Starting from Scratch to Sort Out the Investment Logic of DePIN: Alpha Opportunities Still Exist

Grayscale released a research report on DePIN earlier this year, showcasing the leading DePIN projects and their market capitalization. Since 2022, DePIN and AI have been viewed as two new directions for Crypto investment. However, the DePIN space seems to lack a flagship project. While Helium can be considered a leading project, it actually predates the concept of DePIN; the projects listed in the table, such as Bittensor, Render, and Akash, are more often categorized under the AI track.

This indicates that the DePIN track lacks a sufficiently strong leading project to explore the potential of this field. Therefore, there may still be some Alpha opportunities in the DePIN track in the next 1-3 years.

This article aims to outline the investment logic of DePIN from scratch, including why DePIN is a noteworthy investment track and presenting a simple analytical framework. As DePIN is a comprehensive concept that encompasses multiple sub-tracks, this article will explain the concept from a macro perspective while providing specific examples.

Why Pay Attention to DePIN Investments

DePIN is not just a buzzword.

First, it is important to clarify that decentralizing the infrastructure of the physical world is not an empty concept, nor is it merely a simple "narrative hype"; it is something that can be executed in practice. There are indeed opportunities in DePIN for decentralization to "achieve" or "optimize" certain scenarios.

Here are two simple examples:

In one of the main tracks of DePIN - the telecommunications field, taking the US market as an example, traditional telecom operators usually need to invest huge amounts of money in spectrum license auctions and base station deployments. In contrast, Helium Mobile adopts a community crowdsourcing approach, distributing the early costs among each user, who only needs to purchase reasonably priced hotspot devices to access the network and become a "micro-operator". This model significantly reduces the overall cost of network deployment.

In the field of AI data, traditional AI companies need to pay high API fees to large platforms to acquire training data and face increasing copyright and technical restrictions. Grass has solved this problem through distributed web scraping, allowing users to share idle bandwidth by downloading a browser extension to assist in scraping publicly available web data and earn token rewards. This model significantly reduces the data acquisition costs for AI companies while achieving data diversity and geographical distribution.

Overall, a fundamental starting point for investing in DePIN is that decentralized physical infrastructure has the opportunity to perform better than traditional physical infrastructure and can even achieve goals that traditional methods cannot.

as the intersection of infrastructure and consumer applications

As the two main lines of Crypto investment, infrastructure and consumer applications face some challenges respectively.

Infrastructure projects typically have two characteristics: first, they have strong technical attributes and there is a disconnect in market perception; second, most infrastructure projects are aimed at businesses and are relatively distant from end users. This results in infrastructure projects struggling to enhance user mind share and having poor dissemination.

On the contrary, consumer applications are directly aimed at end users, which gives them a natural advantage in capturing mind share. However, new concepts can easily be disproven by the market and may even decline rapidly after a shift in hot trends.

DePIN can better balance the two dilemmas mentioned above:

1. DePIN is built on the real demand in the physical world, and high-quality DePIN projects have a solid product-market fit and revenue, making them difficult to disprove and easy for the market to understand.
2. DePIN also has user-side usage demands, which can capture mind share. For example, users can download the Grass browser extension to contribute idle bandwidth. Currently, Grass has reached 2.5 million end users, many of whom are not native crypto users.

DePIN Investment Framework

Direction

Intuitively, 5G and wireless networks are large markets, while in-vehicle data and weather data are small markets. It is necessary to consider whether the demand side is a necessity or has strong demand. Even if DePIN can only capture a small portion of the traditional large market, its market capacity is still quite considerable given the scale of the cryptocurrency market.

product

The DePIN model is particularly suitable for industries with high capital requirements, high entry barriers, obvious monopolistic patterns, and underutilization of resources. Evaluating product-market fit mainly considers two points:

On the supply side, does DePIN achieve functionalities that were previously unattainable, or does it have significant advantages over existing solutions (cost, efficiency, etc.)?

On the demand side, the products provided by DePIN must have real market demand, preferably with a strong willingness to pay.

Regarding hardware, it can be considered from the timeline of "manufacturing - sales - distribution - maintenance." The simplest model is to directly utilize existing network bandwidth like Grass, which does not require manufacturing and distribution, allowing users to start without barriers, and there is no need for sales, which helps the project rapidly expand its network in the early stages.

Token Economy

Token mechanism design is the most challenging aspect of DePIN projects. Unlike projects in other fields, DePIN requires incentivizing various participants in the network early on, which necessitates launching tokens at a very early stage of the project.

Team

In team configuration, the founder must have at least one person with the following backgrounds: first, someone with rich experience in traditional companies in this field, responsible for the practical implementation of technology and product matters; second, someone who is native to cryptocurrency, familiar with token economics and community building, and understands the similarities and differences in preferences and mindsets between crypto users and non-crypto users.

Other

Regulatory issues also need to be considered, for example, collecting road images and data in certain areas may involve sensitivity issues.

Summary

Although the characteristics of DePIN that integrate with reality result in a longer development cycle, we have already seen some positive signals from the development of Helium Mobile. Helium Mobile partnered with T-Mobile to enable seamless switching of user devices between Helium community hotspots and T-Mobile's nationwide 5G network. Earlier this year, Helium announced a collaboration with global telecom giant Telefónica to deploy Helium Mobile 5G hotspots in Mexico City and Oaxaca, marking the beginning of its expansion into South America.

DePIN also has two unique advantages:

1. Compared to traditional monopolistic large enterprises, DePIN has more flexible deployment methods and means, and can align incentives within the ecosystem through the token model.
2. DePIN has the opportunity to bring positive externalities, create value for real life and other industries, and feedback the entire ecosystem through token economics.

Of course, DePIN also faces many uncertainties, such as time cycle uncertainty caused by hardware operation, regulatory risks, due diligence risks, and so on.

In summary, DePIN is the track we will focus on in 2025, and we will also provide more research related to DePIN in the future.