Source: Cointelegraph
Original: “DePIN Needs Thoughtful Regulation—Not Litigation”

Author: Kai Wawrzinek, Co-founder of Impossible Cloud Network

It seems that the era of punitive enforcement by the U.S. Securities and Exchange Commission (SEC) against cryptocurrencies has come to an end, but former Chairman Gary Gensler has left us with some lingering issues to address. Even after his departure, Gensler's approach of "regulating through enforcement" continues to resonate.

We may be living under the first U.S. government that supports cryptocurrencies in history, but there is still a lot of work to be done, especially in clarifying the ambiguous, contradictory, or missing regulations. There is one sector of the crypto industry that particularly needs clarity on how to operate without incurring the wrath of regulators: Decentralized Physical Infrastructure Networks (DePIN).

DePIN projects, ranging from decentralized cloud services to telecommunications and shared sensor grids, rely on real-world deployments and robust token economics. When regulators fail to clearly define how these tokens and their governance structures should be classified, project teams can only guess blindly—sometimes even ending up in litigation.

Let DePIN Play Its Role

Unlike most of the fully digital crypto industry that never intersects with the physical world, DePIN is different. The key lies in the "physical" aspect of DePIN. One of the most well-known DePIN projects incentivizes users to deploy wireless hotspots, creating a decentralized IoT network. Other DePIN projects include building decentralized cloud services, crowdsourcing environmental data, and decentralized energy networks.

The intersection of blockchain, hardware, and real-world services presents unique regulatory challenges that require tailored solutions—solutions that are not present in the SEC's current approach. The unique interaction between the physical and digital worlds necessitates a regulatory framework that is both clear and forward-looking. Due to the lack of clear rules regarding token issuance, data privacy, and infrastructure deployment, businesses can only navigate through uncertain regulations.

This regulatory ambiguity creates barriers to investment and could hinder the technological innovations promised by DePIN. Regulators must prioritize providing clear and transparent guidance for cryptocurrencies—especially giving adequate attention to DePIN. With clear rules in place, DePIN startups would be free to build innovative infrastructures that address critical real-world issues rather than wasting resources on lawyers and litigation.

Some may argue that operating in an industry without rules is better than surviving in one shackled by excessive regulations. However, history tells us that well-crafted regulations often pave the way for sustained growth, just as building codes allow skyscrapers to reach impressive heights while respecting the history and culture of cities. Thoughtful regulation does not stifle creativity; it supports it, providing a stable foundation for original ideas.

DePIN Needs Clear Regulation

There are three main areas that need further clarification regarding how to regulate a rapidly evolving crypto industry that spans multiple sectors (from AI to telecommunications), benefiting all participants:

Securities and Utility: Clarifying the rules for the issuance, distribution, and use of DePIN tokens is crucial. This clarity will protect investors and allow for predictable planning and scaling. Without clear rules, project teams can only tread carefully under vague guidelines, investing resources in legal compliance rather than innovation.

Data Privacy: DePIN platforms collect and process real-world data, from location signals to environmental information. Failing to address privacy issues through clear laws could lead to regulatory backlash and loss of consumer trust. A forward-looking regulatory framework should detail how to collect, store, and monetize data while balancing user privacy with the operational needs of these networks.

Global Infrastructure Deployment: Many DePIN solutions physically deploy devices or networks, crossing national and regional boundaries as well as compliance frameworks. A patchwork of state, federal, and international rules could stifle the core global promise of DePIN. Policymakers must align these frameworks to ensure that hardware deployment, spectrum usage, and other logistical considerations do not turn into a complex legal maze.

Better Transactions for Everyone

While more precise guidelines primarily benefit DePIN projects, they will also assist regulators, at least in terms of public perception. When it comes to the fines obtained by the SEC through retroactive penalties against crypto projects, these figures are public. However, this has led to a mass exodus of the industry from the U.S. The new SEC leadership has a unique opportunity to set a precedent for thoughtful cryptocurrency regulation, emphasizing guidance rather than punishment.

In reality, DePIN is unlikely to be at the top of that list. However, now is the best time for the SEC to demonstrate how it will handle innovative sectors like DePIN. This crypto field has a clear user base, specific work underway, and easily measurable outcomes.

If the new SEC leadership wants to convey how it will treat the crypto industry over the next four years, it can certainly start with DePIN as a good beginning.

DePIN is not just another crypto trend. It is a gateway bridging our digital and physical worlds, and we are just beginning to envision the possibilities of this bridge. Through thoughtful, proactive regulation, DePIN can realize its immense potential: addressing critical real-world infrastructure issues while adhering to precise regulations that improve our daily lives.

Author: Kai Wawrzinek, Co-founder of Impossible Cloud Network

Related: Emerging Technology Regulation: A Comprehensive, Lasting Approach

This article is for general informational purposes only and does not constitute legal or investment advice. The views, thoughts, and opinions expressed in the text are solely those of the author and do not necessarily represent or reflect the views and positions of Cointelegraph.

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