for rescue operations. International Clean Energy Grid: DePIN can be used to build a cross-border clean energy sharing network. For example, utilizing solar energy from the Sahara Desert and wind energy from Northern Europe, decentralized energy grids can distribute energy worldwide, optimizing energy usage and reducing waste. Global Healthcare Monitoring System: Deploying a DePIN-based healthcare monitoring system on a global scale can track the spread of infectious diseases, monitor public health conditions in real-time, and share critical medical data worldwide, effectively addressing global health crises. In conclusion, the market explosion of DePIN requires various factors to work together. Technology, policies, economics, communities, and markets will all play crucial roles in this process. 6. Some representative projects of DePIN As the DePIN concept gained popularity, many projects began to explore this area. Here are some examples of projects that have successfully applied the DePIN concept and how they are leveraging this new technology to innovate and deliver value. 6.1 Helium Helium is a decentralized wireless network designed to provide Internet connectivity for low-power devices. Helium’s network is made up of hotspots deployed by individuals and enterprises. These hotspots not only provide wireless coverage, but also validate other hotspots in the network. In this way, Helium creates a decentralized, self-validating network. Participants can earn Helium tokens as a reward by deploying hotspots and verifying network activity. 6.2 HiveMapper HiveMapper is a decentralized mapping network that uses video data to create 3D maps. HiveMapper allows anyone to upload video data and use that data to create and update 3D maps. In this way, HiveMapper has created a decentralized, community-driven mapping platform. Participants can be rewarded by providing video data. 6.3 Render Render is a decentralized cloud computing platform designed for 3D rendering, machine learning, and other computationally intensive tasks. Render allows users to provide unused GPU power as part of a network. These GPU resources are pooled to support tasks that require a lot of computing power. Participants can earn Render tokens as a reward by providing GPU resources. 6.4 Filecoin Filecoin is a decentralized storage network designed to provide users with secure and reliable data storage services. Filecoin allows anyone to provide unused storage space as part of a network. These storage resources are pooled together to provide services to users who need storage space. Participants can earn Filecoin tokens as a reward by providing storage space. These projects are successful applications of the DePIN concept. Not only do they demonstrate the potential of decentralized technologies, they also provide new economic opportunities for participants. As technology advances and the market evolves, we can expect more DePIN projects to emerge in the future, providing us with even more innovation and value. Conclusion As we delved deeper into DePIN, we realized that this was not only a technological breakthrough, but also a challenge to existing social and economic structures. DePIN presents a vision of the future based on decentralized power, data transparency, and broad participation. In this scenario, each participant has the opportunity to have an impact on the development of the network, and this decentralized nature not only drives technological innovation, but also promotes social equity and justice. DePIN therefore marks not only a major advance in the field of technology, but also a shift in the way human society is governed. It represents the evolution from centralized control to decentralized governance, from closed systems to open networks. Driven by DePIN, we can expect a future of a more connected, intelligent and human digital world. ---------------------- 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. 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