DePIN Tailwinds and Headwinds
by Hans Rempel | December 05, 2024 | Category: Diode
DePIN Tailwinds and Headwinds
Blockchain DePINs are changing the way that IoT sensors, communication services, energy supplies, and compute resources are deployed and managed. By creating better services for end users, they can also transform into RWAs, unlocking additional innovation and vibrancy for their projects.
However, DePINs are complicated to successfully deploy because they require advanced knowledge across multiple disciplines.
This article dives into the tailwinds and headwinds that impact DePIN projects.
Tailwinds
DePINs can create more available, more pertinent, more secure, more performant, and more sustainable services.
More available
DePINs are regionally distributed - they occupy many locations as a decentralized ecosystem of nodes deployed by various “Node Hosts”. This means DePIN nodes, and therefore the DePIN service, will usually be available in many more locations (and regions) than a centralized service provider could hope to deploy and maintain.
In the example of an E2EE communication network DePIN like Diode, a DePIN node can be located in any city - not just in the nearest Tier 4 data center. As can be seen in a map of the Diode Network, while some nodes are in data centers, many other nodes are in office spaces, homes, and ISP closets.
More pertinent
Because of the geographic proximity of the nodes to their users, the service is immediately more pertinent to the end users. In the example of QuakeCore Network, the availability of seismic data near to a user is much more interesting than seismic data just generally for their region.
More secure
Not all DePINs can boast “more secure” services than their centralized competitors. However, because physical security of the DePIN nodes is not guaranteed, DePIN services must approach security with the lack of physical security as a constraint. This means that they will often ensure the mathematical security (or a combination of mathematical and electromechanical security) of sensitive information to ensure the integrity and privacy of the service (Diode’s DePIN is mathematically secured). This approach can eliminate the potential of hosting provider data leaks (whether intentional or unintentional).
More performant
Decentralization and regional co-location of services can provide much better performance for service delivery. For example, this is why Netflix co-locates caching systems in regional ISPs, and why Uber can generally provide a much faster pickup time than a taxi. DePINs are the same. Diode’s regional co-location of communication nodes means that the shorter round-trip time for communications is faster than centralized alternatives.
More sustainable
DePINs provide benefits to a wider ecosystem of participants. Where-as centralized service providers aggregate service value solely to the centrally managed service nexus’, DePINs automatically distribute value to regional node hosts. Additionally, since an element of free market decision making is often used by the node hosts to determine if the rewards are sufficient to provide the service, the overall cost to deliver the service quickly finds a market-driven level. Since the DePIN take-rate is also built into the system, the overall service can be delivered for a lower price than competing centralized services.
Headwinds
DePINs can be complicated to create, initially slower to deploy, and must reach economies of scale to achieve price competitiveness.
Complicated
The number one drawback of DePINs is that they are complicated. Compared to traditional technology businesses, DePINs require competency in three additional topics: blockchain tech, ecosystem-led deployments, and token economics. For many teams, this is a bridge too far.
Traditional connected systems are some of the most complicated commercial systems - their technical and business complexity results in a 75% failure rate. Web3 projects themselves have a 90% failure rate. DePINs combine the complexities of connected systems and Web3 technologies. While the data is not yet out, it seems safe to say that the failure rate of DePIN startups is very high.
DePINs require cross-disciplinary technical teams with high degrees of sophistication in the sensor/service, the device system, the device management platform, the end-user application, and the sector’s business dynamics. Therefore, just as the emergence of IoT struggled with the complexity before mature IoT platforms were available, DePIN deployments will experience the same, or even greater, struggles without similar platform-level aids.
Slow to deploy
Because deployments are ecosystem-led, the node management interface and dashboard must capture the right information, at the right level, for the node hosts. As opposed to centralized deployment teams (whose full time job it is to deploy the service infrastructure), node hosts usually will deploy nodes in their spare time and only if it is easy. Because of this, the deployment pilot phase can take much longer than with traditional services.
May not achieve economies of scale
Data centers enjoy economies of scale - they can purchase compute systems in bulk and engage in volume buying contracts for energy. Node hosts, on the other hand, must operate in the “unused capacity” headroom. Node hosts are happy to provide some unused asset capacity to the DePIN service, but otherwise must pay “retail” rate for any asset needed in addition. This retail rate must be reimbursed to the Node host in a reasonable time – usually within 3 months for a capital asset and within 30 days for an operational cost. This additional cost can increase the price of the DePIN service above that of centralized services, and is an important consideration. For example, if an Akash node operator has to rent a VM from Contabo to resell the same VM through Akash, a decentralized Akash VM will always be higher cost than a centralized Contabo VM. Due to token economics, even resale of retail services can be sustainable in the early days of a project, but must be addressed to achieve long term sustainability.
Takeaway
DePIN-based services can have significant advantages over centralized alternatives, but they have significant challenges to their implementation and deployment. Increasing the re-use of DePIN technologies, and leaning into the greater ecosystem of participants in a DePIN network, will be key to every DePINs project’s success.
To explore further please: