Binance DePIN Research Report: Narrative Potential and Challenges, Landscape and Industry Analysis

Written by: JieXuan Chua, Brian Chen

Compiled by: Kate, Mars Finance

Main points

• Over the past few months, the field of decentralized physical infrastructure networks (“DePIN”) has become a prominent focus due to its large addressable market and broad potential.

• DePIN refers to the use ofBlockchainAn infrastructure-related project in technology and cryptoeconomics that aims to incentivize individuals to allocate capital or unused resources to create a more transparent and verifiable network, with the goal of achieving a more efficient scaling trajectory than centralized networks.

• DePIN is a broad field made up of several sectors, each playing a different role in enabling the decentralization of network infrastructure. In this report, we cover developments in computing networks, wireless networks, storage, and sensors.

• As the industry continues to grow, we expect DePIN projects to surge in the coming years. However, their long-term viability and success will ultimately depend on real-world applicability and remain to be tested in actual combat.

I. Overview

Among the various claims gaining traction in recent months, the field of decentralized physical infrastructure networks (“DePIN”) has emerged as a prominent focus. The industry is considered to have huge growth potential due to its wide total addressable market and the ability to expand infrastructure networks in a decentralized manner through bottom-up growth strategies. Some even consider DePIN to be a paradigm shift in global resource allocation (both physical and digital) and a transformative approach to scaling large-scale infrastructure.

In this report, we explore this emerging narrative.We first outline the basics of DePIN and how it works. Our analysis then transitions to a top-down industry view, providing an ecosystem map and dissecting the landscape across various sub-sectors. Finally, we examine the challenges of DePIN adoption, identify key market themes, and provide insights into the future prospects of the industry.

2. What is DePIN?

DePIN refers to the use ofBlockchainTechnology and cryptoeconomics are infrastructure projects that incentivize individuals to allocate capital or underutilized resources to create more transparent, decentralized, and verifiable infrastructure networks.

These projects can be broadly divided into physical or digital resource networks, each containing different domains. Regardless of their focus, these projects often operate under similar operating models, emphasizing collective ownership and prioritizing distributed systems over centralized market structures.

Figure 1: Conceptual diagram of centralization and decentralization

Source: Binance Research

How DePIN works

DePIN projects typically involve several key components:

1. Target resources:Projects are designed to provide specific resources to consumers. Common resource types include storage capacity and computing power.

2.Hardware:Necessary equipment used by network contributors to collect data or resources for network operations and products. Depending on the resource type, the cost, manufacturer, and usage of these devices may vary.

3. Incentive mechanism:predetermined mechanisms that willTokenRewards are given to supply-side contributors to incentivize them to contribute resources and provide reliable services. Some programs may also impose penalties to deter malicious activity.

4. Supply-side contributors:A person or entity that provides unused or underutilized resources to a network. In return, they usually receiveTokenaward.

5. Consumers:End users who participate in the network to use the services provided by the DePIN project.

DePIN projects begin by identifying the specific resources they aim to provide.These resources vary widely and include storage capacity, computing power, bandwidth, hotspot deployment, etc.The core of these project operations is the incentive system.Designed to encourage positive contributions and discourage harmful behavior. The system mainly uses nativeTokenReward compliant behavior.

For example, Filecoin, the leading DePIN project in cloud storage, compensates storage providers with its native token FIL. These providers typically must pledge collateral asSafetymeasure. If they fail to provide reliable services or engage in malicious activity, they face penalties such as withholding rewards, having their collateral slashed, or being removed from the network. Instead, consumers use the project's tokens to pay for services, such as using FIL to pay for storage on Filecoin.

Supply-side contributors are an integral part of the DePIN project, as the network relies on them to provide services. In Filecoin, they are storage providers, and in projects like Helium and Hivemapper, they are the individuals who set up the required hardware devices to provide wireless coverage or map data.

Figure 2: The DePIN project aims to promote a self-reinforcing cycle to sustain its continued growth

source:BinanceResearch Institute

Having a self-reinforcing growth cycle will contribute to the sustainable development of the DePIN project.Token rewards are a useful incentive to overcome the “cold start” challenge of procurement by supply-side actors. As network size increases, demand should pick up as consumers begin using network services.Given that payment for services is typically in the form of network tokens, increased adoption should translate into higher token prices, which will further incentivize contributors.As demand and supply grow in tandem, this virtuous cycle can continue, sustaining continued project growth.

3. DePIN by industry

The origins of DePIN date back several years, even before the term was officially created. This is not surprising, as the underlying principles of DePIN are closely related to the ethos of the crypto industry. However, the industry initially did not gain the significant attention or traction it has now, hampered by factors such as immature infrastructure development, limited public awareness, and a smaller crypto user base. Despite these challenges, DePIN-related projects have been steadily building over the years, resulting in the industry’s current diverse landscape, as shown in Figure 3 below.

It should be noted that this map only shows a small part of the DePIN project. According to data from IOTeX's DePINscan, approximately 160 DePIN projects have been recorded. The classification of these projects may also vary depending on how the DePIN project is defined. Regardless of these nuances, what remains evident is the continued growth and expansion of the industry.

Source: IOTeX,BinanceResearch Institute

As shown in the ecosystem map above, DePIN is a broad field made up of multiple sectors. Each sector plays a different role in decentralizing network infrastructure and powering different use cases. In this section, we'll look at each of these in more detail, share how they work, and highlight relevant case studies.

Please note that mention of specific projects does not constitute endorsement by Binance. Instead, the projects referenced are only used to illustrate conceptual use cases.

computing network

Decentralized computing networks utilize distributed computing resources to perform complex computing tasks. These may include analyzing large data sets, running complex artificial intelligence ("AI”) algorithms, or any other task that requires computing power. Decentralized computing networks act as a bridge between demand and supply of computing resources by connecting idle systems to systems in need of computing.

Given the importance of computing in today’s digital age, andBlockchainWith the rise of emerging technologies such as artificial intelligence and artificial intelligence, the demand for computing resources has been growing steadily. Additionally, the surge in artificial intelligence development has led to massive demand for these chips from cloud computing companies. This has resulted in long waiting lists, which in some cases lasted nearly a year. This is where decentralized computing networks come into play. They provide an alternative to existing solutions dominated by centralized cloud providers and hardware manufacturers. In this regard, decentralized computing networks are leading the shift of power away from centralized cloud providers (such as Amazon Web Services and Google Cloud) and introducing competition through open markets operated by numerous providers.

Broadly speaking, decentralized computing networks create a two-sided market that incentivizes providers of computing power to make idle computing resources available to those who need them.Additionally, decentralized computing networks are also priced competitively because there is no significant additional cost for providers to provide computing power to the network.

Case Study: Akash Network

Akash Network enables users to deploy their own cloud infrastructure or sell unused cloud resources to others. Akash likens himself to a server-hosted Airbnb.

It establishes a marketplace that allows users to rent computing resources with spare capacity from others. This allows Akash to tap into an underutilized resource market of an estimated 8.4M idle data centers worldwide.

Currently, the network offers over 8.9K central processing units ("CPUs"), 171 graphics processing units ("GPUs"), 45 TB of memory and over 583 TB of storage. In fact, Akash users can use the network for any general computing function.

Akash caters to the computing needs of two key markets, bringing underutilized computing resources to market in an open and permissionless manner:

• High performance chip:for AI Complex computing tasks such as training are critical, but market supply is limited.

• Consumer grade chips:Used for general purpose tasks and where there is a large amount of unused computing power.

It’s worth noting that the price for using Akash’s services is extremely competitive, often a fraction of that of other centralized cloud providers. A key contributor is its "reverse auction" system, which allows customers to submit the price they want and lets suppliers compete for business.

Figure 4: Akash Network’s prices are competitive

Source: Cloudmos, as of January 25, 2024

NOTE: Pricing is for 1 CPU, 1GB RAM, and 1GB disk

As we recently discussed on artificial intelligence andcryptocurrencyIn addition to growth driven by competitive pricing, decentralized computing networks like Akash have also ridden the AI growth wave and seen an increase in activity on their platforms, as examined in Intersection's report.High-performance GPUs are used in many machine learning and AI Crucial in applications, the widespread adoption of large language models has led to a surge in demand for them.Active leases on the Akash network have increased over the past year, more than tripling compared to early 2023. A lease represents the rental of computing resources.

Figure 5: Surge in active leases on the Akash network in Q4 2023

Source: Cloudmos, as of January 25, 2024

wireless network

Decentralized wireless (“DeWi”) networks enable the use of cryptographic incentives to deploy networks such as 5G, WiFi, Low Energy Wide Area Network (“LoRaWAN”), and Bluetooth.

Given the large amount of capital required to build wireless network infrastructure, the field is dominated by large telecommunications companies with the necessary scale and financial muscle. As a result, the industry has traditionally been dominated by a small number of players. DeWi networks offer an alternative where many independent entities or individuals coordinate the deployment of wireless infrastructure with the help of cryptographic incentives.

Broadly speaking, there are currently four types of decentralized wireless networks:

• Cellular 5G: 5G features high download speeds and low latency.

• WiFi: A WiFi network provides network connectivity to an area.

• LoRaWAN: LoRaWAN is widely used for communications in the Internet of Things (“IoT”).

• Bluetooth: Bluetooth can transmit data over short distances.

In terms of mechanisms, DeWi networks typically use tokens to bootstrap the initial phase to incentivize operators to invest and deploy hardware. These token rewards provide operators with monetary support and a small return on investment, incentivizing them to continue operating even if the network is not yet generating enough fees from users. Over time, as the network grows in size and economies of scale are achieved, in theory, the combination of lower unit economics and better coverage will help attract more users to the network, providing operators with Generate more revenue. The ultimate goal is to achieve a self-sustaining network where user-generated fees can exceed operating expenses and any additional investment required to grow the network.

Case Study: Helium

Helium is a global decentralized wireless infrastructure project that provides wireless coverage for LoRaWan-enabled IoT devices and cellular devices. Its flagship product, Helium Hotspot, launched in 2019, provides wireless access to IoT devices. Since then, Helium has also expanded its offerings to include 5G coverage.

1.Helium IoT Network

Helium IoT Network is a decentralized network that uses the LoRaWAN protocol to provide Internet connectivity for "Internet of Things" devices. Examples of use cases include automotive diagnostic tools, environmental monitoring, and energy usage monitoring, among others.

2.Helium 5G network

The Helium 5G network is powered by thousands of user-operated nodes. Helium envisions the future of mobile networks as a combination of large operators and crowdsourced 5G hotspots. This is due to consumer expectations for higher bandwidth and lower latency requirements, and the corresponding need for denser networks and more nodes, which increases site acquisition costs. The crowdsourcing model of the Helium 5G network eliminates site acquisition costs and enables users to participate in delivering high-bandwidth coverage. To participate in the network, interested operators can purchase FreedomFi gateway hardware that enables them to provide cellular coverage.

Operators will receive MOBILE tokens in return.

Helium Network has seen new buzz in recent months, following Helium Mobile's nationwide launch of a $20-a-month unlimited data, text and talk phone plan, and a surge in Solana Saga smartphone sales with a free 30-day subscription to Helium Mobile surge.

Figure 6: The number of newly added Helium hotspots has increased in recent months

Source: Dune Analytics (@helium-foundation), Binance Research, as of January 25, 2024

Helium’s ecosystem is powered by several tokens:

• HNT: This is Helium’s native token and is key to promoting usage of the network, as it is burned in “data points” used for data transmission. Hotspot hosts can also exchange network tokens (e.g., IOT, MOBILE) for HNT.

• IOT: This is the protocol token of the Helium IoT network, mined by LoRaWAN Hotspots through data transfer revenue and proof of coverage.

• MOBILE: This is the protocol token of the Helium 5G network, rewarded to those who provide 5G wireless coverage and Helium network verification

In addition, Data Credits ("DC") are the only accepted payment method for data transfer on the Helium network, priced at USD 0.00001. For example, on an IoT network, users pay 1 DC for every 24-byte packet transmitted. As more data is transferred and more data points are burned, subnets (e.g., IoT networks) will receive more HNT tokens to reward and incentivize their activities.

Overall, the above tokens act as utility tokens for services in the network and provide incentives for operators to maintain and operate the necessary infrastructure. Since launch, Helium has grown its network to over 970K hotspots, enabling it to reach countless IoT and mobile devices in a decentralized manner.

storage

Decentralized storage systems operate on a peer-to-peer (“P2P”) network model, with user-driven storage providers (“SPs”) or miners allocating unused computer resources and earning compensation in the project’s native token. Unlike centralized systems, where a single entity manages the data, decentralized storage encrypts and shards the data, spreading the data across the network. This process enhances accessibility and ensures data redundancy.

Figure 7: Conceptual illustration of centralized and decentralized storage systems

Source: Binance Research

The difference between centralized storage and decentralized storage mainly depends on two aspects:Safetysex and cost.

Centralized storage systems store data through a single institution using one or a few servers, which creates a potential single point of failure risk.This can lead to issues such as data breaches and potential system outages, jeopardizing customer data. In addition, user privacy is also at risk. The infamous Facebook-Cambridge Analytica data scandal was a stark reminder of these concerns. In contrast, by spreading data across a global network of nodes, decentralized storage systems can reduceSafetyrisk and enhance data resiliency.

Cost is another key factor in the comparison.An analysis published in May 2023 highlighted that decentralized storage is on average about 78% cheaper than centralized storage. This price difference is even more pronounced in enterprise-class data storage, which can cost up to 121 times more. This difference can be attributed to factors such as the substantial capital investment required for centralized storage infrastructure and associated overhead costs. In contrast, decentralized storage takes advantage of the availability of remaining computing resources around the world. Additionally, while the centralized storage market is oligopolistic—a handful of tech giants influence pricing—the decentralized storage market is driven largely by open market forces.

Despite the potentialSafetyvulnerabilities and higher costs, but centralized storage still excels in some areas, particularly user experience and product maturity.These systems typically offer a more user-friendly interface for the average user and are complemented by a comprehensive product suite to address a variety of computing needs, not just storage. The blend of user-friendly design and all-inclusive solutions contributes to its continued dominance.

Figure 8: Centralized storage and decentralized storage

Case Study: BNB Greenfield

BNB Greenfield is the third in the BNB Chain ecosystemBlockchain, is a storage-centricBlockchain, supported by a series of SPs. Greenfield is designed to serve as the underlying storage for the BNB ecosystem and EVM-compatible addresses, differentiated by its inherent integration with the BNB chain. This unique connection allows it to leverage BNB Chain’s vast DeFi ecosystem and its vast pool of developersCommunity.

BNB Greenfield operates on a two-tier architecture: a PoS-based blockchain secured by BNB staking validators and a storage network maintained by storage nodes. The role of the validator is to store metadata on-chain, verify data availability, and protect Greenfield. In contrast, SP handles the actual storage of data and provides various storage services.

A key feature of BNB Greenfield is its cross-chain programmability, allowing users to integrate their data with financial applications in the BSC ecosystem. The cornerstone of this cross-chain function is the native cross-chain bridge, coupled with the repeater system, bridging Greenfield and BNB Chain. Together, these components facilitate interactions between the two ecosystems.

Figure 9: BNB Greenfield’s cross-chain architecture

Source: BNB Greenfield

Decentralized storage services like BNB Greenfield have a wide range of applications.

Their use cases are not limited to blockchain-related scenarios, but also expand to include a variety of practical applications. Examples include:

• Blockchain data storage: Layer-1 blockchain contains a large amount of historical data.

This data can be efficiently stored on BNB Greenfield to reduce latency on L1 and enhance data accessibility. Additionally, BNB Greenfield provides a cost-effective solution for storing Layer 2 transaction data.

• Decentralized Social: Decentralized social networks can leverage BNB Greenfield, allowing creators to maintain ownership of their content and data.

• Personal cloud storage: Users can transfer encrypted documents, images and videos across devices. Access to these files is maintained through individual private keys.

• Website Hosting: BNB Greenfield can be used by users as a tool in their website deployment toolkit.

Looking ahead, BNB Greenfield is working on several developments with plans to improve the user experience and advance the utility of decentralized storage. In the recently released roadmap, users can expect enhanced performance, cross-chain support, artificial intelligence adoption, and more.

Figure 10: BNB Greenfield road map

Source: BNB Greenfield, Binance Research

For more information about decentralized storage networks and BNB Greenfield, please check out our previous report "Traversing Decentralized Storage".

sensor

Decentralized sensor networks help monitor and capture data from diverse environments in a secure and transparent manner. These networks consist of grids of devices packed with sensors that collect a range of data, from traffic and weather conditions to local street maps. By taking a decentralized and bottom-up approach, decentralized sensor networks enhance data integrity and reliability and reduce the potential for data manipulation or censorship.

In a world where data is constantly generated by countless devices around us, decentralized sensor networks optimize the utilization of our data-rich environment by collecting this data.

This field has several subfields, each involving different forms of data collection:

• Environment: Monitor and analyze environmental conditions such as air quality, weather conditions, water levels, etc.

• Energy: Measures energy-related data such as production and consumption.

• Location and mapping: Collect geographic information that can be used for city planning, navigation, and other location-based services.

• Supply chain: Collect and verify information such as sustainability claims, production material sources, etc. to increase supply chain transparency.

• Smart environments: Monitor data such as traffic patterns, pollution levels or foot traffic.

• Mobility: Collect traffic-related or vehicle-related data.

Case Study: Hivemapper

Hivemapper is building a global decentralized mapping network that collects the latest high-resolution data in a permissionless manner. Hivemapper relies on contributorsCommunityCollect 4K street-level images using vehicle dashcams. These range from rideshare drivers to delivery drivers and hobbyists. In addition, a group of people called "AI trainers" use Hivemapper's Map AI engine to participate in image analysis and transform it into valuable information required by customers.

As payment for data consumption, the network's native HONEY token is used by consumers of map data (such as companies). Contributors are also rewarded with HONEY tokens for their services, incentivizing them to expand the network. In effect, contributors share in the value created by the need for map data.

Figure 11: Illustration of how contributors participate in Hivemapper

Source: Hivemapper, Binance Research

Hivemapper covers more than 1,920 regions, mapping roads on every continent except Antarctica. Specifically, it mapped over 112M road kilometers, including over 7.2M unique road kilometers. The ratio of total road kilometers to unique road kilometers indicates frequency of coverage and translates into greater accuracy due to repeated collection of data. Hivemapper claims that the network views locations 24 to 100 times more frequently than other services such as Google Street View.

Hivemapper's broad reach is driven by a global network of 38.5K contributors spread across different countries. Similar to trends with other DePIN projects, we have also observed an increase in activity on Hivemapper in recent months. For example, there has been a recent increase in the number of new weekly contributors.

Figure 12: The number of new weekly contributors has increased in recent months

Source: Dune Analytics (@murathan) as of January 17, 2024

The opportunity in the digital mapping market is huge—estimated to reach $18.3B in 2023 and expected to reach $73.1B by 2033.

By providing up-to-date maps, Hivemapper also unlocks new use cases that are not possible with existing solutions. This includes using Hivemapper for home insurance companies to access the latest data on external home conditions, and for self-driving car developers to gain access to the latest road information and construction zone awareness. Hivemapper's Bursts feature also allows users of map data to request new data on demand, further improving the effectiveness of the network.

4. Key themes and challenges

In this section, we explore the potential future trajectory of DePIN projects and discuss some of the challenges they must overcome to achieve wider adoption.

key themes

Looking ahead, we anticipate several noteworthy developments.

• DePIN coexists with traditional infrastructure players:DePIN is unlikely to replace traditional networks in the short term, given the latter’s vast capital resources and mature infrastructure. Nonetheless, with its ability to enable a sharing economy driven by idle resources and allow for last-mile coverage where traditional players are not financially viable, DePIN offers a viable solution that can augment the current landscape . Therefore, the more likely scenario is that the DePIN network co-exists with traditional infrastructure players, supplementing any last-mile coverage and providing solutions that allow smaller entities or individuals to participate in infrastructure construction.

• DePIN powering the Web2 frontend:Admittedly, interacting directly with DePIN may be technically too complex for the general public, and this may be a factor in relatively slow adoption compared to existing Web2 services. In addition to focusing on improving user experience and user interface, we also hope that the DePIN project can cooperate with traditional players or web2 companies to expand its influence. In fact, users may interact with the Web2 frontend without knowing that the underlying backend leverages DePIN and blockchain technology. This can reduce the steep learning curve andcryptocurrencyThe associated perceived risks make the use of DePIN products as user-friendly as those in the Web2 space, but with the added advantages of cost-effectiveness and transparency.

• Improve token utility and composability:Most DePIN tokens are primarily used as a payment medium to access project services. While this provides basic utility, one of the most compelling aspects of blockchain technology is its composability within the broader on-chain ecosystem, especially within DeFi. The ability for users to earn additional benefits or explore different use cases using the tokens they earn can further enhance the appeal of participating in the DePIN project.

Filecoin's Filecoin Virtual Machine and BNB GreenField's inherent integration with BNB Chain illustrate this potential. These projects go beyond the basic utility of just using FIL and BNB for data storage.Provide users with the opportunity to participate in the wider ecosystem with their tokens. Although these expanded uses are still in their early stages, they hint at potential future directions that could spur the growth and popularity of DePIN projects.

challenge

Although the DePIN project has a transparent and verifiable system, it is not without challenges affecting its mass adoption.

• Price fluctuations affect supply and demand dynamics:The inherent price volatility of the token may prevent some people from participating in the DePIN project. Given that supply-side contributors are compensated in the form of the project’s native tokens, price fluctuations introduce an element of uncertainty that could affect their profitability. While hedging strategies may mitigate this problem, this may not be feasible for less complex network participants or tokens with smaller market caps.

This also affects the demand side of the equation, considering that tokens are used to pay for network services. A rapid surge in token prices without corresponding adjustments in service prices could deter potential users. Therefore, well-designed token economics and operating models are critical to reducing price volatility.

• Users are primarily driven by profit:Although the DePIN project has a clear value proposition, the performance of its native token still plays a crucial role in attracting and retaining users. When a coin's price is on an upward trajectory, it's usually easier to attract more users interested in participating in the rise. Conversely, in a bear market, a decline in token prices and profitability may cause network participants to exit the project. This situation is particularly challenging for tokens with smaller market caps and thinner liquidity, potentially leading to a vicious downward spiral.

Overcoming this challenge will not be easy, but projects that provide a valuable service and align with product-market needs will appeal to a wider audience than one driven by profit.

• Lack of public awareness:Awareness is crucial for adoption of DePIN products. While these projects often offer services that are more transparent and sometimes more cost-effective than centralized alternatives, they are not well known outside of the crypto industry. This limited awareness can be attributed to the general population’s unfamiliarity with blockchain technology and the complexity of digital assets. Therefore, currently only a small group of people appreciate the advantages of these decentralized services.

5. Conclusion

The DePIN project leverages distributed and transparent systems to enhance infrastructure scalability and efficiency. This approach is consistent with the principles of the crypto industry. By leveraging token economics, DePIN can pre-Xiaobai NavigationMeasure crowdsourced resources such as storage capacity and computing power, thereby eliminating the need for large initial capital investments. Their potential applications in various fields indicate a huge potential market.

However, challenges remain in achieving widespread adoption.In the short term, complete replacement of centralized counterparts is unlikely, and we will likely see a middle ground where DePIN and traditional infrastructure providers coexist.

Going forward, enabling a more seamless user experience and expanding on-chain use cases for the DePIN token are key trends to monitor.While we expect the number of DePIN projects to increase as the industry grows, its ultimate long-term viability and success depends on real-world applicability and has not yet been thoroughly field-tested.

The article comes from the Internet:Binance DePIN Research Report: Narrative Potential and Challenges, Landscape and Industry Analysis

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