Blockchain DePINs and RWAs
by Hans Rempel | October 29, 2024 | Category: Diode
Blockchain DePIN and RWA
DePIN and RWA are two exciting Web3 categories that are focused on use cases for blockchain in traditional business. Before “DePIN” and “RWA,” traditional use cases for blockchain had to stand on their own (a common example being supply chain tracking).
These new categories are building momentum in Web3, creating a blockchain-native ecosystem and supporting technologies that are make deploying DePIN and RWA solutions easier and commonplace.
Let’s break it down.
DePIN
DePIN (Decentralized Physical Infrastructure) is basically the deployment of useful devices that are inseparably tied to blockchain wallets. These useful devices provide some sort of service and are automatically rewarded by a blockchain token. They are sort of blockchain “Layer 2” services that are focused on a particular utility.
The devices are almost always deployed and maintained by an ecosystem of third parties. Helium was an early DePIN - Helium provides wireless carrier services whose individual base stations are deployed by individuals (LoRA, WiFi, and cellular nodes-as-a-service).
Diode is fundamentally a DePIN offering encrypted communications services. Read more below.
RWA
RWA (Real World Assets, aka Real World Adoption) is the ability to memorialize ownership of a physical asset on a blockchain in a way that everyone agrees, in a legally binding way, that the blockchain record is the canonical record. The current state of tech in RWAs is early and usually requires additional legal agreements to make the blockchain record legally binding.
One of the biggest advantages of RWAs is an auditable fractional ownership record that can be easily bought and sold. At the recent RWA.day event, two of the speakers highlighted collectible alcohol as the example: not everyone will buy a cask of 1975 Ardberg Whiskey, but if it is an asset that will continue to increase in value, many people would potentially like to buy a fractional share in a cask.
Diode’s CEO, Hans Rempel, and Moonbeam’s Director of Business Development, Ryan Levy, also presented at RWA.day about how Diode is an example of both a DePIN and an RWA - in a way that may hold a clue for scaling RWA adoption.
Diode as a DePIN
A basic tenant of Diode is that the Internet’s system of security is hopelessly outdated, and is being increasingly subverted - to the point that privacy and security over the Internet has mostly become about how unimportant you are. Because of this, organizations who cannot afford data leaks spend significant resources in creating their own private cyber security systems. However, that doesn’t work for medium business, it doesn’t work for individuals, and it doesn’t work for SaaS applications (whose apps need to work for nearly everyone).
Diode’s solution to this monumental problem is to create a new type of secure network infrastructure that can be used to connect any type of device and any type of application using end to end encryption. We do this via our DePIN network. The network nodes are blockchain native “mathematically secured” points of presence that simply bridge tunneled connections from one device to another device. How that tunnel is used is fully up to the application using the tunnel and the user using the application.
By deploying this capability as a DePIN, Diode nodes are already emerging in every region of the world, providing better security (all in-region connections, blockchain perimeter anchoring can’t be tampered) and faster performance (shorter hops) than anything else in existence today.
A core question for all DePINs is “what metric is being incentivized”? Like Helium, Diode’s core incentive metric is bandwidth - if a node transfers data, it gets reward for transferring it in proportion to the amount of data transferred. The $DIODE token is a utility token than pays for bandwidth.
Diode as an RWA
Unlike Helium, whose nodes require a physical device with a wireless antenna of some flavor, Diode nodes can be hosted anywhere - including in data centers on cheap virtual machines. The smallest “droplet”, “spot VM”, or even Raspberry PI is sufficent to run a Diode node.
If the region in which the node is running has many people using the network, but does not have that many nodes, there is a supply-demand relationship that drives up the cost of bandwidth demoninated in $DIODE. This incentivizes the ecosystem to bring more nodes online. If there is an over-supply of nodes in a region, then the cost of bandwidth will be driven down until it reaches a point that some node operators are no longer willing to maintain nodes. This market-driven approach to regional supply and demand means that every region will modulate the amount of $DIODE per amount of bandwidth, and that changing demand will generate a response in supply.
Since bandwidth also has a known commodity cost (ranging from $0.01 USD to $0.15 USD depending on the region and datacenter), the amount of $DIODE paid for an amount of bandwidth to node operators, will approach that of the commodity value for that amount of bandwidth. This will strongly influence the exchange rate of $DIODE to USD, and will also allow the $DIODE token to be used as a proxy for bandwidth prices.
Therefore, Diode, in addition to being a DePIN, is also an RWA whose asset is bandwidth. Because all of the network and rewards are automated via smart contracts, there are no legal agreements other than the node operator’s acceptance of, and agreement to, the way the system works.
Diode as a model for scalable RWAs
The Diode model is significantly different than the current state of most RWAs (which require legally binding agreements to record fractional shares in a high-dollar asset on-chain). This difference can be largely attributed to one important feature: the underlying asset is already traded in the token.
For the collectible alcohol example, it would be as if the distillery was already selling its casks in tokens (or, for tokens OR for fiat). In that case, it would be trivial then to buy a portion of the token as a way to own a fractional part of the casks. This shifts the complexity of the legal and functional systems to the actual supplier and buyer of the asset. Fractional buyers can simply just buy or sell the token on an exchange. This, of course, introduces the additional complexity of external influences on the token economics, and even on the exchange rate of tokens to other currencies. But, it does so in a real-world-asset-backed way, and in a way that is much more dynamic, derivative-ready, and innovation friendly.
As one can imagine, interesting variants can be created - e.g. by issuing tokens for a specific asset type, by focusing on asset buyers who are not the actual consumers of the product, by exploring sustainable ratios of real-world-asset to circulating token supply, etc.
In Summary
RWAs and DePINs are exciting new categories for blockchain and utility token usage. As more RWA projects leverage the Diode model, the category will be able to deploy to more use cases, more quickly achieve scale in each use case, and achieve deeper integration into traditional business.
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