DePIN Brings Real-World Business Opportunities for Web3

Why did we research DePIN business and why should you care?

Building a sustainable business is no walk in the park. And doing it on a Web3 infrastructure can feel more like an obstacle course.

If you’ve read our first report on modular blockchain architecture, you understand the blockchain business-specific challenges related to what we call the blockchain tetralemma.

This occurs when you try to add profitability to the usual set of concerns: decentralization, security, and scalability. But what can you do? Profitability is what a business needs, right?

So here comes DePIN—Decentralized Physical Infrastructure Networks—a new narrative that, if implemented properly, could compete with some of the world’s most profitable businesses. DePIN projects may eventually throw the gauntlet to Google, Amazon, or Nvidia.

In this report, you will receive an overview of how DePIN companies combine their revolutionary technological and incentivization model with the business side of their projects. Our goal is to show you different approaches, challenges, and solutions to turning DePIN into a sustainable business.

We examine some of the most successful existing DePIN projects, analyze their business models, and investigate the competitive Web3 landscape and beyond. We provide you with a thorough understanding of the possibilities and risks in various DePIN niches and concepts.

This will help you make your own involvement more beneficial. Who knows, maybe DePIN will turn out to be the killer use case the blockchain community has been waiting for over 15 years—and you’ll be part of it.

The Web3 world loves new narratives. And if one involves a clear investment opportunity and token incentivization at the same time, the hype is sure to follow.

Decentralized Physical Infrastructure ticks all these boxes:

• It’s a relatively new trend, even though its first serious representative – Filecoin – was introduced in 2017.
• It provides people with a huge number of new investable projects that all issue tokens as incentives.
• It allows users to earn tokens in return for an action rather than having to buy them.

The best way for you to understand DePIN’s practical side and how all this works is by looking at examples.

3 representative examples you probably know

1. Compute networks – Akash

Which problem(s) does Akash address?

Computing seems destined to become the currency of the AI age. Since before 2010, it has silently penetrated and gradually taken over our daily activities. When ChatGPT ignited an incredible outburst of AI innovation early in 2023, it finally made the headlines.

AI has made our lives more efficient, saving us time on activities that are now automated – and not only repeatable tasks. However, putting huge amounts of tasks and activity online caused an enormous increase in demand for computing to power increasingly complex AI algorithms.

Consequently, companies that provide AI solutions are now at the mercy of big suppliers such as Nvidia or Amazon Web Services (AWS). The former struggles to meet the demand; the latter’s software is centralized and pricy, and not everyone can (or wants to) afford it.

What is the Akash solution?

The Akash Network addresses both concerns. Firstly, they provide a decentralized network of computing power providers, making the AI algorithms more secure and reliable. Secondly, Akash created a kind of Airbnb for Datacenters, enabling people to lend unused computing capacity to companies and individuals in need. All this is in exchange for significant rewards.

What are some noteworthy results?

Activity on the Akash Network surged massively at the beginning of 2024, moving from 600 to over 2,200 active computing leases in a few weeks. The total is still negligible compared to AWS, which powers nearly 1.5M global businesses. However, Akash offers highly competitive prices: $5.83 per CPU on Akash compared to $32.82 on AWS. Combine this with the unique incentive model for providers and you are looking at something that may be enough to spur a significant change in the computing power market share.

2. Wireless network – Helium

Which problem(s) does Helium address?

Helium focuses on key challenges in the wireless network industry, including the need to lower data transfer costs, improve security and privacy, increase scalability, and boost innovation potential. The company also aims to mitigate economic risks such as token price volatility, network saturation, and competition from established telecommunication companies and other Web3 projects.

What are Helium’s solutions to industry issues:

• Lowering data transfer costs: Helium uses a proof-of-coverage consensus mechanism along with already-existing infrastructure (hotspots), avoiding the cost of establishing new infrastructure.
• Improving security and privacy:  Helium’s decentralized architecture eliminates the possibility of a single point of failure and reduces susceptibility to hacking. The network relies on pseudonymized device identifiers to improve privacy.
• Increasing scalability: Unlike traditional cellular networks with constrained infrastructure capacity, the Helium Network can readily grow as more hotspots are added.
• Boosting innovation potential: Helium’s open-source design and the usage of HNT tokens encourage developers to make new devices and apps for the network, which promotes innovation.

How does Helium handle the decentralized network-specific issues?

• Token price volatility: Helium explores alternative monetization models, such as data credits for specific data transfers, to reduce reliance solely on token values and tone down fluctuation.
• Network saturation: Helium implements mechanisms to discourage excessive hotspot deployment in concentrated areas, aiming to maintain a balanced network distribution. Additionally, proof-of-coverage verification helps ensure hotspots are providing actual coverage.
• Competition: Helium targets a market niche of low-power, long-range IoT connectivity, potentially co-existing with other solutions for high-bandwidth applications. It also encourages collaboration with other networks by offering open APIs for integration.

What are some noteworthy results?

Within barely 30 days of the launch, Helium generated remarkable traction with over 404,083 active hotspots.
Helium raised substantial funding in its last funding round, with a post-money valuation in the range of $1B to $10B.
The company has secured partnerships with the city government of San Jose, California, Valencia, Spain, and Dish Network for various use cases such as environmental monitoring, smart city sensors, and 5G coverage expansion.

3. Sensor networks – Hivemapper

Which problem(s) does Hivemapper address?

Hivemapper addresses several key challenges for global and local transportation and mobility management and operations:

• Increased operational costs for road planning and construction that are mostly due to the introduction of autonomous vehicles.
• Availability of reliable sources of information for governments on road maintenance.
• Lack of access to real-time data to help insurance companies solve accident-related disputes and issues.

What is the Hivemapper solution?

Hivemapper’s APIs and imagery provide essential real-time traffic and mapping data. The DePIN solution supports efficient fleet management, route planning, and package tracking through location sharing. Other sectors, such as real estate, can also benefit from the network. Hivemapper assists in property evaluation and planning, ensuring efficient land use, and ensuring regulatory compliance.

DePIN - a crypto trend or a real-world opportunity?

The Web3 world loves new narratives. And if one involves a clear investment opportunity and token incentivization at the same time, the crypto Twitter (or crypto X these days?) madness is inevitable.

For speculators, it’s all they need. But for people with a long-term perspective who want to build a prospering business or those who want to make a difference in the world, it can be a trap if it turns out to be a passing fad. You must see the whole picture to navigate the odds properly.

Why DePIN is such a hot topic these days

1. The financial growth

Anyone following the crypto space is aware that DePINs have shown significant growth in market capitalization in recent months. A lot of money has been pumped into this blockchain use case.

When we compare DePIN projects’ valuations at the beginning of 2023 with early 2024, the numbers speak for themselves. Akash blew the top with a YoY increase of 1313%; several other protocols experienced growth of over 200%.

The table below lists the top 5 DePIN projects (projects with a high market cap:

2. The hype factor

Hype isn’t created through financial opportunities alone and it’s not only about crypto prices. DePIN is community talk.

The Web3 media is all over the topic. We’ve looked at Web3 predictions for 2024 given by various experts and researchers and found DePIN to be present in nearly all of them:

Trends like this spill over into Web2, and retail interest follows. A glimpse at Google Trends shows a large spike in the search volume for DePIN, signifying the growing interest over the past year. What’s more, despite the brevity of most Web3 narratives, it appears to be relatively sustainable.

3. The technological uniqueness

Imagine a world where building and maintaining critical infrastructure like roads, power grids, and communication networks isn’t controlled by centralized authorities but by a global community. That’s the vision behind DePINs. It offers an innovative way of merging blockchain, the Internet of Things (IoT), and the physical world.

DePINs leverage blockchain technology to create a transparent and tamper-proof ledger recording network activity. This ensures secure and verifiable proof of contribution, eliminating trust issues and centralized control.

What makes DePIN so interesting as a technology is that it reaches beyond the digital realm. Using the IoT as the bridge to connect physical infrastructure components to the network closes the circle back to the real world.

Sensor-equipped hardware like routers, towers, and renewable energy generators collect data and interact with the blockchain. This real-time data flow enables efficient monitoring, maintenance, and optimization of the physical infrastructure.

The key to DePINs’ success lies in its token-based incentivization system. Participants who contribute physical hardware or provide valuable services are rewarded with tokens. These hold economic value and can be used within the network to pay for services, participate in governance decisions, and so on.

It creates a self-sustaining economic model that incentivizes continued growth and maintenance. In addition, this ingenious incentivization system brings down a major stumbling block for startups – the cold-start problem. It encourages people to join and contribute even when the network is young and small, fostering strong network effects early on.

4. Other factors

• Environmental and Economic Efficiency: DePIN projects often emphasize their potential to improve environmental and economic efficiency. By leveraging crowdsourced infrastructure and renewable energy sources, these projects can reduce costs and carbon footprints, making them attractive in an era where sustainability is a growing global concern. Moreover, some of them, such as Power Ledger, directly contribute to the increase in using clean energy.
• Regulatory Evolution: As governments and regulatory bodies around the world begin to understand and adapt to blockchain technology, chances for DePIN projects to integrate with traditional systems and markets grow. This regulatory evolution can open up new avenues for growth and mainstream adoption.
• Global Connectivity Goals: With a significant portion of the world’s population still lacking reliable internet access, DePIN projects that aim to expand connectivity can tap into a vast market. This aligns with global initiatives to bridge the digital divide and provides a strong use case for investment and development in the sector.

The DePIN tug-of-game between supply and demand

Building the supply side for a DePIN

The foundation for every DePIN project is the physical assets that form the physical infrastructure. Storage providers, computing power lenders, or some form of physical asset providers are the cornerstone of the decentralized network structure.

Attracting suppliers who own or can deploy these assets is the first step in establishing a DePIN. This is the supply side.

Early DePIN projects incentivize the supply side primarily using token-based rewards (we also explore other incentives under DePIN Business). This approach helps bootstrap the network by creating a clear value proposition for potential participants – they can earn rewards for contributing their resources.

For example, Helium’s initial focus was incentivizing the rollout of their physical network hotspots, creating a geographically widespread foundation for their decentralized wireless services.

This approach helps attract individuals or companies to contribute their time and resources if it meets a few critical criteria. Below, you’ll find the set of initial considerations every new DePIN project should take into account.

Openness of hardware systems
Closed systems provide tighter control over device quality, ensuring network performance and simplifying technical support. At the same time, it limits the types of hardware that can be used, which may stifle innovation and potentially drive up costs.

Open systems foster greater flexibility and potentially faster expansion by allowing participants to utilize compatible off-the-shelf or even repurposed devices. Please note, however, that they introduce challenges in guaranteeing consistency and quality of service and may increase management complexity.

Device placement requirements
DePIN systems, where physical coverage is an issue, often require careful spacing. In wireless networks (Helium) or positioning systems (Geodnet), extreme local device density can lead to interference and poorer service.

In contrast, projects like the Render Network focus on maximizing total available computing power (GPUs) without the need for geographic spacing restrictions. Here, systems with distancing requirements can incentivize deployment in underserved areas or penalize oversaturation.

Affordability
Lower device costs reduce the entry barrier for contributors. This is crucial for DePIN projects, which leverage crowdsourced infrastructure and attract a broad participant base. Highly accessible DePIN systems benefit from crowdsourced deployment. Projects relying on expensive specialized hardware may find it more challenging to attract a large, distributed contributor base.

Scalability through network expansion.
Scalability is a key consideration for DePIN projects that want to expand reach and impact. By attracting more asset providers and expanding infrastructure deployment, projects can meet growing demand, enhance network coverage, and support a larger user base.

Along with scalability, supply-side distribution should be meticulously planned to avoid limiting exposure to specific regions. Take Filecoin as an example. The network’s miners in China account for over 80% of the network’s testnet storage mining power. This area’s concentration has caused centralization concern and criticism and poses a challenge to its growth.

Demand side considerations for DePIN

“Supply First, But Demand Must Not Be Neglected”

Many DePIN projects initially prioritize building a robust supply base. That’s not a bad approach; however, neglecting the demand side early on can be detrimental. A network delivering data for which there is insufficient demand will bring a limited return for the supply side unless demand is generated. And if there is demand, the available market needs to be reachable.

Unlike other Web3 verticals, DePIN systems can potentially generate early revenue by addressing the existing market’s needs and offering solutions that exceed the existing ones. This is arguably the greatest advantage DePIN holds over other Web3 sectors.

It also means DePIN can offer solutions that reach beyond the Web3 ecosystem and get its teeth into Web2-dominated markets. However, attracting users outside of Web3 turns out to be challenging for nearly all of the DePIN projects. We dive deeper into the competitive landscape further into the report.

It’s difficult to convince users, even when the advantage is as striking as potential cost savings of up to 80% and more – as in the case of Akash. Below, you can see a direct cost comparison between Akash and its top Web3 competitors.

The reasons are diverse. There are high entry barriers in many mainstream markets due to the dominance of Google and AWS, which have established credibility and earned the trust of users. The convenience of staying with a more-or-less satisfactory solution and the fear of change pose substantial obstacles.

Add to this the lack of familiarity with market dynamics, leading to inconsistent communication and a lack of a clear value proposition for non-Web3 customers.

But Web3 actors are gaining experience and DePIN projects aiming at Web2 dominated markets are already thinking up creative solutions to help them cross the chasm (more on that later).

How individuals leverage DePIN

DePINs provide their network with sensory data. Let’s further break down the supply and demand sides of DePIN and explore how individuals leverage projects in two ways: social benefits and reward earnings.

Let’s explore how individuals leverage projects in two ways: social benefits and reward earnings.

1. Making a social or environmental contribution

We’ll demonstrate this with an example: Airly offers a solution for maintaining air quality via a network of sensors and a data platform. This service is particularly beneficial for users within the Helium Network because it enables hyperlocal, real-time air quality data collection and analysis. Governments, businesses, and communities can use Airly’s insights to make informed decisions on environmental policies and actions to reduce emissions and protect public health.

The Qualitair Corse case study by Airly examines the efficiency of 12 Airly sensors deployed across Corsica to monitor particulate matter and nitrogen dioxide levels. The project’s goal was to identify pollution sources, especially in ports, evaluate air quality improvement initiatives, and advocate for environmental policy changes. It also tracked particulate matter from Saharan dust, supporting government actions and raising public awareness.

Every individual on the supply side makes a contribution to society.

2. Earning rewards from DePIN

The individual’s contribution to the network is usually rewarded with tokens. While this is a strong incentive, the stories we heard from users who power DePIN networks are diverse.

We interviewed two users who have spent approximately $600-800 on setting up equipment in busy metropolitan areas and have not seen the returns they might have expected from projects like Helium.
They both told us about their initial enthusiasm for the project. The use cases were exciting and innovative. One involved locating lost fishing nets in the ocean through chips embedded in the nets. Even authorities praised this unique application for its utility in leveraging the network to accomplish an impossible mission.

However, as the narrative unfolded, users revealed their disappointment with the practical outcomes of their investment in the technology. They put down approximately $400 for a mining kit and $250-$300 for antennas and cables but then faced delivery delays of 7-9 months.

When they were finally done with the setup, they encountered issues with network saturation as more devices were activated in their vicinity. Competition increased, and returns went down. Despite attempts to optimize the setup by experimenting with various antennas and locations, the results were underwhelming. Both of our interviewees criticized the lack of guidance on optimizing device performance and shared their frustration with the inconsistent and often poor data mining yields.

This is one story of disappointment, but many are positive and encouraging. In other cases, rewards for supply-side individuals can be truly beneficial. For example, Hivemapper’s users frequently share their earnings on social media and remain content with the bounties for contributions to expanding the networks.

DePIN projects vary at their core, and the different user experiences shouldn’t come as a surprise. We will explore the reasons in the DePIN business section in detail.

DePIN niches and related projects

Before we get down to business, we want to make sure you’re on the same page as us. Below you’ll find a short overview with description – a kind of glossary – of the projects and DePIN niches we’ll unpack in the main section of our report. Feel free to skip if you are familiar with these projects.

Decentralized computing

Encouraging individuals to share their unused computing power and allocate these resources to a decentralized cloud network – in exchange for tokens.

Significant projects:

• Akash – a decentralized computing marketplace that aims to seamlessly connect GPU power lenders with companies and individuals in need.
• Render – a decentralized GPU network similar to Akash but primarily focused on artists and studios that need rendering power.
• Livepeer – a decentralized video infrastructure focused on making unused computing resources from the supply side of the market available primarily to filmmakers and live streamers on the other end.

Decentralized storage

Leveraging a distributed network of nodes to store data rather than relying on a centralized server or service provider. The files are often encrypted, broken into smaller segments, and spread across multiple independent computers, making the data resilient to outages.

Significant projects:

• Filecoin – a decentralized marketplace for data storage, connecting users with providers in a peer-to-peer network. It uses economic incentives and robust cryptography to guarantee file reliability and security.
• Arweave – a decentralized storage protocol designed to ensure the permanent and immutable preservation of data. It accomplishes this through a novel payment structure where users provide a one-time, upfront endowment to store data indefinitely.

Decentralized wireless networks

DePINs utilize blockchain technology and token incentives to create and maintain wireless communication networks in a decentralized manner. These networks encourage individuals to contribute hardware, such as hotspots, routers, and other wireless devices, to establish connectivity services like WiFi hotspots and other wireless communication services.

Significant projects:

• Helium – a decentralized telecommunications network that uses LoRaWAN technology to connect IoT devices to the internet. Also known as The People’s Network, Helium has reached a tremendous milestone of over 150,000 hotspots deployed globally in just over two years.
• Pollen Mobile – a decentralized, user-owned, and operated mobile network that utilizes blockchain technology and token incentives to create a privacy-focused, affordable wireless communication ecosystem.

Decentralized sensor networks

Thanks to DePIN, users can also receive rewards for simply providing valuable data. Projects building decentralized sensor networks collect information from individual users and resell it to third parties or institutions. They can also convert it into actionable insights and recommendations.

Significant projects:

• Hivemapper – a project incentivizing individuals to generate and share map data from vehicles using plug-and-play sensors. It functions as a decentralized and community-owned Google Maps.
• DIMO – a similar project to Hivemapper, focused more on data specifically related to vehicles. It rewards user contributions with both token incentives and additional features such as private location tracking, vehicle health diagnostics, virtual glovebox, and privacy-protected GPS.
• Sweatcoin – a move-to-earn concept, representative of incentivizing individuals to improve their physical activity. This example is particularly interesting because it started as a Web2 app and moved into Web3 after testing its model on over 100M users.
• Geodnet – a decentralized network utilizing real-time kinematic data. It incentivizes users to share their individual location data, which significantly helps to improve positioning accuracy compared to standalone GPS devices.

Other decentralized networks

DePIN is obviously not limited to these four use cases. As the industry grows, there are more and more examples that expand the initial DePIN categorization.

Significant examples:

• Theta (content delivery) – a decentralized video delivery network aimed at enhancing the quality of video streaming by leveraging a peer-to-peer network of nodes to deliver content efficiently. The Theta Network incentivizes users to share bandwidth by rewarding them with tokens.
• IoTeX (general DePIN infrastructure) – a project that provides a comprehensive blockchain-based infrastructure designed to empower the development and operation of DePINs. It specializes in building the technological backbone for interconnecting and managing physical assets with blockchain-powered networks.
• Lisk (general L2 DePIN infrastructure) – an L2 infrastructure that allows seamless movement of tokenized real-world assets (RWAs) into Ethereum’s DeFi ecosystem.
• Power Ledger (energy trading) – a blockchain network focused on decentralized energy trading to accelerate clean energy adoption. It enables individuals to transfer surplus energy from sustainable sources and receive additional revenue in exchange. One could call it an Airbnb for green energy.
• Orchid (decentralized VPN) – a network of VPN providers where users can establish custom multi-hop connections and pay with cryptocurrency. It acts as a marketplace for individuals to sell their own servers as VPN nodes – a unique approach to this type of service compared to non-Web3 offerings.

DePIN as a business concept

It’s time to get down to business.

Our report findings will provide you with a comprehensive overview of how DePIN companies can (or can’t) make money and operate sustainably. To achieve this, we analyzed the most renowned projects, examined the DePIN categories listed above, and evaluated the business models employed by the associated projects.

Our research team analyzed their revenue streams and cost drivers, mapped the competitive landscapes, and defined how each project positions itself compared to both Web3 and Web2 rivals. The report also defines their typical DePINish mechanisms, such as incentives for the demand and supply sides of their businesses. And lastly, we assess their level of adoption and propose how they can cross the chasm and reach the mainstream (although usually B2B) audience.

Below, you will find a summary of our analysis and a general overview of various parts of the DePIN business model.

We recommend not skipping the last part of this section because it provides the basis for the following ready-made business models. Their evaluation is divided according to three values:

• The most popular approach
• The most effective approach
• The most promising approach

We hope it’ll make your entrepreneurial decisions regarding DePIN projects more data-driven!

Top 8 revenue streams

Let’s start with the most intuitive part of the business model. We discovered eight ways DePIN projects make money.

1. Transaction fees/commission
This is currently the most popular approach, that is also used by non-DePIN Web3 projects. It usually involves deducting a small fee from transactions on the platform (e.g., used by computing power marketplaces such as Akash) or other activities related to running a project. In some cases (i.e., Livepeer), fees are also generated by apps built on top of the protocol.

A future commission-based revenue model developed by Akash:

2. Token value appreciation
This similar approach is next in the popularity ranking and also typical for other Web3 projects. A portion of the tokens issued by DePIN projects remains in the project’s treasury and can be used to generate earnings based on token value appreciation. Because this model works only with positive price action, it is usually unsustainable in the long run, and you should only consider it a short-term booster.

Example: DIMO and their revenues generated by allocating $224M worth of DIMO tokens to the initial team. This resulted in 500% growth over the entire 2023.

3. API access/onchain data selling
Some DePIN categories, such as sensor networks, are all about data, which projects can sell to businesses in need. For instance, Hivemapper sells map image APIs and grants insurance companies and similar customers access to street-level imagery from around the globe (pricing starts at $0.85 per road kilometer per week).

4. Pay-as-you-use
Pay-as-you-use pricing is used more and more frequently in the DePIN space and can be seen as a separate revenue stream category. Given the diversity of industries in which DePIN projects operate, this approach provides customers access to a very broad range of products.

5. Upfront payment/hardware

This revenue model is native to DePIN. It enables a project to put a specific margin on hardware that is required to use the application, e.g., sensors to collect the data for the DIMO Network.

Projects may require onchain upfront payments, too. Helium users pay a one-time fee in HNT and Solana tokens to acquire the device for hotspot onboarding and potentially additional fees for activation or data plans.

So far, we’ve talked about models that are common to Web3 projects in general (transaction fees) and DePIN in particular (upfront payment, API access). As you’ll see further throughout the report, DePIN businesses must be creative to grab and hold on to their piece of the market. So, open your mind and be ready for some more out-of-the-box models that may just take the cake in the long run.