Original Title: "Exploring The Design Space Of DePIN Networks"

Original Source: Multicoin Capital

Original Translation: Deep Tide TechFlow

Editor's note:

What exactly is DePIN? How does DePIN combine hardware, tokens, and the real world? Can it become a dark horse in the crypto ecosystem to implement mass adoption? As a new narrative in the crypto market, it is difficult to say whether DePIN is "old wine in a new bottle" or "value discovery". However, readers can learn about the meaning and design principles of DePIN through an article published by Multicoin Capital, which has the deepest layout in the DePIN track, in September 2023.

In April 2022, we published a paper on the Physical Proof of Work (PoPW) network (now commonly referred to as the "Decentralized Physical Infrastructure Network" or "DePIN"). In that article, we wrote:

PoPW incentivizes people to do verifiable work to build real-world infrastructure on the network. Compared to traditional capital forms used to build physical infrastructure, these permissionless and trust-neutral protocols:

1. It can accelerate the construction of infrastructure - in many cases up to 10-100 times faster;

2. More closely meet the needs of the native market;

3. The cost-effectiveness may be higher.

We are the first institution to primarily invest in this argument. Since then, we have seen the DePIN network explode in a wide range of categories such as energy, logistics, surveying, and telecommunications. Recently, we have also observed more targeted categories emerging, centered around resource networks for specific purposes, specifically for digital commodities such as computing, storage, bandwidth, and consumer data aggregation. Behind each network lies a structural cost or performance arbitrage, which is uniquely enabled by local capital formed by cryptocurrency.

There is a significant overlap between design patterns and best practices in the DePIN network. The founders and community have several key questions to consider when thinking about network design. Should network hardware be consumer-facing or should it be guided by professional installers? How many nodes are needed to get the first paying customer online? 10? 1000? Should the network be completely decentralized or should it be managed through trusted intermediaries?

These decisions must be made early in the network design process, and they need to be correct. Hub issues often determine the success or failure of the DePIN network, and small changes at the hardware level, token level, allocation level, or demand activation layer can have a huge impact on the success or failure of the network.

At Multicoin, we remain optimistic about DePIN and expect many new, well-defined networks to be launched in the coming years. This article will explore the trade-offs that DePIN founders and communities most commonly consider, with the hope of helping the next generation of DePIN founders and communities design networks more successfully. We propose three necessary considerations for establishing DePIN: hardware, threshold scale, and demand generation. In each aspect, we discuss the main issues that will affect key design decisions and outline their broad implications for token design.

Hardware Considerations

Most of the DePIN network coordinates physical infrastructure - that is, real hardware. However, this is not always the case. Some networks manage virtual resources such as computing, storage, or bandwidth (these networks are sometimes referred to as "decentralized virtual infrastructure networks" or "DeVIN"). But for the purposes of this section, we assume that your network has real hardware, so you need to answer some key network design questions.

Who manufactures hardware?

The DePIN network, which produces and distributes hardware, can better control the supply side of the network. They can also establish direct relationships with contributors (sometimes resulting in a stronger community). However, over time, these companies face the risk of becoming bottlenecks or single points of failure in the manufacturing and distribution process, which may limit the network's ability to expand.

Another option for creating and distributing your own hardware is to open source your hardware specifications and ask the community to build it for you. This allows founders and communities to expand the supply side of the network while mitigating the risks of a decentralized supply chain. Of course, the challenge with this approach is incentivizing third-party manufacturers to build hardware for a new market, which can be difficult and expensive. Another aspect to consider is hardware quality and support. Assuming you do successfully establish a strong hardware manufacturer ecosystem, you still need to maintain quality in terms of devices and support.

Helium is an interesting case study. They first established their own hotspot to help launch the network, and then quickly open-sourced their hardware specifications, inspiring a strong ecosystem of third-party hardware builders. Despite having a large number of third-party hardware manufacturers, Helium suffered from severe supply chain bottlenecks during the critical growth phase of the network, with some manufacturers providing poor support.

On the other hand, Hivemapper (which uses smartphones to decentralize indoor mapping) has chosen to build and distribute its own hardware cameras. This gives them complete control over hardware production, allowing for faster iteration of camera firmware and faster enablement of passive video uploads, which in turn accelerates map coverage and the commercial value of data. As a trade-off, having one company control hardware production has a centralized impact on the supply chain, which may make it more fragile.

Summary - We note that when hardware specifications are open source and deployed without license, the expansion speed of the DePIN network is much faster. When the network is mature enough, open hardware development to decentralize and expand the network is certainly meaningful. However, controlling hardware in the early stages to ensure quality and support is wise.

Your hardware, active or passive?

Some DePIN networks are set-and-forget, while others require more sustained user engagement.

For example, in the case of Helium, it takes about 10 minutes from unpacking to setting up the hotspot. After that, the device sits quietly and provides passive coverage to the network without requiring too much extra work from the user. On the other hand, networks like Geobyte (which use smartphones to decentralize indoor mapping) require users to actively create value by capturing indoor space videos using their phone sensors. For supply-side contributors, the time invested in active networks clearly sacrifices time that could be devoted to other income-generating activities or simply life. Therefore, contributors to active networks must earn more through tokens or network design (in most cases) to prove their time and opportunity costs. This also means that, due to its design, active networks reach threshold scale (which we will discuss in detail below) slower than passive networks.

The front side is that because active DePIN networks require a certain level of ongoing participation, they typically have contributors who are more invested and knowledgeable about the network. In turn, this also means that active networks are limited by the number of people willing and/or able to contribute.

Summary - We note that if contributors pay a one-time cost (time or money) at the beginning rather than continuous costs, the expansion of the DePIN network will be easier; passive networks are easier to set up and therefore easier to expand.

Becoming an active network is not a death sentence, it only requires creative thinking and motivational design. For example, active networks such as Geobyte, Dronebase, FrodoBots, and Veris are more like "perpetual games" than traditional infrastructure networks.

Your hardware is difficult to install?

The difficulty of hardware installation varies among different DePIN networks. On the one hand, it can be as simple as plugging the device into a wall socket, while on the other hand, it may require professional installation personnel.

On the easy end of the difficulty spectrum, game players can connect their GPUs to the Render Network, a distributed computing network, by simply running a bash script. This is ideal because the computing network requires tens of thousands of geographically distributed GPUs to properly serve data center offloading.

Installing a Hivemapper camera in the middle of the difficulty range takes 15-30 minutes. Hundreds of such vehicles are required in a given geographic area to build a powerful real-time map, so this installation must be a simple upfront time investment and easy to operate afterwards.

By contrast, at the difficult end of the difficulty range, XNET is building an operator-grade CBRS wireless network. Their network radios need to be installed by local ISP professionals and require the choice of commercial real estate owners to join. Nevertheless, their network is still expanding as covering a city area only requires few such arrangements and can provide services for operator offloading and data roaming use cases.

When the DePIN network reaches the threshold size, they can start selling to the demand side of the network in earnest. This raises a question: who should do the selling?

DePIN Network is only valuable when customers can easily access the resources aggregated on the network. Consumers and businesses often prefer to purchase from traditional companies rather than directly from an unlicensed network. This creates an opportunity for value-added resellers to package network resources into products and services that customers understand and are willing to purchase.

On the other hand, you don't have to be a value-added distributor or conduct business on the network. You can outsource demand-side relationships to the network ecosystem. This approach allows you to focus on core protocol development, but reducing touchpoints with customers may hinder product feedback and iteration.

You should become a value-added distributor or outsource?

DePIN teams approach this issue from various angles.

For example, Hivemapper Inc. is currently the main value-added distributor of Hivemapper Network. They operate on top of network mapping data and provide enterprise-level logistics and mapping data through commercial APIs.

As far as Helium is concerned, the Helium Mobile Network is provided by a single value-added distributor, Helium Mobile, which was born out of Helium Systems Inc. The Internet of Things network of Helium is commercialized by a series of value-added distributors, such as Senet, whose business covers helping customers deploy hotspots, purchasing sensors and coverage, and verifying data packet transmission.

Unlike Hivemapper or Helium, Render Network outsources the commercialization of network resources to public computing clients, who then resell these resources to institutions and artists for rendering and machine learning jobs. Render Network itself does not provide different orchestration layers for computing integrity proof, privacy protection, or processing specific program packages or library workloads. All of these are provided by third-party clients.

Summary - We note that adding services or trust guarantees can stimulate demand. The network can provide these services on its own, but investing in these services too early - before reaching a certain critical mass - can lead to wasted time, energy, and money. At scale, it is best for these services to be handled by third parties who will customize products based on the customers they serve.

We also observe that as the network begins to expand and commercialize network resources, they typically take the following forms:

The first stage: shortly after reaching the first threshold scale milestone, the core team manages all aspects of the demand-side relationships. This ensures that early customers receive the highest quality products possible.

Phase Three: In a certain stable state, many participants package resources for sale to a wide range of network participants. At this stage, the network becomes a platform for other service companies to enter and directly provide services to customers, purely as a resource layer.

Impact of Token Design

Looking into the Future

This article discusses the most common questions and considerations we discussed with the founder when exploring the new DePIN network.

We expect to see new, category-defining DePIN networks emerge in the coming years, and believe that core attributes such as token distribution, hardware, barrier to entry, and demand generation are crucial and should be fully explored in order to effectively establish supply-side resources and serve demand-side customers. These networks are essentially markets, and every trade-off will have a ripple effect, either enhancing their inherent network effects or creating differentiation for new entrants to compete.

Ultimately, we see DePIN as a way to reduce the cost of building valuable infrastructure networks by forming native capital through encryption. We believe that there is a broad design space for networks that provide services to subsets of large-scale markets such as telecommunications, energy, data aggregation, carbon reduction, physical storage, logistics, and delivery.

Original article link

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