Over 25k subscribers
GM PRO DOers!
Chances are, you've already come across the buzzword DePIN lately.
It stands for Decentralized Physical Infrastructure Networks – but does anyone actually know what that means?
Today, I aim to shed light on this emerging and very exciting sector to give you the insights you need to capitalize on this opportunity.
Blockchains first gave us dApps – decentralized applications – an innovation at the top level, facing the user.
Now we have DePIN, the lower level infrastructure layer that sits below and powers the application level.
Whether we’re talking about computers, cloud, internet or many other use cases of DePIN, what’s interesting is that the benefit isn’t just about decentralization.
DePIN can provide orders of magnitude cheaper and better alternatives to infrastructure services that exist today, as well as new innovations that simply aren’t possible without blockchain technology.
Take Akash for example, a decentralized cloud marketplace that provides cloud services 85% cheaper than its traditional competitors – AWS, Microsoft Azure, Google Cloud, etc.
Or Helium, a decentralized mobile network provider that offers unlimited data, talk and text for just $20/month in the USA – much cheaper than what AT&T offers for example.
Or DIMO, a new and innovative way to monetize the data that your car collects, something that’s unheard of today.
The potential results of DePIN are incredible, however it's more than just cheaper and innovative products.
This concept offers a chance for anyone around the world to earn income by sharing their unused resources.
It’s like Universal Basic Income (UBI), except you can exchange something valuable (your resources) for another form of value (tokens).
This trade means you contribute actively to receive income, leveraging assets you already have.
Of course, with any new and exciting primitive in crypto, a cambrian explosion of ideas follows. Today, we have more than 650 DePIN projects and tokens available. 🤯
But is DePIN real and sustainable or is it just another pipe dream promised by blockchain dreamers?
In today’s PRO report, we’re going to answer this question by diving deeper into the idea of DePIN, looking at its potential use cases and how it works.
Most of this report will be focused on looking into 3 of the most adopted DePIN projects today: Akash, DIMO and Helium.
We’ll dive into what each of these are, how the economics and tokenomics work and uncover if these are sustainable and even good investments. 💰
Let’s get started by understanding the basics of DePIN. ⏬
DePIN represents a potential groundbreaking advancement in the convergence of digital and physical domains.
In essence, DePIN projects leverage blockchain technology and token incentives to create a decentralized network of physical infrastructure, ranging from wireless networks to energy grids and beyond.
What sets DePIN apart is its collective ownership model and a bottom-up approach.
Unlike traditional infrastructure networks dominated by large corporations, DePIN encourages individuals to actively participate in the deployment and maintenance of the infrastructure.
Through token rewards, contributors become token holders that collectively own and shape the protocols and networks.
This shift from centralized control to a distributed, participant-driven model distinguishes DePIN as a paradigm shift in the way physical infrastructure networks are deployed and managed.
To help you wrap your head around the definition above, here are 3 easy examples:
Amazon Web Services (AWS) provides cloud services to websites and applications around the world. It does this through building its own massive cloud server facilities and then selling that cloud storage.
AWS owns 100% of the infrastructure, keeps 100% of the profits and makes all the decisions.
Akash on the other hand, created a marketplace for anyone in the world with extra cloud storage from their devices to easily and permissionlessly rent it out.
Akash doesn’t own any of the servers and the profits move peer-to-peer.
What Akash does is provide the technology and security around the marketplace, which is owned and governed by $AKT token holders.
AT&T or any mobile network provider owns a bunch of network towers around a specific area which provide talk, text and data services to mobile phones within that area.
AT&T owns 100% of the infrastructure, keeps 100% of the profits and makes all the decisions.
Whereas Helium uses a token to incentivize anyone to purchase a Helium hotspot device that connects to their existing internet and collectively shares the unused resources to customers who pay for the Helium talk, text and data plans.
Customers get cheaper rates and hotspot device holders share in the revenue and governance (via tokens).
I wrote more about how Helium works here.
Cars collect a lot of data, which historically has benefited only the car manufacturer, as they can continuously improve their product.
Car companies own 100% of the data, keep 100% of the profits and make all the decisions.
DIMO changes this landscape by providing hardware devices to car owners that effectively give ownership of that data to the individual car owners as well as compiles them to create large data pools, which can then be monetized and distributed back to the car owners.
Once again, all of this is powered through blockchain technology and tokens.
These are just a few ways that DePIN can be used to provide cheaper services or offer new innovations.
There are many other innovations within DePIN that I won’t cover today, however I recommend you dive deeper into the ecosystem to understand this further.
By the way, I should note that blockchains themselves are a form of DePIN. Humans use physical infrastructure (validators) to create a decentralized network (blockchain) and are incentivized to do so via tokens ($ETH, $SOL, etc.).
DePIN is just a further expression of how we can use tokens to bootstrap physical networks around the globe.
Ok, let’s look into the 3 projects mentioned above a bit further. Now we’re going to attempt to briefly understand their business model, tokenomic structure and overall sustainability.
We’ll start with Akash, which is different from Helium and DIMO as it is actually a Layer 1 blockchain, so its tokenomics work in a very different way.
To clarify, many new DePIN projects opt to build on established Layer 1 blockchains such as Solana instead of creating their own from scratch.
Akash, however, predates this trend and didn't have the luxury of leveraging existing L1s when it first launched.
Akash is a decentralized marketplace for cloud services and GPUs.
Because of its decentralized nature and ability to utilize excess resources from people all around the world, it can provide its services 85% cheaper than traditional competitors like Amazon Web Services, Microsoft Azure and NVIDIA.
Interestingly, $AKT is up more than 800% in the last year, one of the better performing tokens in crypto so far this cycle.
The price of $AKT appears to be following a similar pattern to the sales revenue from the Akash Network.
FYI: These are sales of GPUs in its marketplace, not blockchain revenue.
Which has seen a 10 - 20x in its daily sales from H1 2023.
So what the heck is going on with Akash? Why is it seeing such success?
Well firstly, it provides a cheaper alternative to a much needed product. But particularly right now with the adoption of AI there is a massive supply/demand shock in GPUs.
GPUs are becoming extremely difficult to find and outside of the big companies like NVIDIA and AMD, there aren’t many alternatives.
Akash is becoming a viable solution to this problem. That said, it’s still extremely small and niche.
As you can see below, there are only 66 active providers in total. However, it has doubled since August 2023, which is pretty impressive.
On the customer side of things, there are currently 1,197 leases – companies or people paying for the service.
While again these numbers are fairly small, it’s more than a 3x since August 2023.
The growth numbers in the last 6 months for Akash are great to see and while I’m very bullish on the service that Akash provides, I have mixed feelings about the investment potential of $AKT.
Unlike DIMO and Helium, which live on top of Solana, Akash is its own blockchain within the Cosmos ecosystem.
What this means is that Akash has to spend a lot of time and resources on securing its own network, rather than focusing on its business model and product.
Like other proof of stake blockchains, Akash uses its native token $AKT to incentivize validators to secure the network.
In return for processing transactions on the Akash Network, validators currently earn approximately 13% APY on their staked $AKT.
On the other end, whenever there is a transaction on the Akash Network (a token trade or a payment for a lease) a small transaction fee is charged in $AKT.
You can see the chain’s revenues below:
Currently, this is the only utility for $AKT and the only source of demand/revenue to balance the $AKT supply.
This means that $AKT doesn’t benefit much from the success of the Akash marketplace itself, which is unlike what you’ll see from DIMO and Helium in the next sections.
From an economics standpoint, the Akash blockchain would need 10’s of millions of dollars in transaction fees/year to achieve balance.
But importantly, Akash isn’t a chain that will have DeFi or other applications built on top of it, so making up for its inflation via transaction fees doesn’t seem to make any sense.
Akash will either need to:
Significantly lower its inflation rate – it’s already gone from 55% APY in 2021 to 13% APY now
Find a new tokenomic structure for $AKT for this to have sustainable tokenomics long-term
Both of these options are possible and not something they necessarily need to figure out immediately.
Using an inflationary currency to subsidize bootstrapping a network is a common and useful strategy in crypto. However, this will undoubtedly bring problems in the next bear cycle, if not figured out.
As you can see from the last bear market, inflated tokens do NOT do well when demand subsides.
$AKT went from >$7 down to $0.16 in the last bear market! 😳
One thing that would be interesting to watch for is if Akash decides to migrate to a blockchain like Solana, so that it doesn’t need to worry about inflating its token and incentivizing validators.
This is something that Helium did during the past bear market, which has given its token much more favorable economics.
A decentralized wireless network that facilitates low-cost, long-range connectivity for a variety of Internet of Things (IoT) & mobile devices.
In the intro example I explained Helium's Mobile network plan, however these hotspots also power various IoT services as well.
At present, there are 974,000 total hotspots scattered across the globe.
The way this works is that hotspot users provide their internet resources and earn $HNT along the way.
When users wish to connect their devices to the network or transmit data, they pay using Data Credits, which are purchased by burning $HNT.
This mechanism is called burn-and-mint equilibrium and controls the monetary policy of $HNT.
Essentially, users burn $HNT to acquire Data Credits, and these burned tokens contribute to the overall reward pool for hotspot operators.
You can learn more about Helium's burn-and-mint equilibrium here.
The important thing to note here is that the network is not minting new $HNT tokens to pay for Hotspot users and thus increasing its total supply.
Instead the tokens paid to Hotspot users are based on revenues from network customers (unlike Akash above).
The chart below illustrates that current revenues are small but show an upward trend, driven by Helium's introduction of new products such as the $20 unlimited data, talk, and text mobile plan.
In terms of price, $HNT has also had a great year, up 5x from its low in 2023…
The key to the success of $HNT is if Helium products and services receive growing demand from customers.
If Helium products see significant adoption, then naturally significant demand will be put on $HNT to pay for those services.
This will also begin to burn more $HNT and it should see favorable price appreciation as a result. Currently, however, it appears that much of the price appreciation is attributed to speculation rather than the actual utilization of the products.
Helium has seen massive growth in terms of users running hotspots to earn $HNT, however it hasn’t seen significant growth yet on the customer side.
It’s still early days though so this is something that has potential to gain serious adoption, considering how much lower the price point is vs. its competitors.
Helium is an application I am keeping my eyes on currently, but not something I’m investing in right now.
Shifting gears from Helium, let's explore another innovative protocol in the decentralized landscape: DIMO.
DIMO allows vehicle owners to maximize the potential of their cars by collecting, using and monetizing the data generated by their vehicles.
Historically, only the car manufacturer had access to comprehensive vehicle data. DIMO changes this by giving ownership of data to the individual car owners.
Moreover, by putting data ownership in the hands of users, DIMO enables a more personalized and informed experience.
Car owners now have access to valuable insights about their vehicles, such as performance metrics and maintenance needs.
Currently, DIMO has a growing community with almost 38,000 registered cars on its platform.
Among these, Tesla takes the lead with an impressive 11,333 registrations, followed by Ford with 6,079, and BMW with 4,529.
The bigger this gets, the more data DIMO can acquire collectively and thus the more valuable the data becomes to sell to other brands and companies.
The way the DIMO ecosystem works is that its token $DIMO serves as the primary means of currency on the DIMO platform.
Users earn $DIMO tokens by connecting their cars and streaming data, effectively selling it.
Furthermore, $DIMO tokens are burned during transactions involving the sale of user data, payments for goods and services on the DIMO platform, and participation in transactions with licensed DIMO apps, leading to a gradual decrease in the circulating supply over time.
Beyond its transactional role, $DIMO holders have the right to actively participate in the decision-making process of the protocol.
They can vote on crucial aspects, including software code upgrades, licensing protocols, fee generation and reward issuance.
Lastly, $DIMO aligns incentives across the ecosystem by requiring the companies that create the apps on top of DIMO to stake and spend $DIMO tokens to maintain licenses and deploy products on the network.
Similar to Helium and unlike Akash, DIMO doesn’t need to worry about incentivizing validators and inflating its currency (it lives on Solana). Instead, it can simply focus on building its product.
The success of $DIMO relies on a few things however:
DIMO needs to attract enough members to gather significant data by showing car owners the benefits of sharing their data.
To turn this data into revenue, DIMO must prove its value to businesses, showing that it's useful and detailed enough for practical applications.
For developers to build apps in the DIMO ecosystem, it must offer easy-to-use tools, clear guides, and attractive incentives. This is vital for the ecosystem's growth and survival, as it encourages a community of developers to innovate and enhance the platform's offerings.
Akash and Helium are simply offering services that already exist and have demand, but at a cheaper price, whereas DIMO is building something completely innovative and new.
That makes DIMO something very hard to value and also more likely to fail.
These new and innovative opportunities that DePIN offers to the world are what really excite me in this new crypto primitive.
When looking at the business of DePIN, two important things to consider are the demand and supply side of the business.
Supply side = The people offering up their resources.
Demand side = the customers paying for the end product.
The difficult thing of a DePIN project is it needs to build and bootstrap both sides of this.
Bootstrapping the supply side is relatively straightforward for now, as offering tokens can effectively incentivize people to participate.
However, most people in the world don’t understand or care about tokens, so how do you incentivize most people to get onboard? This will take a lot of time.
For DePIN projects to truly take off and provide cheaper, better and innovative products, there needs to be large adoption on the supply side.
My concern right now is that the addressable market for this is simply not big enough right now, however as tokenization gains adoption in years to come this will be less of an issue.
This makes me think that many projects that exist today won’t make it to the point that DePIN actually moves into the mainstream.
On the demand side, it’s pretty simple. If the products are cheaper, better or more innovative, then customers will buy them.
However, projects will have to abstract away the blockchain side of things if they want any hope of making it into the mainstream.
Therefore, although it was mentioned that Helium customers need to buy and burn $HNT to access the unlimited data, talk, and text plan, in reality, customers pay in USD using their credit card, and Helium handles the conversion into $HNT behind the scenes.
This is the model that most companies will have to use to reach the masses, at least for the foreseeable future.
The DePIN space is very exciting to watch and without a doubt is going to pick up a strong narrative during this cycle.
For that reason I think many of the tokens from projects that start to see any meaningful adoption or pick up a narrative will do extremely well.
That said, understanding how the tokenomics actually work will determine how high it can go and how big it will fail when the music stops in the next bear.
We will be sure to cover more DePIN projects as we go, but in the meantime, good luck out there!
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him on Twitter
As a PRO, you’re entitled to a PRO or FOUNDERS Pass (NFT), depending on your subscription.
This Pass will grant you access to our token-gated Discord and to other perks such as early access to various protocols and discounts to IRL and online events.
To grab your Pass, simply click the button below, connect your wallet to your Paragraph account and grab your Pass.
Learn the best practices to allocate capital and successfully invest in crypto and web3 with our Web3 Investing Masterclass.
This invaluable resource costs $249. But as a PRO, you get it at a 50% discount.
And as a Founding member, you get it for FREE! 🤯
All you need to do is grab your PRO/Founders Pass (see above ☝) and connect your Pass using the link below. 👇
As a PRO or FOUNDERS Pass holder, you have exclusive access to our token-gated Discord channels dedicated to PRO members!
Upon claiming your Pass, head to Discord and connect your Pass in the #start-here channel (WEB3 ACADEMY PRO category) to unlock access to PRO-only channels!
Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
Kyle Reidhead
