Venture capitalist Mahesh Ramakrishnan delves into the concept, development, and disruptive impact of DePIN on various industries. This article is based on a conversation between Fidelity, one of the world’s largest asset management companies, and Mahesh Ramakrishnan titled “Disrupting Real World Infrastructure On-chain: A Conversation with Mahesh Ramakrishnan,” compiled and written by DeepTech.
(Table of Contents:
1. Can you briefly introduce the definition of DePIN and describe its history from birth to the present?
2. What is the industry structure of DePIN? Which categories, industries, and infrastructure areas is the DePIN project disrupting?
Physical infrastructure:
Human infrastructure:
Machine infrastructure:
3. Generally speaking, who are the participants in the network, and what are their responsibilities and incentives?
4. In what aspects of cryptocurrencies (tokens, cryptography, immutability, network effects, smart contracts) can the DePIN project benefit? Why do these networks need blockchain?
5. Many DePIN projects hope to challenge existing companies: Helium 5G with telecom companies, Hivemapper with Google Maps, Render and Akash with general and dedicated computing giants. What are the common themes among these projects that give them structural advantages over existing projects?
In today’s rapidly developing digital economy, blockchain technology is no longer limited to the virtual world but is beginning to penetrate various aspects of our daily lives. Recently, Fidelity and venture capitalist Mahesh Ramakrishnan discussed how decentralized physical infrastructure networks (DePIN) are using public blockchains to reconstruct real-world infrastructure.
Mahesh delves into the concept, development, and disruptive impact of DePIN on various industries, revealing a new era of infrastructure construction driven by the cryptoeconomy.
DePIN (Decentralized Physical Infrastructure Network) is a collective term used to refer to projects that aim to build next-generation infrastructure through decentralized provision and delivery of physical and human capital, using cryptographic suites and tokenized elements in the physical world.
Fundamentally, these networks have peer-to-peer elements, where community members can participate in the network’s development by providing passive or mechanical work. This work can be as simple as verification and custody (or providing devices for data transmission) or as complex as completing tasks, such as drawing roads or WiFi routers.
These networks draw inspiration from Web2 businesses like Uber and Airbnb, which allow consumers to monetize the value of their capital (apartments, cars) and labor (drivers, hosts).
However, this revolution is just beginning, and numerous issues have already emerged with existing Web2 enterprises, including pricing and platform dependency issues. DePIN networks provide a clear, transparent revenue payment framework and use permissionless public blockchains for payment distribution, representing a step improvement in system trustworthiness.
This movement has a history of only three years in practice, starting with networks like Helium and Braintrust, which began redefining the relationship between enterprises, communities, and their resources.
Helium is known for building the first decentralized wireless network focused on network standards and achieved success on the supply side without expanding the demand side. Although the first attempt did not achieve commercial success, it demonstrated to other builders the powerful potential of starting infrastructure from scratch using tokens.
Today, Helium is launching its national phone plan and applying its initial model to mobile data roaming and telecom companies, achieving some initial success. Braintrust, on the other hand, takes a different approach and has created one of the world’s largest freelance labor supply sides by leveraging their token. They have a workforce willing to accept contract work provided by Braintrust. By involving employees in the network’s development, Braintrust has achieved an incredibly high retention rate and a highly motivated and cohesive workforce.
When we started researching this field in early 2021, the number of DePIN projects could be counted on both hands. Two years later, we have tracked over 600 projects on our DePIN Ninja platform and have only seen this digital acceleration continue.
While we let the community define all the sub-sectors, I believe the most apparent focus of DePIN is the decentralization of capital and labor, resulting in three sub-sectors.
The first major breakthrough area is the physical infrastructure network, ranging from protocols that provide digital commodities like computing, storage, and bandwidth to enterprises addressing issues such as food delivery.
These enterprises come together under a simple principle: certain activities can be more efficiently accomplished by incentivized coordinated community groups rather than governments or even corporations. Examples include Filecoin, Helium, Render, and WiFiMap, all of which use tokens to incentivize bringing together a vast hardware footprint and making it useful.
While human infrastructure lags behind in terms of project numbers, these networks are also starting to grow. These networks often connect people with human capital to those in need of it.
The first company in this field, Braintrust, has scaled up and built peer-to-peer mentoring products and other meaningful community experiences to enhance people’s human capital. Activity-specific applications like Teleport are also emerging to create different personalized experiences, and we are still keeping an eye on NFTs to fulfill the promise of internet-based clubs.
Machine infrastructure networks are still in their early stages and hold potential for the decentralization of emerging industries like artificial intelligence and robotics, with the underlying premise being that more (and diverse) data will drive AI efficiency. This area benefits partially from the development of physical infrastructure, such as distributed computing.
Early use cases include reasoning networks that execute any prompt against multiple end models, providing the best answer across all models, and collectively owned agent frameworks that allow individuals to own robot services in the form of NFTs.
Examples include Bittensor, Autonolas, and MachineFi, all of which aim to bring greater intelligence and autonomy to our daily lives.
Network participants can be anyone from consumers to producers, depending on the difficulty of the work. We believe that the earliest successful use cases will be the simplest in terms of hardware complexity and physical work.
Take WiFiMap, for example, which rewards WiFi hotspot owners and reflectors (Mappers) to increase the number of nodes on the network. No hardware distinction is required here (people already have WiFi routers and phones), and the physical work required is as simple as asking a question: “Hey, can I add your hotspot to this network?”
Value accrues simply: hotspots added to the WiFi network see increased traffic to the businesses they are added to. This is evident because WiFi usage requires proximity to the WiFi, so the network can generate value and reward contributors with WiFi tokens based on the perceived value of the hotspot’s connectivity. WiFiMap has billions of hotspots on its network through this simple mechanism.
The responsibility of reflectors (Mappers) is to add nodes to the network by joining hotspot owners, while the owner’s responsibility is simply to keep their hotspot on. As long as WiFiMap continues to bring traffic, the network can generate economic value, and WiFi can be monetized through services (speed tests), subscriptions (SIM cards), and advertisements. We believe that use cases that empower people to perform simple tasks at scale can be incredibly powerful.
The DePIN project can benefit from all the aspects mentioned above: each factor plays a different part in solving the ultimate challenge of building ultra-secure, fast, and accessible digital infrastructure. However, the relative speed at which these aspects become critical in DePIN will vary depending on the project’s stage.
Tokens (or in-app currencies) have already become a core part of DePIN, and the strategic use of tokens to incentivize cryptographic utility is the secret weapon behind DePIN’s viral growth. However, the use of these tokens needs to be targeted and carefully constructed to avoid redundancy.
Projects like Hivemapper and WiFiMap are pioneers in this aspect, as they have devised creative structures that only reward useful work. For example, Hivemapper pays the full reward to the first mapper for any specific road and much less to subsequent mappers. By doing so, it can operate autonomously to help ensure that only useful coverage is provided.
Immutability is at the core of using blockchain in these projects. If DePIN is to become the foundation of the next generation of digital infrastructure, including government and defense infrastructure, it needs to be extremely secure.
The immutability of underlying blockchains and cryptography ensures that any tampering, whether external or internal, is immediately visible. In this space, bad actors have nowhere to hide. Lastly, network effects and economics are crucial for their functioning and driving proportional pricing: the more nodes, the more supply, and thus, lower costs can be charged (when it comes to digital commodities). We expect the largest networks to continue growing as they achieve initial escape velocity.
They share the use of the network economy to solve some of the largest economies of scale problems ever.
When you observe the industries threatened by DePIN, they are defined by economies of scale. Today’s cloud services are one of the most powerful economies of scale ever, as telecom giants and existing Web2 enterprises have created infrastructure oligopolies, leveraging historically low capital costs to create massive enterprises.
Infrastructure is a significant barrier to entry for anyone looking to compete in the software space. Traditional business models may struggle to compete with these existing enterprises that have massive capital costs, distribution, and regulatory advantages, as antitrust and regulatory bodies are reluctant to take radical positions.
However, strategists at Harvard Business School will tell you that only network economies have a chance of beating economies of scale, and the rapid increase in computing resources has given them an opportunity. Peer-to-peer organizations, combined with open-source and composable software, offer a fundamentally different approach to similar problems and shift the battleground from capital costs to collaboration. Taking cloud services as an example, DePIN surpasses competitors in three main categories.
Capital expenditure: DePIN networks either leverage existing hardware or push the industry towards next-generation commoditized hardware, which can provide significant upfront cost advantages compared to existing companies.
Location: Part of the power of the community lies in leveraging its fixed costs: people have already paid rent/mortgages and can use spaces that traditional companies would need to purchase or lease. DePIN communities do not need to pay additional land costs like data centers.
Personnel: Given the software’s role in managing the entire network, including payments, DePIN protocols require fewer personnel compared to traditional enterprises. By eliminating significant installation, service, and maintenance personnel costs from the profit and loss statement, DePIN’s profit margin may be stronger than existing companies.
DePIN seems to be ahead in many competitive aspects against existing enterprises. By transforming fixed costs into variable costs consolidated by network effects, DePIN can challenge the positions of these cloud service monopolies and benefit from the structural pricing advantages.
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