The Rise of DePIN Networks

Greythorn Asset Management
13 min readFeb 22, 2024
Source: Greythorn Internal

Opening Remarks

DePINs are leading a quiet revolution. This movement is built on a simple idea: using the appeal of cryptocurrency incentives to bring people together to build and manage the essential structures we all rely on, moving away from traditional, centralised methods towards a more open, collaborative, and innovative model.

This study explores the realm of DePINs, a sector that has shown impressive growth and durability, even against the broader crypto market’s volatility. Interestingly, the revenue model of DePINs has proven to be rooted in utility rather than speculation. While the wider crypto market experienced a sharp decline of 70–90%, DePIN revenues only dipped by a more moderate 20–60% from their highest levels

Source: Messari

With over 650 projects spanning six distinct sub sectors — compute, AI, wireless, sensors, energy, and services — DePINs have underscored the potential for decentralised models to redefine our approach to infrastructure development.

The combined market cap of DePINs with liquid tokens surpassing $20 billion, alongside an annualised on-chain revenue of approximately $15 million, speaks volumes about the sector’s viability and the tangible value it brings to the table.

Currently, the future of DePINs is advancing with exciting innovations like the integration of ZK technology, on-chain AI, and on-chain gaming, among others. These advancements showcase the sector’s ability to adapt and its interest in using new technologies to create more efficient and collaborative infrastructure solutions.

Through this research, we aim to provide a comprehensive analysis of the DePIN ecosystem, exploring its current landscape, the dynamics of its growth, and its potential trajectory.

DePIN Overview

DePIN stands for Decentralised Physical Infrastructure Networks, a revolutionary approach that uses blockchain technology and crypto economics to motivate people to invest their resources in creating transparent, decentralised, and verifiable infrastructure. These projects cover a range of sectors and are unified by a model that values community ownership and distributed systems over centralised ones.

Source: Binance Research

The technology behind DePIN projects features a layered, modular architecture designed to simplify development and encourage innovation by connecting the real world with blockchain. This setup allows for parts of the project to be independently developed or updated, making it easier for developers to contribute without mastering the entire system.

Source: Greythorn Internal

DePIN initiatives begin by defining the resources they’ll provide, from storage and computing to bandwidth and hotspots. They rely on a reward system to encourage good behaviour and penalise bad, rewarding rule followers with tokens.

Providers must make a deposit to guarantee their service. If they underperform or misbehave, they risk losing their deposit, rewards, or network access. Customers use the project’s tokens for services, like AR for Arweave storage. The projects depend on these providers, who supply essential services or hardware for network functionality, as seen in Filecoin or Helium.

Ecosystem

Over time, DePIN projects have experienced significant growth, evolving into a diverse sector with around 160 projects identified by DePINscan. The classification of these projects varies based on what exactly defines a DePIN project. As illustrated in the image provided by Binance, the sector ranges from decentralised sensor networks such as Hivemapper, to computing and digital resources like Akash and Render, artificial intelligence projects like Bittensor, wireless networks such as Helium, and decentralised storage solutions like Arweave and Filecoin.

Source: Binance Research

Additionally, over time, the largest DePINs are turning into platforms with a variety of applications. Bittensor is a great example, hosting an increasing number of subnets, each dedicated to different areas.

This rapidly expanding ecosystem’s growth can be reflected in the keen interest from investors, who are making multiple bets on DePIN, with the top 10 projects amassing a total of approximately $1 billion. As the space matures, we expect some of these projects to start seeing significant adoption.

Source: Messari

In today’s research, we’ll examine a few case studies to explore the unique value propositions they bring to the industry and to understand how their economic models function.

Case Study 1: Exploring Decentralised Storage with Arweave

Value Proposition

Web3, the future of the internet, is based on decentralised networks, but storing large data files like images on blockchains such as Bitcoin or Ethereum is expensive and inefficient. Blockchains are optimised for transactions, not for storing data, leading to high costs for something as simple as a Bored Ape Yacht Club image.

To avoid blockchain congestion and high costs, decentralised storage networks offer a solution with blockchain-like security and accessibility but are more cost-effective. However, some NFT projects resort to centralised networks for storage, which risks data alteration or loss and lacks censorship resistance. This is critical for NFTs, whose value and context are defined by metadata. If this metadata is stored on a centralised server, it’s at risk of being changed, potentially altering the NFT’s appearance or value.

Crypto Punks, noted for their early development, sets a security standard by storing all metadata and images directly on the blockchain, ensuring immutability and permanent access as long as Ethereum exists.

In contrast, MAYC stores NFT metadata on centralised servers with images on IPFS, making the metadata vulnerable to changes and affecting the NFTs’ authenticity within the collection.

Similar challenges face dApps, where the common belief is their complete decentralisation. However, while some, like Uniswap and Aave, offer access via both centralised and decentralised networks, others rely solely on centralised servers. Despite this, their interaction with smart contracts on decentralised blockchains maintains their status as dApps.

Arweave Overview

  • Arweave is an open-source platform for permanently storing data with a one-time upfront fee. It consists of the blockweave (a blockchain-like layer for data storage) and the permaweb (a readable layer for permanent web content).
  • Supports smart contracts through SmartWeave, allowing contract states to be computed locally.
  • Uses its native token, AR, for transactions, including paying miners for storage and network bandwidth.
  • Utilises a unique consensus mechanism, Proof of Access (PoA), promoting long-term data storage and efficiency. PoA ensures data permanence by requiring miners to access previous blocks, creating a graph-like structure rather than a linear blockchain.
  • Offers content moderation tools, allowing node operators to filter out unwanted data.
  • Charges a one-time fee for permanent storage, with costs expected to decrease over time due to technological advancements.
  • Miners earn rewards through transaction fees, inflationary token emissions, and endowment payments.
  • Started with 55 million AR tokens, with an additional 11 million from inflationary emissions, aiming for a total of 66 million AR tokens without a burning mechanism.

Arweave’s design ensures data is stored permanently at a predictable cost, leveraging decentralised technology for security and accessibility.

Source: Arweave

Competitors

Filecoin ($FIL), Crust ($CRU), Sia ($SC), Storj ($STORJ), and Swarm ($BZZ) represent a selection of decentralised storage projects, though this list is not exhaustive. With Filecoin emerging as a prominent competitor in this space, our research team has developed a comprehensive table to compare Arweave and Filecoin, highlighting their differences and features.

Source: Greythorn Internal

Another competitor that has recently come to our attention is GenesysGo, which leverages Solana’s blockchain to innovate cloud storage by integrating speed with decentralisation. Distinct from Filecoin and similar decentralised storage projects, GenesysGo launches D.A.G.G.E.R., an innovative technology that guarantees data integrity and fast access. This unique positioning in the Web3 ecosystem caters to computing, AI, and data storage demands, providing a high-throughput solution that significantly minimise delays in data uploads and retrievals. This makes it an optimal choice for applications requiring quick access, although further research is needed to fully understand its capabilities and impact.

Case Study 2: Decentralised GPU Computing via Render Network

Value Proposition

Render Network is transforming the GPU market, responding to the increasing demands of modern media, AI, and cloud computing. As the value of GPUs nears that of the world’s leading oil company, it’s evident that GPU computing is becoming essential in today’s digital world.

Source: Rentoshi Tokamoto

With the market set to expand rapidly, Render Network is at the forefront, offering decentralised GPU computing for a variety of uses, from media production and architecture to scientific research. Integrating AI, Render boosts digital creativity and efficiency, catering to the growing AI industry.

Source: Grand View Research

As a leader in decentralised compute marketplaces, Render Network stands out with its vast GPU network and strategic partnerships, securing a strong competitive position. It’s driving a significant shift in power away from centralised giants like Amazon Web Services and Google Cloud by fostering competition in an open marketplace supported by numerous providers and making cloud computing more accessible and efficient for developers. This approach not only diversifies options for computing resources but also makes Render Network a critical player in the era of digital and AI revolutions.

Render Overview

  • Render acts as a Decentralised Marketplace, connecting GPU owners with creators requiring rendering power, facilitated by RNDR tokens for secure transactions.
  • Allows GPU owners to earn by contributing idle compute power, optimising the global GPU infrastructure.
  • Supports a wide range of projects, from digital art and motion graphics to architectural visualisations and scientific simulations.
  • Dual-Layer Structure:

Off-Chain Rendering Network: Comprises creators, node operators, and vendors, with node operators providing essential GPU power.

Blockchain Layer: Manages transactions with RENDER tokens and escrow contracts, ensuring transparency and integrity.

  • OctaneRender: A flagship product offering advanced rendering technologies, including machine learning optimizations and significant speed gains.
  • Renders services vital for projection mapping, product design, architecture, and scientific research, becoming increasingly crucial as the metaverse expands.
  • Partners with Io.net for enhanced computing capabilities and FedML for advancing decentralised machine learning, showcasing Render Network’s commitment to broadening its compute applications.
  • Tokenomics:

Utility Tokens: RNDR tokens, based on ERC-20, facilitate rendering transactions, with a circulating supply of 376 million RNDR and a max supply of 536 million RNDR.

Transition to Solana: RNDR was initially on the Ethereum blockchain but has transitioned to a new SPL token based on RNP-006. This enables broader application support, leveraging the blockchain’s low-cost, high-throughput capabilities.

Economic Model: Introduces the Burn Mint Equilibrium (BME) for economic stability, balancing rendering costs and token supply through a fiat-to-RENDER conversion and token burn mechanism.

Competitors

Akash Network presents itself as a pioneering force in decentralised cloud computing, focusing primarily on AI applications. It operates as an open-source GPU network that empowers developers to deploy containerized applications by providing access to a global pool of spare computing resources. Akash’s model is often compared to “Airbnb for server hosting,” creating a marketplace for leasing computing resources, including CPUs, GPUs, memory, and storage, from those with excess capacity.

As of early 2024, Akash boasts significant resources and has seen a surge in activity, particularly due to the AI boom and increased demand for high-performance GPUs. Active leases have more than tripled since the start of 2023.

Source: Binance Research

Akash vs. Render Network:

  • Model Difference: Unlike Akash’s decentralised cloud infrastructure model, Render operates on a Platform as a Service (PaaS) model, focusing on rendering tasks. Render provides a managed platform, simplifying infrastructure management for developers.
  • Strategic Positioning: While Akash targets a broad spectrum of computing needs with an emphasis on AI, Render specifically caters to the rendering space, integrating AI and metaverse applications, giving it a distinctive edge in those areas.

In summary, Akash Network facilitates a decentralised approach to cloud computing, offering an alternative to traditional cloud services with its peer-to-peer marketplace. It contrasts with Render Network’s specialised rendering services, highlighting the diverse potentials of decentralised networks in catering to different market needs and technological advancements.

Case Study 3: Decentralised Wireless Networks through Helium

Value Proposition

Helium is a pioneering project in the realm of decentralised wireless infrastructure, focusing on enhancing connectivity across the globe for both Internet of Things devices and mobile devices. Launched in 2019, Helium began with its Helium Hotspot product, designed to provide wireless access to IoT devices. This initiative marked the beginning of a wider ambition to cover a range of connectivity needs, eventually expanding into the 5G sphere to accommodate the growing demand for higher bandwidth and lower latency mobile connections.

Since them, the number of new Helium hotspots onboarded has accelerated, specially in recent months

Source: Binance Research

Helium’s main value proposition comes from its decentralised approach to wireless networks, enabling widespread coverage without the significant site acquisition costs typically associated with traditional telecom infrastructure. By leveraging user-operated nodes, Helium democratises the provision of wireless services, allowing participants to earn tokens in exchange for contributing to the network’s expansion and efficacy. This model not only reduces operational costs but also fosters a community-driven approach to improving wireless accessibility.

Helium Overview

  • Token Ecosystem:HNT: The native token of Helium, crucial for network operations, including the creation of “Data Credits” for data transactions. Hotspot hosts can exchange network tokens (e.g., IOT, MOBILE) for HNT.IOT: The protocol token for the Helium IoT network, mined by LoRaWAN Hotspots through data transfers and Proof of Coverage.MOBILE: The protocol token for the Helium 5G Network, awarded to contributors providing 5G wireless coverage and verifying network operations.
  • Network Participants:Devices: Send and receive data from the internet using WHIP-compatible hardware, with data fingerprints stored on the blockchain.Miners: Provide network coverage with Hotspots, participate in Proof of Coverage, and earn tokens based on network contribution and service quality.Routers: Purchase encrypted data from Miners and ensure its proper delivery, acting as the endpoint for data encryption.
  • Key Technologies and Protocols:Proof-of-Coverage: Validates Miners’ wireless network coverage in a cost-effective manner.Consensus Protocol: Combines asynchronous Byzantine fault tolerance with Proof-of-Coverage for network governance.WHIP: An open-source, low-power wide-area network protocol.Proof-of-Location: Allows devices to verify their location without satellite hardware, using network intelligence.
  • Migration to Solana:Helium migrated to Solana last year to capitalise on its scalability, low transaction costs, and high-performance features, enhancing network resilience and supporting more sophisticated algorithms.
  • Tokenomics:Uses a 2-year halving cycle, capping HNT’s maximum supply at 223 million, with about 160.88 M (72.14%) tokens currently in circulation.Token Utility: HNT is used for network participation rewards, data transfers, creating Data Credits (DC), and staking for network security.

Competitors

Despite being outside the blockchain domain, The Things Network (TTN) emerges as a notable rival to Helium, especially within densely populated urban environments. Initiated in 2015, TTN distinguishes itself through its open-source software foundation, bearing a conceptual resemblance to Helium’s approach.

Contrary to Helium’s model, which includes hardware provision, TTN focuses on delivering software solutions alongside comprehensive documentation to assist individuals in establishing their own LoRaWAN networks. The driving motivation behind adopting TTN lies less in the pursuit of financial gain and more in the quest for practical solutions advantageous to users or their clientele.

Closing Remarks

In concluding our exploration of DePIN, we’ve uncovered a landscape filled with potential but also significant challenges. DePIN’s role in enhancing traditional infrastructure, by offering last-mile connectivity through a sharing economy, indicates a pivotal shift in the evolution of digital infrastructure. Efforts to integrate DePIN with Web2 interfaces are poised to greatly improve user accessibility, promoting wider adoption by making blockchain technology more approachable.

The development of DePIN tokenomics, especially when linked with the DeFi ecosystem, suggests an interesting future where blockchain’s utility goes beyond simple transactions. However, challenges like token price volatility, profit-centric user engagement, and limited public awareness remain barriers to widespread adoption. Addressing these issues requires solid economic models and strong community engagement.

As the DePIN sector matures, significant growth is expected, particularly in Asia. According to Messari, Asia is anticipated to be a major catalyst for this growth, with several top DePIN projects predicted to emerge from the region between 2024 and 2025. The success of DePIN initiatives will depend on their capability to offer tangible benefits and navigate the complexities of the digital infrastructure landscape.

Source: Messari

Today’s article has only scratched the surface of the emerging projects in this sector. We encourage further exploration as new opportunities arise. DePINscan could be an excellent starting point for those looking to get familiar with the sector.

If you’ve found this overview interesting, we invite you to connect with us and visit our website for more information. You can also explore our previous research here.

Disclaimer

This presentation has been prepared by Greythorn Asset Management Pty Ltd (ABN 96 621 995 659) (Greythorn). The information in this presentation should be regarded as general information only rather than investment advice and financial advice. It is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In preparing this document Greythorn did not take into account the investment objectives, financial circumstance or particular needs of any recipient who receives or reads it. Before making any investment decisions, recipients of this presentation should consider their own personal circumstances and seek professional advice from their accountant, lawyer or other professional adviser. This presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Greythorn is not obliged to update the information. Those assumptions may or may not prove to be correct. None of Greythorn, its officers, employees, agents, advisers or any other person named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of any forward looking statements or any of the assumptions upon which they are based. Greythorn and its officers, employees, agents and advisers give no warranty, representation or guarantee as to the accuracy, completeness or reliability of the information contained in this presentation. None of Greythorn and its officers, employees, agents and advisers accept, to the extent permitted by law, responsibility for any loss, claim, damages, costs or expenses arising out of, or in connection with, the information contained in this presentation. This presentation is the property of Greythorn. By receiving this presentation, the recipient agrees to keep its content confidential and agrees not to copy, supply, disseminate or disclose any information in relation to its content without written consent.

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Greythorn Asset Management

Melbourne-based asset management firm, focused primarily on Tech | Web3 | Crypto | Blockchain | DYOR/NFA. Subscribe to hear our latest industry insights.