Authors: Sami Kassab; Salvador Gala

Translation: DeepTech TechFlow

Recently, Messari and Escape Velocity (EV3) jointly released a research report titled "State of DePIN 2023," which elaborates in detail and comprehensively on the current status, applications, supply and demand, technological changes, and regional development differences in the DePIN track.

As the original report is presented in PDF format and the English content is lengthy, and each figure has a high information density, DeepTech TechFlow has compiled the report, processed the key charts, content, and viewpoints from the original report, and presented and interpreted them in a more readable format.

The following is the original report content.

Definition, Current Status, and Industry Landscape of DePIN

DePIN = Distributed Physical Infrastructure Network, which efficiently coordinates the construction and operation of critical infrastructure using cryptographic incentive mechanisms.

In general, DePIN can consist of the following components:

DePIN can be more efficient, resilient, and perform better than centralized infrastructure, making it the preferred way to expand global infrastructure.

The comparison between DePIN and traditional centralized infrastructure is as follows:

The growth flywheel of DePIN = the infrastructure network becomes more powerful as it scales.

The flywheel of DePIN is strong enough to increase global GDP by +$10 trillion in the next decade and by +$100 trillion in the following decade.

DePIN empowers and incentivizes citizens to improve the surrounding public infrastructure.

In a world of untrustworthy institutions and incompetent bureaucrats, DePIN returns wealth and power to citizens and communities.

We divide DePIN into six categories, each of which disrupts an industry worth over $1 trillion.

RWAs (Real World Assets) and blockchain infrastructure networks (oracles and RPC) are related areas of DePIN but are not within the scope of this report.

Smart money in cryptocurrencies is making dozens of bets on the DePIN track, and venture capital funds are also making substantial investments.

Winners in DePIN infrastructure are beginning to emerge, with Solana in a leading position.

Solana's integrated infrastructure and performance-focused developer community are attracting DePIN at all stages.

Demand, Revenue, and Typical Use Cases of DePIN

DePIN relies on on-chain validation and/or settlement to provide critical network resources to consumers, developers, and agents willing to pay for them.

The North Star of DePIN = revenue driven by utility — not speculation.

On-chain revenue means users exchange products/services/goods by purchasing and locking/destroying tokens.

DePIN generates over $15 billion in annualized on-chain revenue across six core business models.

In the previous cycle, DePIN's revenue situation proved to be the most resilient in on-chain revenue among all tracks.

The largest DePINs are transforming into platforms with diversified use cases.

These are not overnight successes: platformization often occurs in the 5th to 10th year of global decentralized network expansion.

Here are the specific situations of use cases in the 6 DePIN tracks:

Compute Market

The compute market is the oldest and most successful DePIN business model.

Storage networks need more demand, compute networks need more supply, and retrieval networks need density to compete with web2.

Data storage seems like an obvious use case for cryptographic technology, but its development has been slow.

So far, the best customers for decentralized storage networks have always been other cryptographic networks.

The ultimate game of storage has always been about data computation.

Filecoin's mainnet phase three is set to begin in the first quarter of 2023, with the simultaneous launch of the Filecoin Virtual Machine (FVM).

Unlike most DePINs, GPU cloud services are supply-constrained rather than demand-constrained.

However, price competition in GPU cloud services may be faster than any competition we have seen before.

(Note: In the pricing unit of LLM, the token should be understood as Token)

CPU cloud services are becoming the spirit of the animal in the crypto field.

Speculation on proof-of-work blockchains has led to a wealth transfer from speculators to arbitrageurs and DePIN token holders.

Decentralized CDNs face fierce competition: Cloudflare already has a similar flywheel effect to DePIN.

Cloudflare benefits from a similar flywheel effect to DePIN through its free CDN service, which supports 20% of websites globally.

Retrieval is the most challenging part of decentralization, but early signs show promise.

The results at the beginning of 2023 demonstrate the potential for decentralized CDNs to match or even surpass the performance of web2.

(Note: Filecoin's Saturn should be its project name Saturn)

Wireless Coverage

In the global economy, the market for wireless services is even larger than the compute market.

Over the past 25 years, the compound annual growth rate of global data transmission has been 30-35%, with no signs of slowing down.

Each vertical area of DeWi has different fundamental economic drivers.

The mobile market is the largest market to date (in terms of dollars), but fixed internet and WiFi are the largest in usage (in terms of GB and users).

Cryptographic MVNOs (Mobile Virtual Network Operators) use tokenomics to improve traditional wireless economics.

MVNOs acquire and manage customer relationships while paying wholesale network access fees to traditional mobile network operators (MNOs).

Early momentum for Helium Mobile shows a path to millions of users.

The question is: Can Helium start making a profit before running out of funds?… We believe the answer is yes.

Mobile internet connects people to people, while fixed internet connects places to places.

The number of ISPs (Internet Service Providers) in the United States will increase from 3,000 to over 15,000 in the next five years, presenting even greater global opportunities.

Fixed internet may be the most ambitious plan in DeWi.

Andrena's testnet will enable consumers and small businesses to become micro-internet service providers with the last-mile internet infrastructure.

With billions of daily active users, WiFi is the most widely used connectivity protocol on Earth.

In 2023, WiFi Map airdropped $WIFI tokens to the 225k most active contributors in 190 countries globally.

Wholesale Data

Data sales can take many different forms, with some more valuable than others.

Data is most valuable when:

1) There are many buyers who need it

2) These buyers make a lot of money from it

3) Better data is the limiting factor for them to make more money.

Mapping is undoubtedly the most powerful real-world example of global crypto coordination.

The progress made by the Hivemapper community in supply, demand, and validation in 2023 is greater than that of most networks in 3-5 years.

DePINs are beginning to tap into the potential of mobile sensors.

Mobile phones are very powerful sensing devices… but mobile data as a business faces several challenges, as explained in the specific figure below:

Data collection and privacy conflicts

Low retention rates

Data collection accuracy issues

Doubts about high-value traffic

Token rewards may not be reasonable

AI x Cryptocurrency creates an alternative path for DePIN sensor/data networks.

Networks can monetize valuable datasets by smart mining or computing beyond the data market competition upstream.

Service Market

Service Market

The service market leverages crypto incentives to attract top talent from around the world.

Whether based on individuals or agents, excellent service markets:

1) Attract and retain the best talent, 2) Effectively match supply and demand.

Vertical service markets are disrupting the gig economy of web2.

Companies like Uber/Doordash are built on permanently extracting economic value from the local economy; web3 is rewriting the script by returning ownership and control to local operators.

On-chain security services will become the most obvious winners in '24-'25.

In the previous crypto cycle, Certik laid the blueprint for a on-chain security services market worth over $100 billion.

(TAM refers to the Total Addressable Market)

Vertical Advertising

Vertical advertising networks return data ownership and control to users.

Excellent advertising networks combine:

1) Viral user acquisition, 2) Proprietary, contextually relevant data streams, 3) Large terminal markets.

Energy

Decentralized energy supply chains may prove to be the most challenging aspect of DePIN to date.

Regulatory expenses in the energy industry make experimentation slow/difficult/expensive… but the toughest challenges attract the most resilient entrepreneurs.

DePIN Supply, Tokenomics, and Incentive Models

DePINs use crypto incentives to coordinate capital, equipment, and labor to scale critical global infrastructure.

In 2023, DePINs added 600k+ nodes, covering wireless, computing, and sensor networks.

In addition to those shown in the figure below, dozens of emerging DePINs added 100-500 nodes this year and are rapidly expanding to 2024.

DePINs have become more efficient in expanding the supply.

The next generation of DePINs focuses more on capital efficiency—sometimes at the expense of decentralization.

We have seen three token issuance methods: time-based, supply KPI-based, and demand-based.

Most DePINs combine all three strategies, using different issuance plans for different tokens at different times.

Hardware DePINs operate well: targeted mining rewards surge/boost.

Capital-intensive DePINs benefit from using off-chain data & decisions to incentivize high-value deployments.

Software DePINs operate well: may become token points or credits.

Leading software-based DePINs have expanded to tens of thousands or even hundreds of thousands of active users before actually launching tokens.

A good effect for DePIN investors is: distinguishing market cap and FDV.

The best networks will primarily trade on the market cap in the circulating market, while the upside for lower-quality networks will be limited by FDV.

Future Outlook: Integration of DePIN with Other Crypto Tracks in 2024

By 2024, we will see DePINs begin to experiment more deeply with new crypto foundational components, including ZK, meme coins, on-chain AI, and on-chain games.

DePIN x Artificial Intelligence

ZK-verifiable GPU cloud computing is expected to achieve on-chain inference economics in 1-2 years, rendering centralized service providers unable to provide services.

DePIN x Meme

Whether you like it or not, meme coins are becoming the real catalyst driving widespread adoption of DePIN.

DePIN x ZK

Web3's vampire attack on Web2 will become the next gold rush.

As developers create user-consistent clones of the most popular Web2 applications on emerging high-performance ZK infrastructure, the design space for real-world infrastructure and on-chain games will grow faster than anyone expected.

These infrastructures are built by the following projects:

DePIN x Gaming

As more and more DePIN activities move on-chain, the design space for real-world infrastructure and on-chain games will grow faster than anyone expected.

DePIN x Privacy

ATOR will fork the Tor network in 2024, aiming to create a scalable, high-performance ecosystem for privacy-focused developers to build applications.

DePIN x Asia

DePIN is a global movement: the DePIN ecosystem in Asia is experiencing explosive growth.

We expect several of the top 10 DePINs to come from Asia in '24-'25.

Some notable Asian institutions include: FutureMoney, HashGlobal, Hashkey, and Distributed Capital, among others.

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