Attention is moving to Decentralized Physical Infrastructure Networks, or DePIN. This article examines developments in and around digital assets and the investment implications of these changes.

The following article on the topic of digital assets, comes from Mike Zajko, who is co-founder of San Francisco-based Lattice Capital, a firm that backs crypto companies. The editors are pleased to share these views, and invite readers who are interested to enter the conversation. The usual caveats apply to views of guest writers. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Since Satoshi Nakamoto’s bitcoin white paper in 2008, the crypto industry has focused on how digital assets (tokens) could reshape digital interactions and the movement of value. However, as the ecosystem matures, attention is turning to the physical world with the rise of Decentralized Physical Infrastructure Networks (DePIN).

Before delving into DePIN, it is crucial to appreciate the strides made in the digital realm. Consider bitcoin, often dubbed “digital gold,” which recently surpassed its previous all-time highs to reach a market capitalization of $1.5 trillion. This places it among the world’s top 10 assets, close behind the Vanguard Total Stock Index ETF and edging toward physical gold’s market cap of roughly $18 trillion. Another significant milestone in digital finance is the rise of stablecoins – tokenized versions of fiat currencies, primarily the US dollar, on blockchains like Ethereum. In Q2 2024 alone, stablecoins processed over $8.5 trillion in transaction volume, surpassing giants like Visa and PayPal, which collectively processed around $4.4 trillion. Despite persistent skepticism, these achievements underscore crypto’s ongoing transformation of the way value is stored and transferred.

The purpose of this discussion, however, is to introduce a new phase for crypto – a step beyond digital value transfer into real-world infrastructure. With DePIN, the crypto industry is actively reshaping physical infrastructure, marking a major evolution beyond its transformational digital achievements.

What is DePIN?
DePIN networks are permissionless blockchain protocols designed to incentivize the deployment of physical infrastructure. Unlike traditional infrastructure projects that require centralized control and investment, DePIN leverages decentralized economic incentives to drive community-led construction and maintenance of assets such as data servers, energy grids, and wireless networks.

To illustrate the concept, let’s consider bitcoin itself. 

1. Permissionless Protocol: Bitcoin operates on a permissionless blockchain, enabling anyone to participate.

2. Economic Incentives: Bitcoin’s protocol rewards miners with BTC for securing the network.

3. Physical Infrastructure: Bitcoin has driven the development of hundreds of millions of dollars in mining facilities, a physical infrastructure essential to its digital ledger.

While bitcoin technically fits these criteria, it’s worth noting that today’s DePIN projects focus on building physical infrastructure as a primary objective, rather than as a means of supporting a digital currency network. In DePIN, infrastructure such as decentralized data storage facilities, renewable energy installations, or wireless connectivity nodes serve as the core product. Bitcoin inspired this sector’s emergence, but DePIN’s mission goes beyond securing a financial ledger – it builds tangible, decentralized infrastructure.

Let’s take a look at a few key examples of DePIN Projects.

In today’s DePIN landscape, several projects are pioneering new approaches to infrastructure, each targeting a specific type of physical network. Here are some notable examples:

- Helium Network: Helium is among the earliest and most prominent DePIN projects, developing a decentralized wireless network for IoT devices. By deploying personal “hotspot” nodes, individuals contribute wireless coverage and earn tokens in return. While Helium struggled with demand initially, it has now tapped into the new wireless use case of carrier offload whereby major Mobile Network Operators (MNO) (e.g. AT&T) can have their customers roam on Helium’s hot spots and it is already working with Helium transferring nearly 250TB of data from MNOs.
  
- Glow: Glow is flipping the bitcoin script on it’s head by using economic incentives to coordinate the production of energy via solar. Solar farm developers commit 100 per cent of the electricity revenue to the protocol which is then used to incentivize further solar farms to be developed. The network is live today and producing 232 MWh of electricity via it’s 70 solar farms. They recently raised a $30 million series A co-led by Union Square Ventures where much of the funding will be directly used for the deployment of solar panels. 

- GeodNet: GeodNet provides high-precision geolocation data by leveraging a distributed network of ground-based sensor stations. These stations capture real-time positioning data, which is processed and delivered through the network to support applications requiring centimeter-level accuracy, such as autonomous vehicles, drones, agriculture, and smart cities. GeodNet’s model incentivizes participants to deploy and maintain geolocation sensors, creating a robust, reliable infrastructure for positioning services without relying on traditional, centralized systems. 

Each of these projects represents a unique aspect of DePIN’s potential, showcasing how decentralized models can create, govern, and expand infrastructure across a range of industries around the world.

Why invest in DePIN?
The investment case for DePIN lies in its ability to decentralize infrastructure, a sector traditionally burdened by huge CapEx costs. The sector offers several distinct advantages:

1. Capital Efficiency: One of the simplest ways to think about DePIN networks is that they ‘crowdsource’ CapEx costs. Both physical infrastructure (cell towers) and bits and atoms marketplaces (Uber) have historically been incredibly capital intensive to build. With a DePIN model, a company can use their equity (in the form of tokens) to incentivize buildout. Their end users do the actual hard work of physical deployment.

2. Speed: DePIN networks rely on global community participation. Take Helium, whose wireless network expanded to nearly 1M nodes through contributions from individuals who saw value in expanding the network. This community-driven model can scale quickly and adapt to meet user demand, as the token price appreciates more people become interested in contributing to the network. 

3. Hyper Localized in Real Time: By providing token-based incentives to individuals, DePIN projects can attract contributors in harder to reach places with fresh contributions. As an example, Hivemapper is building a decentralized alternative to Google Maps. Using dashcam footage from drivers around the world, HiveMapper creates a more real-time map by crowdsourcing mapping data, whereas Google primarily relies on scheduled, proprietary vehicles for updates. This crowdsourced model allows HiveMapper to update specific areas in near real-time, often within days, compared with Google's more infrequent, sometimes months-long update cycles. 

A New opportunity for infrastructure investment
DePIN represents a transformative shift in the way infrastructure is financed, constructed, and maintained. Similar to how the internet and mobile devices reshaped communication, and bitcoin redefined value transfer, DePIN networks have the potential to revolutionize the deployment of energy, connectivity, and other critical physical infrastructure.

As an early-stage crypto fund, we often hear the question: What is crypto actually useful for? This can feel disheartening given the progress made by pioneering technologies such as bitcoin and stablecoins. However, with the emergence of the DePIN sector, we're seeing a shift in sentiment among potential allocators. The use case for DePIN is becoming clearer, sparking renewed interest in digital assets by bridging the gap between the digital and physical realms.