Venture capitalist Mahesh Ramakrishnan delves into the concept, development, and disruptive impact of DePIN on various industries. This article is sourced from 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,” and is compiled and written by DeepTech.
(Table of Contents:
1. Can you briefly introduce the definition of DePIN and describe its history from birth to present?
2. What is the industry structure of DePIN? Which categories, industries, and infrastructure fields does the DePIN project disrupt?
Physical Infrastructure:
Human Capital Infrastructure:
Machine Infrastructure:
3. In general, who are the participants in the network, and what are their responsibilities and incentives?
4. What aspects of cryptocurrencies (tokens, cryptography, immutability, network effects, smart contracts) can the DePIN project benefit from? Why do these networks need blockchain?
5. Many DePIN projects aim to challenge existing enterprises: Helium 5G and telecommunications companies, Hivemapper and Google Maps, Render and Akash compared to general and dedicated computing giants. What are the common themes of 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 all 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 thoroughly analyzes 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 construct next-generation infrastructure through the provision and delivery of decentralized material and human capital. It is the name of a movement initiated by builders who want to construct products in the physical world using cryptographic suites and tokenized elements.
In essence, these networks have peer-to-peer elements, and community members can participate in network development by providing passive or mechanical work. This work can be as simple as verification and custody (or providing data transmission devices) or as complex as task completion by participants (such as drawing roads or WiFi routers).
These networks draw inspiration from Web2 businesses such as Uber and Airbnb, which allow consumers to monetize the value of their capital (apartments, cars) and labor (drivers, hosts).
However, this revolution has only just begun, and numerous problems have already emerged in existing Web2 enterprises, including issues with fee rates and platform dependence. DePIN networks provide a clear and transparent revenue payment framework and use permissionless public blockchains for payment distribution, representing a step improvement in the system’s trust function.
This movement has a history of only three years in practice, starting with networks such as 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 achieving success on the supply side without expanding the demand side. Although the first attempt was not commercially successful, it showcased to other builders that starting from scratch with tokens can be very powerful.
Today, Helium is launching its national phone plan and applying its initial model to mobile data roaming and telecommunications companies, achieving some preliminary success. Braintrust took a different approach and created one of the world’s largest freelance labor supply sides by using their token to incentivize workers willing to accept contract work offered by Braintrust. By involving workers in the development of the network, Braintrust has achieved incredible employee retention rates and has 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 seen this digital continue to accelerate.
While we let the community define all the subsectors, I believe the most evident aspect of DePIN is the decentralization of capital and labor, giving rise to three subsectors.
The first major breakthrough area is physical infrastructure networks, ranging from protocols that provide digital commodities such as computing, storage, and bandwidth to enterprises solving issues like food delivery.
These enterprises unite under a simple principle: certain activities can be more efficiently completed by incentivized cooperative communities rather than governments or even companies. Examples include Filecoin, Helium, Render, and WiFiMap, all of which incentivize the connection of a vast hardware footprint using tokens and make it useful.
While human capital infrastructure lags behind in the number of projects, these networks are also starting to grow. These networks often connect individuals with human capital to those in need of human capital.
The first company in this field, Braintrust, has scaled up and created 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 unique personal experiences, and we are still looking at NFTs to fulfill the promise of internet-based clubs.
Machine infrastructure networks are still in their early stages and offer potential for decentralization in emerging industries such as artificial intelligence and robotics, with the underlying premise being that more (and more diverse) data will drive the performance of artificial intelligence. This area benefits in part from the development of physical infrastructure, such as distributed computing.
Early use cases include reasoning networks that execute any problem prompt against multiple end models and provide the best answer across all models, as well as collectively owned agent frameworks that allow people to own robot services in the form of NFTs.
Examples include Bittensor, Autonolas, and MachineFi, all of which aim to bring more intelligence and autonomy to our daily lives.
The participants in the network can be anyone from consumers to prosumers, depending on the difficulty of the work. We believe that the earliest successful use cases, in terms of hardware complexity and physical work, will be the simplest ones.
Taking WiFiMap as an example, it rewards both the owners of WiFi hotspots and reflectors (Mappers) to increase the number of nodes on the network. There is no need for hardware differentiation (people already have WiFi routers and smartphones), and the physical work required is as simple as asking a question: “Hey, can I add your hotspot to this network?”
Value accumulation is straightforward: hotspots added to the WiFi network see increased traffic to the stores that added them. 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 connection to that hotspot. Through this simple mechanism of guidance, WiFiMap has billions of hotspots on the network. The network pays the cost of its own growth through dilution.
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 open. As long as WiFiMap continues to bring traffic, the network can create economic value, and WiFi can be monetized through services (speed tests), subscriptions (SIM cards), and advertising. We believe that use cases that empower people to perform simple tasks on a large scale can be very powerful.
DePIN projects can benefit from all the above aspects: in solving the ultimate challenge of building highly secure, fast, and accessible digital infrastructure, each factor is a different piece. However, the relative importance of all these aspects in DePIN will change as the project progresses.
Tokens (or in-app currencies) are already a core part of DePIN, and using tokens to incentivize strategic usage of cryptography 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 significantly less for subsequent mappers. By doing so, it can autonomously 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 digital infrastructure, including government and defense infrastructure, it needs to be highly secure.
The immutability of the underlying blockchain and cryptography ensures that any tampering, whether external or internal, will be immediately apparent. 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 therefore, the lower the cost that can be charged (when it comes to digital commodities). We expect the largest networks that reach escape velocity to continue growing.
They share the use of the network economy to solve some of the largest economies of scale in history.
When you observe the industries threatened by DePIN, they are all defined by economies of scale. Today’s cloud services are one of the most powerful economies of scale in history, as telecommunications giants and existing Web2 enterprises have created infrastructure oligopolies that leveraged historically low capital costs to build massive enterprises.
Infrastructure is a significant barrier to entry for anyone looking to compete in the software space. Due to the reluctance of antitrust and regulatory bodies to take radical stances, traditional business models may struggle to compete with these existing enterprises that have significant capital, distribution, and regulatory advantages.
But Harvard Business School strategists will tell you that only network economies have a chance of defeating economies of scale, and the rapid increase in computing resources has given them an opportunity. Peer-to-peer organizations, combined with open-source, composable software, provide a fundamentally different approach to similar problems and shift the battlefield from capital costs to collaboration. Taking cloud services as an example, DePIN surpasses its 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 initial cost advantages compared to existing companies.
Location: Part of the power of communities lies in leveraging their fixed costs: people have already paid rent/mortgages and can use space that traditional companies would need to purchase or lease. DePIN communities do not need to pay additional land costs like data centers do.
Personnel: Given the role of software 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.
In many competitive aspects, DePIN seems to be in a leading position against existing enterprises. By transforming fixed costs into variable costs consolidated by network effects, DePIN can challenge the position of these cloud service monopolies and benefit from the structural pricing advantages it offers.
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