The New Infrastructure Wave: Analyzing Opportunities and Challenges in the DePIN Track

1. Introduction: What is DePIN

DePIN stands for Decentralized Physical Infrastructure Network, which builds infrastructure networks by incentivizing users to share personal resources through tokens, including areas such as storage space, communication bandwidth, cloud computing, and energy. It crowdsources the infrastructure that was originally provided by centralized companies, distributing it to users worldwide.

According to the data, the current market value of the DePIN sector has reached $5.2 billion, surpassing the oracle sector, and is showing a continuous upward trend. From the early Arweave and Filecoin, to the Helium of the last bull market, and the recently highly regarded Render Network, all belong to this field.

DePIN has recently attracted attention for three main reasons:

1. Infrastructure construction is more完善 than a few years ago, paving the way for and empowering the DePIN track;

2. At the end of 2022, Messari first proposed the concept of DePIN, considering it to be "one of the most important areas of crypto investment in the next decade," with a new definition and expectations adding heat to the field;

3. The narrative of Web3 breaking boundaries shifts from social and gaming to explore other directions, with DePIN, closely linked to Web2 users, becoming an important choice for Web3 practitioners.

This article will deeply analyze DePIN from five perspectives: why DePIN is needed, token economic model, industry status, representative projects, advantage analysis, as well as limitations and challenges.

2. Why is DePIN needed?

2.1 Current Situation of Traditional ICT Industry

Traditional ICT infrastructure mainly includes: hardware, software, cloud computing and data storage, communication technology.

Among the top ten companies in the global market capitalization, six belong to the ICT industry: ( Apple, Microsoft, Google, Amazon, NVIDIA, Meta ), accounting for half of the market.

According to data, the global ICT market size reached 439 billion USD in 2022, with data centers and software showing a growth trend in recent years, impacting all aspects of life.

2.2 The Predicament of Traditional ICT Industry

The current ICT industry is facing two significant dilemmas:

1. The industry has a high entry barrier, limiting full competition and leading to pricing being monopolized by giants.

In fields such as data storage and communication services, companies require significant capital investment for hardware purchases, land leasing, and personnel maintenance. The high costs mean that only giants can participate, with AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud holding nearly 70% of the market share in cloud computing and data storage. This leads to pricing being monopolized by these giants, with the high costs ultimately passed on to consumers.

Taking cloud computing and data storage costs as an example, the expenses are quite high. In 2022, the total expenditure on cloud services by enterprises and individuals reached $490 billion, and it is expected to exceed $720 billion by 2024. 31% of large enterprises spend more than $12 million on cloud services annually, while 54% of small and medium-sized enterprises spend more than $1.2 million. As companies increase their investments in cloud services, 60% of enterprises report that cloud costs are higher than expected.

It is evident from the spending in the field of cloud computing and data storage related cloud services that, after being monopolized by giants, the spending pressure on users and enterprises is increasing. In addition, the capital-intensive nature limits sufficient competition in the market, which also affects innovation and development in the field.

2. The utilization rate of centralized infrastructure resources is low.

This is particularly prominent in cloud computing environments. According to the latest report, an average company's cloud budget is wasted by 32%, meaning that one-third of the resources are idle after the company's cloud spending, resulting in significant financial losses.

Misallocation of resources can be attributed to various factors. For instance, when it comes to resource supply, companies often overestimate demand to ensure service continuity. Additionally, data shows that more than half of cloud waste is due to a lack of understanding of cloud costs, leading to confusion in complex cloud pricing and packages.

On one hand, the monopoly of giants leads to excessively high prices; on the other hand, a significant portion of company cloud spending is wasted, putting corporate IT costs and utilization in a dual predicament, which is detrimental to the healthy development of the business environment. However, this also provides fertile ground for the development of DePIN.

Facing the high prices of cloud computing and storage, as well as the dilemma of cloud waste, the DePIN track can effectively address this demand. In terms of pricing, decentralized storage ( such as Filecoin and Arweave ) is several times cheaper than centralized storage; regarding the cloud waste dilemma, some decentralized infrastructures adopt tiered pricing to distinguish different needs, such as the decentralized computing track Render Network, which matches GPU supply and demand most efficiently through a multi-tiered pricing strategy. The project analysis section later will detail the advantages of decentralized infrastructure in solving these two dilemmas.

3. The Token Economic Model of DePIN

The core logic of DePIN is to promote users to provide resources, including GPU computing power, hotspot deployment, storage space, etc., through token incentives, contributing to the entire DePIN network.

Since early tokens of DePIN projects often have no actual value, users' participation in providing resources to the network is somewhat similar to venture capital. The supply side selects promising projects among numerous DePIN projects, and investing resources becomes "risk miners," profiting through increases in the number of tokens acquired and potential price appreciation.

These providers differ from traditional mining; the resources they offer may involve hardware, bandwidth, computing power, etc. The tokens earned are often related to factors such as network usage and market demand. For example, low network usage may lead to reduced rewards, or attacks or instability in the network may result in resource wastage. Therefore, risk miners in the DePIN track must be willing to bear these potential risks and provide resources for the network, becoming a key component of network stability and project development.

This incentive method will create a flywheel effect, forming a positive cycle when development is good; conversely, it can also easily lead to a withdrawal cycle when development is declining.

1. Attracting supply-side participation through tokens: By employing a sound token economics model, attract early participants to engage in network construction and provide resources, offering token rewards.

2. Attract builders and network consumer users: As the number of resource providers increases, some developers have started to join the ecosystem to build products. Meanwhile, after certain services can be provided on the supply side, consumers are also being attracted to join due to DePIN offering lower prices compared to decentralized infrastructure.

3. Forming positive feedback: As the number of consumer users increases, this demand incentive brings more income to supply-side participants, creating positive feedback, thereby attracting more people to participate from both the supply and demand sides.

In this cycle, the supply side has more and more valuable token rewards, while the demand side has cheaper and higher cost-effective services. The value of project tokens remains aligned with the growth of participants on both the supply and demand sides. As the token price rises, it attracts more participants and speculators, forming value capture.

Through the token incentive mechanism, DePIN first attracts suppliers, then attracts users to use it, thereby achieving the project's cold start and core operation mechanism, and further enabling expansion and development.

4. Current Status of the DePIN Industry

From the earliest established projects, such as the decentralized network Helium( in 2013, decentralized storage Storj) in 2014, and Sia( in 2015, it can be seen that the earliest DePIN projects primarily focused on storage and communication technologies.

With the continuous development of the Internet, the Internet of Things, and AI, there is an increasing demand for infrastructure requirements and innovation. From the current state of DePIN development, projects are mainly focused on computing, storage, communication technologies, as well as data collection and sharing.

From the current top 10 projects by market capitalization in the DePIN field, most belong to the Storage and Computing sectors. Additionally, there are some notable projects in the telecommunications sector, including industry pioneers Helium and later rising star Theta, which will be further analyzed in the subsequent project analysis.

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V. Representative Projects in the DePIN Industry

According to market capitalization rankings, this article focuses on analyzing the top five projects: Filecoin, Render, Theta, Helium, and Arweave.

First, let's take a look at Filecoin and Arweave in the decentralized storage arena, which are two projects that everyone is quite familiar with.

) 5.1 Filecoin & Arweave - Decentralized Storage Track

As mentioned at the beginning regarding the difficulties in the traditional ICT industry, in the traditional data storage field, the high pricing of supply-side centralized cloud storage and the low resource utilization on the consumer side create dilemmas for users and businesses. Additionally, there are risks such as data leakage. In response to this phenomenon, Filecoin and Arweave provide a solution through decentralized storage at lower prices, offering users a different service.

Let's first look at Filecoin. From the supply side, Filecoin is a decentralized distributed storage network that incentivizes users to provide storage space. Providing more storage space is directly related to obtaining more block rewards. After about a month of the testnet going live, the storage space reached 4PB, with Chinese miners playing a very important role as storage space providers. Currently, the storage space has reached 24EiB.

It is worth noting that Filecoin is built on the IPFS protocol, which is already a widely recognized distributed file system. Filecoin achieves decentralized and secure data storage by storing user data on network nodes. In addition, Filecoin leverages the advantages of IPFS, giving it strong technical capabilities in the field of decentralized storage, while also supporting smart contracts, allowing developers to build various storage-based applications.

At the consensus mechanism level, Filecoin adopts Proof of Storage, including advanced consensus algorithms such as Proof of Replication(PoRep) and Proof of Spacetime###PoSt(, to ensure data security and reliability. In simple terms, Proof of Replication ensures that nodes have replicated client data, while Proof of Spacetime ensures that nodes continuously maintain storage space.

Currently, Filecoin has established partnerships with many well-known blockchain projects and enterprises, such as NFT.Storage, which uses Filecoin to provide simple decentralized storage solutions for NFT content and metadata, while the Shoah Foundation and the Internet Archive utilize Filecoin for content backup. It is worth noting that the world's largest NFT marketplace, OpenSea, also uses Filecoin for NFT metadata storage, further promoting the development of its ecosystem.

Next, let's look at Arweave, which has some similarities with Filecoin in terms of incentivizing the supply side by using tokens to encourage users to provide storage space, with the reward amount depending on the volume of stored data and the frequency of data access.

In contrast, Arweave is a decentralized permanent storage network, and once data is uploaded to the Arweave network, it will be permanently stored on the blockchain.

How does Arweave incentivize users to provide storage space? Its core mechanism, known as "Proof of Access," is a proof-of-work system designed to demonstrate the accessibility of data within the network. In simple terms, it requires miners to provide randomly selected previously stored data blocks during the block creation process as "proof of access."

Currently, the official provides various solutions, including permanent storage of files, creating permanent personal profiles, and webpages, etc.

To help everyone quickly understand the differences between Arweave and Filecoin, a table has been created to assist in understanding.

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