FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

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Original author: EO@codeboymadif, Lisa@lisal1l1 , Ryan@Ryan0xfmg , Kelv@KelvinYuan13 , Simon

Part 01 What and What DePIN

The use of crypto-economy to deploy real-world physical infrastructure actually has a long history. Some typical projects can be traced back to 2013. They have conducted very valuable explorations in the fields of communications, storage, computing, etc. Today, this model has expanded to more fields such as AI, energy, data collection, etc., and the ecosystem has also ushered in a period of prosperity.

DePIN represents a paradigm of decentralized applications: node economy, miner model, and transformation of the real world.

  • Compared with centralized infrastructure, DePIN has a higher unit economic effect. DePINs smart contracts, equipment standardization, and economic model will replace CePIN hardware deployment, operation, and management, bringing 75%-90% cost savings.

  • Token economics is the key to expanding the node network and forming network effects. When token prices rise, economic incentives lead to rapid growth in node size.

  • If Web2.0 allows humans to interact with the Internet through various input devices, Web3.0 allows physical hardware to interact with the blockchain through DePIN.

We have experienced DeFi Summer, NFT, and Metaverse craze. Will the next wave of craze turn to DePIN? Between 2020 and 2021, the market value of DeFi increased by nearly 100 times, from US$1.75 billion to a maximum of US$172.2 billion. Assuming that in this bull market, the total market value of DeFi increases by 10 times, and the total market value of DePIN reaches 50% of DeFi, then the total market value of DePIN will reach US$500 billion, with at least 20 times of growth space. According to Messaris estimate, the market value of DePIN will reach US$3.5 trillion in 2028, and DePIN has a potential growth space of 120 times.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

We believe that the DePIN architecture has the following five opportunities from the bottom up:

  1. DePIN blockchain infrastructure. The DePIN blockchain infrastructure acts as the settlement layer of the DePIN application, providing support for transactions and token economic model operations.

  2. DePIN middleware. DePIN middleware is a middleware layer that connects the underlying infrastructure and upper-layer applications, providing standardized interfaces and tools. This layer is the key hub of the DePIN ecosystem.

  3. DePIN upper layer applications. DePIN upper layer applications are various applications built on the DePIN infrastructure and middleware layer, providing users with practical services and value. This is the front end and landing scenario of the DePIN ecosystem.

  4. Derivative opportunities: Edge AI. Edge AI is an important extension direction of the DePIN ecosystem, which uses the DePIN network to deploy edge computing and AI applications, process data locally, and provide intelligent services.

  5. Derivative Opportunities: RWA. Combine DePIN with Real World Assets (RWA) to create new financial products and services.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Part 02 Opportunities for DePIN infrastructure

L1/L2 that may benefit from the DePIN ecosystem in the future

  • DePIN is the main track of Solana OPOS (Only Possible On Solana) concept. Benefiting from this positioning, Solana fought back from the shadow of FTX, and its market value increased from a minimum of 3.6 billion US dollars to 89.8 billion US dollars, a 25-fold increase. DePIN will still be an important narrative of Solana in the future. The choice of head projects often represents a trend. Heliums migration of the main network to Solana has a clear demonstration effect. According to this logic, Polygon and Arbitrum are both underlying chains that may benefit from the growth of DePIN in the future.

  • Proprietary chains that provide DePIN modular infrastructure will benefit from the growth of the ecosystem and head applications, such as IoTeX and Peaq.

  • The ecology of public chains that are closely integrated with the concept of AI will inevitably extend to the upstream DePIN sector. For example, Near has developed a public chain narrative around AI, and Aptos has cooperated with Microsoft to try to combine AI with Web3 products.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Universal middleware is DePIN Crown Pearl

Seamlessly connecting physical infrastructure to blockchain requires powerful middleware. Currently, trusted hardware is mainly controlled by official authorization, and anti-cheating is achieved through governance and miner management tools.

Difficulties in developing general-purpose middleware:

  • The technology is difficult, and it is difficult to prevent cheating and upload credible data to the chain by technology alone.

  • The overall DePIN market size is limited, resulting in limited middleware market space.

Once the universal middleware breaks through, the threshold for DePIN applications will be greatly lowered and the ecological prosperity will be promoted, and the middleware will be the direct beneficiary.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

DePIN Miner Service Layer: Miners’ Borderless Guild, the People’s Network

The miner service layer is located at the bottom of the DePIN ecosystem and is an essential component of DePIN applications. It is mainly divided into two categories: hardware production and node operation and maintenance:

  • Hardware manufacturers are responsible for providing the physical equipment needed to build the network, such as servers, storage, and network equipment. Hardware manufacturers can open up new markets by innovating and improving products to meet specific needs, and are direct beneficiaries of the growth of the DePIN ecosystem. Therefore, powerful hardware manufacturers will participate in the DePIN ecosystem in various forms, including hardware support and financial support. For various reasons, hardware manufacturers have become an important driving force in the development of DePIN.

  • The hardware operation and maintenance project helps nodes to deploy and operate, and charges a certain service fee. This model will perform better in the late bull market. Under the DePIN flywheel effect, the token price will rise in the late bull market, and the node payback period will be very fast. Ordinary users can quickly start to make profits by paying service fees.

Potential opportunities:

1. Hardware manufacturers with global distribution and the ability to quickly produce trusted devices.

2. The permissionless DePIN node deployment platform will play a role similar to a blockchain game guild.

3. We look forward to the emergence of better DePIN tool layer projects and the capture of value. The device data aggregation platform is a high-quality user portal. At present, DePIN data is still not transparent enough, and some key data for judging the development of projects are difficult to obtain, such as the number of device nodes, miner return comparison, the number of demand-side users and income, which makes decision-making difficult and there are vacancies in the DePIN tool layer.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Part 03 DePIN application value assessment logic: Finding the unchanging rules

DePIN Protocol is a two-sided market where the supply side provides services and the demand side contributes to revenue, so value assessment should be conducted from both the supply and demand sides.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Demand-side value judgment

Compared with dividing by concepts, industries and supply sides, we believe that judging the demand market is more important, so we pay special attention to projects targeting the C-end market.

Two judgments on the demand side:

  • For C-end applications, there are more high-profit scenarios and greater room for imagination.

  • Applications that meet AI data needs are still in their very early stages.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Bold speculation on the end of demand: Web3 mobile phones and the new sharing economy

1. Encrypted mobile phones will be the key to breaking through the C-end market

Through customized mobile phones, the DePIN application can be built into the mobile phone, and rapid growth can be achieved through airdrop incentives. Subsidies are often needed to acquire the market for the C-end. Taking Helium Mobile as an example, the revenue is the $20 package paid by users. Due to the need to pay cooperation fees to T-mobile, when 70-80% of the download services are provided by Heliums own network, it just reaches the profit point (Messari, as of December 2023, the proportion in Miami is 55%). Once the profit point is exceeded, the project will achieve self-sustaining blood, and the DePIN flywheel will run better.

2. Build a Web3 version of the shared economy network

Relying on Web3 mobile applications and through effective token incentives, large-scale sharing economy/social networks can be realized in the future.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Supply-side value judgment

Over the past two decades, the price of hardware equipment has dropped dramatically, making it possible for individuals to act as infrastructure service providers.

Our criteria for judging the supply market:

  • Is the product easy to standardize? The more standardized the product is, the easier it is to financialize. For example, computing power is priced according to time, and different configurations have different prices.

  • Is the equipment cost low enough? The lower the cost, the larger the potential supply scale and the more decentralized it is.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Supply-side endgame: Focus on projects that can be quickly scaled and standardized

  • The node equipment costs of the six tracks are mostly medium ($300-$1000), which can reach the consumer level. Among them, the high-end GPUs (A100, H100) with computing power are more expensive, and AI requires professionalism, so we also define it as high cost. Some equipment in energy costs more than $1000.

  • In terms of product standardization, there is a general problem of low standardization. Bandwidth in Wireless is a standardized product, while other segments such as 5G and WiFi are non-standard products.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Part 04 DePIN application layer potential analysis

According to Messari statistics, by 2023, there will be more than 650 DePIN application projects covering six sub-tracks: computing, AI, wireless networks, sensors, energy and services.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

01 Computing is the most mature sector of DePIN

Computing (computing power + storage) is the largest track in TAM, with enterprise cloud service revenue reaching US$270 billion in 2023 (Synery Research).

  • Demand side: Demand for the computing sector comes from small and medium-sized enterprises and individuals, among which GPU demand is the strongest, benefiting from the growth of AI.

  • Supply side: Akash has a diverse hardware network including CPU, GPU and storage, Render has a large number of GPUs. obtains a large number of GPUs from its own network and other platforms.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Calculation section 2 trend judgments:

1. The GPU computing power market is currently the most promising segment. We believe that there are more secondary market opportunities in this field, and it will move towards head concentration and horizontal integration in the future.

GPU computing power platform growth logic:

1. Global GPU shortage and skyrocketing demand

2. Resonate with the concept of AI

3. World computing power currency under geopolitical conflicts

The development trend of decentralized GPU platforms is to attract top computing projects through token incentives and horizontal integration of resources. Currently, there is a risk of failure in matching demand and supply, and demand growth or model innovation is needed to support the current market value. In the future, the growth point of decentralized GPU platforms lies in bypassing the B-end, expanding computing power to the C-end, and building an edge computing network on the supply side, and in closely integrating with downstream demand sides or building their own application scenarios on the demand side.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

2. The storage sector will move towards integrated storage and computing, becoming a unique Layer 1.

After superimposing computing, some large storage DePINs will become a unique Layer 1 – a blockchain that can provide decentralized storage and computing capabilities. Compared with the current blockchain, this unique Layer 1 can significantly reduce the storage and computing costs on the chain. Some applications that require large-scale storage and complex logic can be implemented here, such as content platforms, social networking, games, etc.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

02 DePIN AI realizes open AI model platform, AI data, and AI Agent through decentralization

Bittensor is a typical model of DePIN AI. It creates a decentralized machine learning (ML) network to encourage the development and decentralization of artificial intelligence. Bittensor has a first-mover advantage in the Web3 AI large model track and is a leading project in this field. Its model iteration and ecological construction are developing steadily. It is expected that with the outbreak of AI narrative or the drive of high-quality subnets, Bittensor is expected to take another step forward.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

ORA has stronger scalability than Bittensor. The application cost of Bittensors subnet is currently huge, and it requires a considerable amount of TAO tokens to be pledged. ORA, which has realized the on-chain AI oracle, will have more ecosystems (AI Agent / AIGC NFT / AI-powered Protocol and other projects) blooming on its on-chain AI technology.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

03 Sensors: The new AI-driven sector with the greatest growth potential

There are currently fewer sensor-based projects, especially those focusing on data, which means more primary market opportunities.

Sensor sector value analysis:

  • Is the market space large enough? The size of the downstream demand market determines the project ceiling.

  • Is the data value high enough? The uniqueness of the data and the application scenario determine the value of sensor-based DePIN applications.

Growth logic of the sensor sector:

1. New sectors driven by AI

2. Decentralization is needed from the underlying logic

3. The built-in mining machine supply chain provides a richer source of funds and a longer profit cycle.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

04 Wireless network: fierce competition and high operational difficulty

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

DePIN provides information transmission services for the Internet of Things and end users through decentralized base stations, routers and other physical devices. The main difficulty is that the demand is scattered and decentralized networks are difficult to meet the demand. It is necessary to rely on the power of traditional operator networks to expand the market, such as DePIN as a supplement to traditional operators or provide them with data. Therefore, the core competitiveness in the field of wireless communications lies in cooperation with traditional operators. (Helium Mobile relied on the power of T-mobile in the market cold start stage).

05 Energy network: the need to rely on centralized networks to achieve minimum viable products

DePIN Energy Network reduces energy transmission through distributed power supply, improves energy utilization efficiency, and ultimately realizes VPP virtual power plant. With the development of energy collection and storage technology, individuals can become energy suppliers, but transmission faces high costs. Smart grids can guide the construction of power supply networks through electricity consumption data collection, which is relatively easy to build. Therefore, the fastest-growing segment of DePIN Energy will be smart grids. Similar to wireless communication networks, power generation projects need to cooperate with centralized power grids to achieve mode operation.

Our judgment on DePIN Energy:

  • VPP (Virtual Power Plant, VPP) virtual power plant is the DePIN energy end: through the DePIN incentive model, the small power supply network and the demand side are connected to form a virtuous circle, and finally realize the VPP virtual power plant.

  • Currently, the DePIN energy project is gradually implementing some aspects of VPP, such as data, electricity meters or power generation.

06 DePIN + Consumer Products: A New Revolution in Marketing Model

Since the DePIN track became popular in October last year, a large number of DePIN consumer products have emerged in the market, including watches, rings, e-cigarettes, power banks, game consoles, etc., promoting the sales and high-frequency use of devices through DePIN incentives.

Features of DePIN+ consumer products:

  • The market size ceiling is high: The market space for consumer-grade devices is huge, estimated to be between trillions and hundreds of trillions of dollars in the Web2 world, including various consumer products.

  • Reaching C-end users: Most Web3 users are transactional users, with relatively few connections to the real world and lack of close connection with user life. However, the business model and operation mode of DePIN consumer products can integrate Web3 applications into real life, establish connections with users and increase user stickiness, so that it can truly integrate into the real world.

  • High return expectations promote the Web3 transformation of traditional brands: the new Web3 marketing model makes the products not only have use value but also have profit attributes. This model helps products quickly occupy the market and thus significantly improve profitability.

Potential risks and shortcomings of consumer-grade DePIN hardware:

Restricted by a single token incentive, most users buy hardware for free rather than users with real needs. This is similar to the current verification problem between DePIN hardware devices and software, and more anti-cheating solutions are needed to overcome it.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Part 05 Two new opportunities derived from DePIN

01 DePINs breakthrough in the second half of the supply side lies in Edge AI: mobile phones and PCs

Mobile phones and PCs are the most popular hardware devices. They do not require cryptocurrency experience and are an excellent entry point. There are two ways to join the DePIN network:

  • Run the node program and become the control terminal of DePIN hardware.

  • Directly provide sensor data or computing resources.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

The opportunity for the rise of encrypted mobile phones: 4 major application scenarios to leverage the market through potential benefits

  • Mobile encryption app. The encryption application market built into the encrypted mobile phone is an excellent user entrance for dAPP. As the most commonly used device in daily life, mobile phones provide a platform for the popularization of encryption applications.

  • Edge computing. Edge computing is a clear development trend. Data processing and analysis tasks are transferred from centralized data centers to places closer to the data source, thereby improving efficiency and reducing costs. Token economic incentives combined with encrypted mobile phones can accelerate the development of edge computing.

  • Token airdrops. For mobile phone buyers, airdrops can bring financial returns. For project owners, airdrops to encrypted mobile phones can make token holdings highly dispersed, which is conducive to the spread of memes or the cold start of consumer applications.

  • DePIN mining. For the DePIN project, the sensors and computing modules of encrypted mobile phones are the natural supply side. As a DePIN device, mobile phones can participate in the DePIN economy and receive rewards.

Key to competition in encrypted mobile phones

  • The barriers to mobile phone hardware production are relatively small, the mobile phone production supply chain is mature, the production cycle is short, and the cost is controllable, which makes the selling price low. The current encrypted mobile phones are priced between US$100 and US$1,000.

  • The difficulty of mobile phone delivery lies in the sales network. Projects with Internet sales and offline promotion networks will find it easier to gain market share.

  • The application ecosystem is the key to forming a barrier for encrypted phones. Once a network is formed, it will have the opportunity to become the traffic entrance of Web3.

  • Other challenges: Hardware iteration, testing the projects financial strength and operational capabilities.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

The end of encrypted mobile phones: DePIN + sharing economy

In the Web2 era, through the Internet, personal cars and houses are aggregated to form a huge service market, enabling personal assets to be monetized.

In the Web3 era, through the token economy, idle and scattered personal hardware devices can be organized to form productivity and monetize personal hardware devices. Software based on Web3 mobile phones will also build Web3 service infrastructure, innovate the Web2 sharing economy model, and cover various aspects such as catering, travel, and accommodation. Mobile Web3 applications have the following characteristics: marketing innovation through crypto-economy, token airdrops, high-frequency social networking, and consumer-level products.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

02 DePIN hardware and data assets use the RWA model to achieve on-chain financialization

DePIN physical hardware tokenization:

  • Release the liquidity of DePIN hardware. After the physical hardware of DePIN is tokenized, RWA derivative projects such as income separation and mortgage lending can be realized, and the DePIN income rights can be traded without the need for physical delivery.

  • DePIN income provides a source of interest for stablecoins.

  • DePIN securitizes hardware assets on the blockchain and issues traditional financial products similar to the REITs model, such as packaging GPUs on the chain to create a GPU Index.

Data asset (NFT) tokenization:

  • Standardizing and tokenizing data assets is the key to facilitating their circulation in the market.

  • DePIN data assets enable on-chain finance. Based on the tokenization of data assets, data-supported financial products can be created to achieve innovative applications. For example, DIMOs car data can be used for on-chain car loans.

FMG in-depth research report: 5 opportunities in the DePIN track from bottom to top

Summary and prediction

  • The expansion of blockchain into the real world is an inevitable trend. DePIN represents a paradigm of decentralized applications: node economy, miner model, and transformation of the real world. According to Messaris estimate last year, the market value of DePIN will reach 3.5 trillion US dollars in 2028. According to the current scale of 30 billion US dollars in the DePIN category on Coingecko, it can be concluded that the potential growth space is 20-120 times.

  • Layer 1/2 is the most certain and stable beneficiary of ecological growth. In this cycle, the public chain that supports the DePIN ecosystem will gain the biggest dividend.

  • Currently, middleware is mainly an important component of DePINs dedicated Layer 1. Although the general middleware technology is difficult, we still look forward to breakthroughs, which will greatly promote the prosperity of DePIN applications, and middleware will be a direct beneficiary of the prosperity.

  • Similar to gaming guilds, the DePIN miner service layer is expected to develop into a borderless hardware miner guild. The current potential opportunities are global hardware supply chain and node deployment services. There are also vacancies in the DePIN data aggregation tool layer.

  • In the computing sector, GPU is the fastest-growing and most mature segment. In the future, GPU platforms will move towards horizontal integration and vertical integration. In addition, computing and storage integration based on storage superposition computing will be the new narrative, and traditional storage such as Filecoin and Arweave will be rejuvenated.

  • Current development status of DePIN AI: AI large language models, led by Bittensor, have gradually absorbed many leading projects in the field by taking advantage of their first-mover advantage. At the same time, other large models like are also being actively deployed. Competition is fierce and the landscape is unclear. In the future, there will be a war of thousands of models, just like the Internet explosion in 2000, and everyone will have an opportunity.

  • Sensors are a potential sector activated by AI, and revenue from proprietary equipment sales will provide sensor projects with more room for innovation and risk resistance.

  • The logic of the wireless network and energy network models is similar. The ultimate goal of wireless networks is to bind large operators, and it is more likely to break through from the third world; the ultimate goal of energy networks is virtual power plants (VPPs). Currently, the project is exploring various aspects of VPPs, and the track is still in the early stages of development.

  • Edge AI based on mobile phones and PCs is the next development trend of DePIN. Universal Web3 terminal devices will also give birth to a new type of Web3 sharing economy, and more high-frequency consumer-grade Web3 applications for the C-end will gradually emerge.

  • DePIN is a new way to issue RWA assets. Combining it with on-chain DeFi will unlock the liquidity of DePIN hardware and data.

Original report

Thanks to DePhy, Exabits, Ora, EthStorage, Hotspotty, IoTeX, and DePIN Hub for their guidance and suggestions on this report.

Reference: XEkgWmrG 4

About FutureMoney Group (FMG)

FutureMoney Group (FMG) is a blockchain, crypto technology and Web3.0 investment institution headquartered in Singapore. Co-founded by serial entrepreneur EO Hao and equity investment professional Steven Li in 2018, MG has invested in nearly 100 startups since 2018. With cumulative assets under management exceeding US$300 million, it has become one of the largest crypto funds in the DePIN field in Asia.

Official website | Twitter

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