Why will DEP rise at this time To The Moon?

With the early success of projects like Helium and Golem in the digital infrastructure network, DEP has gone through several market cycles. Now, five years later, with the surge in product releases and the emergence of the newly established DEP Special Fund, DEP is going To The Moon. But why now?

This article is translated from the CoinDesk article ‘Why DePIN Is Taking Off Now’, which introduces the current application status and development direction of Block in charity, and the author is Jasper De Maere.

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The emergence of the first wave of DePIN projects (around 2019) was mainly focused on digital infrastructure, but now we see the emergence of other types of networks (DePIN refers to Decentralized Physical Infrastructure Networks). Projects centered around data or service networks are becoming more and more common. Therefore, I define DePINs as:

1）Use blockchain-based distributed collaboration to operate infrastructure

2. Projects that rely on or affect physical infrastructure such as servers, sensors, or property.

Before further discussing its driving forces, we need to understand that most of the DePIN projects are composed of bilateral markets. These markets have demanders and suppliers. Demanders are users who are looking for services or products that can solve specific problems or meet specific needs, and these services or needs can be fulfilled through service or Decentralization applications (dApps); suppliers are distributed infrastructures such as Nodes, hardware, sensors, etc., which are led by the project front-end or Decentralization application dApps. So, what is happening on both sides of the market?

Supplier

The services provided by DePIN are becoming more convenient, by providing better and more diverse services, closer to diverse needs. I think there are two main drivers gradually emerging behind the supply side:

1 Cost curve declines

In the past, hosting infrastructure required a lot of upfront capital investment, which often only large core enterprises could afford. As the cost curve has dropped, almost anyone can become an infrastructure provider. Recent research shows that memory costs have dropped 100 times in the past 20 years, and GPU costs have dropped 100-300 times. Although the demand for these resources is rising (or even in short supply), the access threshold for hosting a large amount of computing or memory has greatly dropped. The capital required to build infrastructure is decreasing, which enables more people to participate, operate Nodes, and make the network more robust, removing critical failure points.

2. Improvements in the design of utility tokens

The design of utility tokens has long been seen as a kind of mysterious art. In recent years, knowledge in this area has improved rapidly to provide more robust token models. Due to its network effect, the DePIN network often relies on utility tokens, as these tokens can coordinate mutual incentives among different economic stakeholders. Reasonable token design is crucial for creating the correct game theory and incentive support network behavior, and contributes to corresponding rewards. Utility tokens also help to initiate initial network effects, and now more token engineers use scenario analysis and statistical data in the design process. This will make the design more robust and able to withstand time and market Fluctuation.

Demand side

In the past, the DePIN project has been limited by demand, that is, although services and applications have been launched, the acceptance rate is low due to various reasons. The increase in demand finally made the DePIN business feasible and started the improved flywheel. I think there are three main driving forces behind the demand-side launch:

The availability of DePIN is improving

It must be acknowledged that many Web3 applications today are unusable for people who have not spent a lot of time in the encryption field. Account abstraction and AI-driven user experience (UX) should be able to solve this problem.

2024 is the year when account abstraction (which hides some technical details of blockchain transactions from users) becomes popular in Web3. People realize that the current Web3 user experience may not be convincing enough to persuade mainstream users to transition from Web2, which has recently attracted widespread attention. Nowadays, there are many companies focusing on UX and account abstraction. At the same time, we see that ERC-4337 (an upgrade focused on this in the Ethereum network in 2023) is being adopted by a wide range of projects, including DePIN.

Meanwhile, AI has been undergoing a revival since the launch of GPT nearly two years ago, with models constantly improving and integration rapidly developing. Now, the AI assistant developed by Block on-chain will simplify the use of applications and reduce the demand for user-friendly front-ends.

2. Privacy and security are increasingly being followed

Concerns about data protection are proving the benefits of DePIN, as the Decentralization feature of DePIN fundamentally improves this.

Although the privacy paradox is an undeniable reality, as AI becomes more prevalent in society, users’ concerns are increasing. Especially in terms of data management, privacy and security are rising concerns. Evidence shows that users are increasingly prioritizing alternative solutions to protect personal information. With its decentralized approach, DePIN fundamentally enhances privacy and security, making it a more appealing choice for individuals and businesses. After decades of indifference towards privacy and security, the rising sensitivity of people has created a favorable development environment for DePIN.

3. Data generation is rising explosively

It is estimated that about 3.5 exabytes of data are created every day. Human beings are generating data at an unprecedented speed, and this data needs to be stored in memory and processed by computers, which is exactly what DEP is good at…

We are creating more data than ever before. It is estimated that 90% of the data has been generated in the past two years. With the development of General Artificial Intelligence (Gen AI), data has indeed become the oil of the 21st century, so we need to ensure its proper storage. Previously, many companies and individuals did not care whether data was stored on bare metal servers or in the cloud; but now, people have more decision-making processes for data storage. With the maturity of DePIN, it is gradually becoming a more mature and viable alternative for storing and processing data.

What’s next

DEP has many advantages, which is why users, investors, and the entire community are excited about it. I firmly believe that DEP will soon redefine the way social and economic infrastructure is organized in society, at least positioning itself as equally important as traditional infrastructure.