Original Title: "Depin An Emerging Narrative"

Source: JieXuan Chua, Brian Chen, Binance Research

Translation: Kate, Mars Finance

Key Points:

In the past few months, the field of decentralized physical infrastructure network (DePIN) has become a prominent focus due to its vast potential market and wide-ranging potential.

DePIN refers to infrastructure-related projects that utilize blockchain technology and cryptographic economics. The goal is to incentivize individuals to allocate capital or unused resources in order to create a more transparent and verifiable network, with the aim of achieving more efficient scaling trajectories than centralized networks.

DePIN is a broad field consisting of several departments, each playing a different role in achieving decentralization of network infrastructure. In this report, we will introduce the development of computing networks, wireless networks, storage, and sensors.

With the continuous development of the industry, we expect that the DePIN project will experience a surge in the coming years. However, their long-term viability and ultimate success will depend on their applicability in the real world, and they still need to be tested in practice.

One, Overview

Among the various statements that have gained attention in recent months, the field of decentralized physical infrastructure network (DePIN) has become a prominent focus. Due to its wide potential market and the ability to expand infrastructure networks in a decentralized manner through a bottom-up growth strategy, the industry is considered to have enormous growth potential. Some even believe that DePIN is a paradigm shift in global resource allocation (including physical and digital) and a transformative approach to expanding large-scale infrastructure.

In this report, we explore this emerging narrative approach. We first outline the basics of DePIN and how it works. Our analysis then transitions to a top-down industry view, providing an ecosystem map and dissecting the landscape of various sub-industries. Finally, we examine the challenges faced by adopting DePIN, identify key market themes, and provide insights into the future prospects of the industry.

二、什么是 DePIN？

Translation:

2. What is DePIN?

DePIN refers to an infrastructure project that utilizes blockchain technology and the principles of cryptoeconomics to incentivize individuals to allocate capital or underutilized resources, in order to create a more transparent, decentralized, and verifiable infrastructure network.

These projects can be roughly divided into physical or digital resource networks, each of which contains different fields. Regardless of their focus, these projects typically operate under similar operating models, emphasizing collective ownership and prioritizing distributed systems over centralized market structures.

Figure 1: Conceptual diagram of centralization and decentralization; Source: Binance Research

DePIN working principle

DePIN projects typically involve several key components:

1. Target Resource: The project aims to provide specific resources to consumers. Common types of resources include storage capacity and computing power.

2. Hardware: Necessary equipment used by network contributors to operate the network and collect data or resources for the product. Depending on the type of resources, the cost, manufacturer, and usage of these devices may vary.

3. Incentive mechanism: a pre-determined mechanism that rewards token to the suppliers who contribute to the supply, thereby incentivizing them to contribute resources and provide reliable services. Some projects may also implement penalties to prevent malicious activities.

4. Supplier Contributor: Individuals or entities that provide unused or underutilized resources to the network. In return, they typically receive token rewards.

5. Consumer: The end user who participates in the network to use the services provided by the DePIN project.

The DePIN project first identified the specific resources they aim to provide. These resources vary greatly, including storage capacity, computing power, bandwidth, and hot deployment, among others. The core of these projects' operations is an incentive system designed to encourage positive contributions and prevent harmful behavior. The system primarily uses native tokens to reward compliant behavior.

For example, Filecoin is a leading DePIN project in cloud storage, which compensates storage providers with its native token FIL. These providers usually have to pledge collateral as a security measure. If they fail to provide reliable services or engage in malicious activities, they will face penalties such as withholding rewards, reducing collateral, or removing them from the network. In contrast, consumers use the project's tokens to pay for services, such as using FIL to pay for storage fees on Filecoin.

Suppliers and contributors are an indispensable part of the DePIN project, as the network relies on them to provide services. In Filecoin, they are storage providers, while in projects such as Helium and Hivemapper, they are individuals who set up the necessary hardware equipment to provide wireless coverage or mapping data.

Figure 2: The DePIN project aims to promote a self-reinforcing cycle to maintain its continuous growth; Source: Binance Research Institute

Having a self-reinforcing growth cycle will help with the sustainable development of the DePIN project. Token rewards are a useful incentive measure to overcome the "cold start" challenge for supply-side participants to participate in procurement. As the network scales and consumers begin to use network services, demand should rebound. Given that service payments are typically made in the form of network tokens, increased adoption should translate into higher token prices, which will further incentivize contributors. With synchronous growth in demand and supply, this virtuous cycle can continue, sustaining the project's ongoing growth.

Three, DePIN divided by industry

The origin of DePIN can be traced back several years, even before the term was officially created. This is not surprising, as the basic principles of DePIN are closely related to the spirit of the cryptocurrency industry. However, the industry did not initially receive significant attention or traction as it was hindered by factors such as immature infrastructure development, limited public awareness, and a small user base. Despite these challenges, projects related to DePIN have been steadily developed over the years, resulting in a diverse landscape in the industry as shown in Figure 3.

Please note that this map only shows a small part of the DePIN project. According to IOTeX's DePINscan data, there are approximately 160 DePIN projects recorded. The classification of these projects may also vary depending on how DePIN projects are defined. Regardless of these subtle differences, it is still evident that the industry is continuing to grow and expand.

Source: IOTeX, Binance Research Institute

1.Helium IoT Network

Helium 5G network is supported by thousands of user-operated nodes. Helium envisions the future of mobile networks to be a combination of large-scale operators and crowdsourced 5G hotspots. This is due to the expectation of consumers for higher bandwidth and lower latency, which in turn requires a more dense network and more nodes, increasing the cost of site acquisition. The crowdsourcing model of Helium 5G network eliminates the cost of site acquisition, allowing users to participate in providing high-bandwidth coverage. Interested operators can purchase FreedomFi gateway hardware to participate in the network and provide cellular coverage.

Operators will receive MOBILE tokens as rewards.

Following the launch of Helium Mobile's $20 per month unlimited data, messaging, and calling plan nationwide, as well as the surge in sales of Solana Saga smartphones (with a free 30-day subscription to Helium Mobile), Helium Network has witnessed a surge in new hotspots in recent months.

Figure 6: The number of newly added Helium hotspots has increased in recent months; Source: Dune Analytics (@helium-foundation), Binance Research, as of January 25, 2024.

Helium's ecosystem is supported by several tokens:

HNT: This is the native token of Helium, which is crucial in promoting network usage as it is used as "data credits" for data transmission and is burned. Hotspot hosts can also exchange network tokens (such as IOT, MOBILE) for HNT.

IOT: This is the protocol token of the Helium IoT network, which is mined through data transmission revenue and coverage proof by LoRaWAN Hotspots.

MOBILE: This is the protocol token of the Helium 5G network, which is rewarded to those who provide 5G wireless coverage and Helium network verification.

In addition, Data Credits ("DC") are the only acceptable payment method for data transmission on the Helium network, priced at $0.00001. For example, on an IoT network, users pay 1 DC for every 24-byte data packet transmitted. As more data is transmitted and more Data Credits are destroyed, subnets (such as IoT networks) will receive more HNT tokens to reward and incentivize their activities.

Overall, the above tokens serve as utility tokens for services in the network and provide incentives for operators to maintain and operate necessary infrastructure. Since its launch, Helium has expanded its network to over 970K hotspots, enabling it to cover countless IoT and mobile devices in a decentralized manner.

Storage

Decentralized storage systems operate on a peer-to-peer (P2P) network model, where user-driven storage providers (SPs) or miners allocate unused computer resources and earn rewards in the native token of the project. Unlike centralized systems where a single entity manages data, decentralized storage encrypts and shards data, distributing it across the network. This process enhances accessibility and ensures data redundancy.

Figure 7: Conceptual diagram of centralized and decentralized storage systems; Source: Binance Research Institute

The difference between centralized storage and decentralized storage mainly depends on two aspects: security and cost.

Centralized storage systems store data in a single organization using one or several servers, which brings potential risks of single point of failure. This may lead to issues such as data leakage and potential system crashes, endangering customer data. In addition, user privacy is also at risk. The infamous "Facebook-Cambridge Analytica data scandal" clearly reminded people of these concerns. In contrast, decentralized storage systems can reduce security risks and enhance data resilience by distributing data to a global network of nodes.

Cost is another key factor in comparison. An analysis released in May 2023 emphasized that decentralized storage is on average about 78% cheaper than centralized storage. This price difference is even more pronounced in enterprise-level data storage, where costs may be 121 times higher. This difference can be attributed to factors such as the large capital investment and related indirect costs required for centralized storage infrastructure. In contrast, decentralized storage leverages the availability of global surplus computing resources. Additionally, while the centralized storage market is dominated by a few tech giants that influence pricing, the decentralized storage market is largely driven by open market forces.

Despite potential security vulnerabilities and higher costs, centralized storage still performs well in some areas, especially in terms of user experience and product maturity. These systems typically provide more user-friendly interfaces and comprehensive product suites to meet various computing needs, not just storage. The fusion of user-friendly design and all-encompassing solutions has facilitated its continued dominance.

Figure 8: Centralized Storage vs Decentralized Storage

Case Study: BNB Greenfield

BNB Greenfield is the third blockchain in the BNB Chain ecosystem, which is a storage-centric blockchain supported by a series of SPs. Greenfield aims to serve as the foundational storage for the BNB ecosystem and EVM-compatible addresses, setting itself apart through its inherent integration with the BNB chain. This unique connection allows it to leverage the vast DeFi ecosystem and large developer community of the BNB Chain.

BNB Greenfield runs on a two-tier architecture: a PoS-based blockchain protected by BNB staking validators and a storage network maintained by storage nodes. The role of validators is to store metadata on the chain, verify data availability, and protect Greenfield. In contrast, SP handles the actual storage of data and provides various storage services.

One key feature of BNB Greenfield is its cross-chain programmability, which allows users to integrate their data with financial applications in the BSC ecosystem. The cornerstone of this cross-chain functionality is a native cross-chain bridge, coupled with a relay system that bridges Greenfield and BNB Chain. These components work together to facilitate interaction between the two ecosystems.

Figure 9: Cross-chain architecture of BNB Greenfield; Source: BNB Greenfield

Decentralized storage services like BNB Greenfield have a wide range of applications.

Their use cases are not limited to scenarios related to blockchain, but also extend to various practical applications. Examples include:

Blockchain Data Storage: Layer-1 blockchains contain a large amount of historical data.

These data can be effectively stored on BNB Greenfield to reduce latency on L1 and enhance data accessibility. In addition, BNB Greenfield provides a cost-effective solution for storing layer 2 transaction data.

Decentralized Social: Decentralized social networks can use BNB Greenfield to allow creators to maintain ownership of their content and data.

Personal Cloud Storage: Users can transfer encrypted documents, images, and videos across devices. Access to these files is maintained through the user's personal private key.

Website Hosting: BNB Greenfield can be used by users as a tool in their website deployment toolkit.

Challenge

This also affects the demand side of the equation, considering that the token is used for paying for network services. The rapid surge in token prices without corresponding adjustments in service prices may deter potential users. Therefore, a well-designed token economics and operational model are crucial in reducing price volatility.

Users are mainly driven by profits: Although the DePIN project has a clear value proposition, the performance of its native token still plays a crucial role in attracting and retaining users. When the token price is on an upward trend, it is usually easier to attract more users interested in participating in the rise. Conversely, in a bear market, the decline in token price and profitability may cause network participants to exit the project. This situation is particularly challenging for tokens with smaller market capitalization and lower liquidity, which may lead to a vicious spiral of decline.

Overcoming this challenge is not easy, but projects that can provide valuable services and meet the needs of the product market will attract a wider audience, rather than profit-oriented ones.

Lack of public awareness: Awareness is crucial for the adoption of DePIN products. Although these projects often offer services that are more transparent and cost-effective than centralized alternatives, they are not well-known outside the cryptocurrency industry. This limited awareness can be attributed to the general public's unfamiliarity with blockchain technology and the complexity of digital assets. Therefore, only a small percentage of people currently appreciate the benefits of these decentralized services.

Five, Conclusion

The DePIN project uses a distributed and transparent system to enhance the scalability and efficiency of infrastructure. This approach is in line with the principles of the encryption industry. By leveraging token economics, DePIN can predict crowdsourced resources such as storage capacity and computing power, eliminating the need for significant initial capital investment. The potential applications in various fields indicate a huge potential market.

However, there are still challenges in achieving widespread adoption. In the short term, it is unlikely that decentralized counterparts will completely replace centralized ones, and we may see an intermediate zone where DePIN and traditional infrastructure providers coexist.

Looking to the future, monitoring key trends is necessary to achieve a more seamless user experience and expand the on-chain use cases of the DePIN token. While we anticipate an increase in the number of DePIN projects with industry development, their ultimate long-term viability and success depend on real-world applicability, which has yet to undergo thorough practical testing.

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