Compound VC’s DePIN Present & Future (Shallow Dive Version)
Recently Knower & Smac penned a comprehensive 100+ page piece on Compound’s site titled: DePIN’s Imperfect Present & Promising Future: A Deep Dive. Compound is a Thesis-Driven, Research-Centric Investment Firm so its is no surprise this article amounts to being one of the most highly in-depth looks at the emerging Decentralized Physical Infrastructure space out there today. It's incredibly detailed and jam packed with great information but incase you don’t have the time to spend reading all 100 pages end to end, I wrote up a quick summary of the key points. Enjoy!
DePIN’s Imperfect Present & Promising Future: Shallow Dive Version
The concept of Decentralized Physical Infrastructure Networks (DePIN) represents a novel approach to building and managing critical infrastructure through decentralized networks and blockchain technologies. This shift allows DePIN to create, maintain, and monetize physical assets in a way that aligns incentives across participants, fostering resilience, adaptability, and transparency. At its core, DePIN aims to address some of the inherent inefficiencies of centralized infrastructure, often characterized by high costs, monopolistic practices, and slow innovation.
The rise of DePIN presents an alternative model by which infrastructure is not only built but also distributed and managed, reflecting an ideal of community-driven growth and ownership. This model promises a “new era of openness, transparency, community-driven growth & ownership” while addressing the demand for real-world applications within the crypto space.
“DePIN is unique in this regard as it’s one of the best examples of crypto incentives creating real-world utility”
Key Value Propositions
DePIN’s primary value proposition lies in its ability to democratize infrastructure ownership, reduce single points of failure, and leverage crypto-economic models to create efficiencies. DePIN networks, by offering greater transparency and resource utilization, aim to build a more resilient infrastructure capable of meeting evolving technological and consumer demands. In the words of the authors, DePIN “upend[s] the traditional models of infrastructure provision and management”.
Through six distinct sub-sectors within DePIN — ranging from telecommunications to decentralized energy grids — DePIN projects are developing solutions that have far-reaching implications:
- Telecommunications: DePIN has made significant strides in telecommunications, where decentralized networks offer alternatives to traditional monopolistic internet service providers. Innovations in this sector could reduce costs and increase connectivity, particularly in areas underserved by traditional providers.
“Verizon and AT&T each have over 110 million subscribers and have average monthly plans of $60–90 for individuals and $100–160 for families. Helium Mobile by contrast offers a $20/mo unlimited plan. How is this possible? It comes back to one of the core advantages of DePIN — drastically reducing capital expenditures.”
Some of the projects reviewed include Helium, Karrier One, Althea, Really, Dabba and WiCrypt. - Energy: The energy sector is especially promising, where DePIN projects are developing decentralized grids and clean energy solutions. This could disrupt the current centralized model dominated by a few large players. The authors point out that the energy market is “extremely complicated across a number of different vectors: hardware, capture, transmission, financing, storage, distribution, pricing”. These complexities make it ripe for DePIN-led innovation.
“One of the most discussed topics of energy DePIN is the idea that it might be possible to decentralize the electric grid. Proponents of renewable energy believe that while we need more alternative energy sources, their integration into the grid will put even more strain on already outdated & degrading infrastructure. Technologists will tell you we need more real-time data around energy consumption and storage, better metering infra, and more automation.”
Some of the projects reviewed include Daylight, SCRFUL, Plural Energy, Glow, StarPower, Power Ledger, PowerPod and DeCharge. - Compute, Storage & Bandwidth: As demand for digital storage and processing grows, DePIN projects in this sector aim to offer decentralized, scalable alternatives to traditional data centers. Projects like Akash provide decentralized cloud services that could empower users with more affordable and accessible data solutions.
“Decentralization can offer the opportunity for better distribution, increased scope of rewards, and a protection mechanism against centralization. But without performance parity in production, none of this will matter. The most immediate challenges here center around latency and communication overhead — i.e. synchronizing compute across different nodes for tasks like deep learning training invites inefficiencies.”
Some of the projects reviewed include Akash, Livepeer, Filecoin, Fluence, IONet, Hyperbolic, Jackal, Arweave, Fleek, and Meson. - Artificial Intelligence and Decentralized AI: As AI grows in scope and application, DePIN offers a decentralized approach to computation, creating systems that leverage underutilized computational resources. This could reduce dependency on centralized AI labs and promote a more distributed AI landscape.
“It can sometimes be difficult to find protocols in crypto with product market fit. Infrastructure gets funded over novel apps, user attention is fleeting, and narratives change constantly. One narrative that’s managed to stick is that AI is extremely centralized and crypto can fix this.”
Some of the projects reviewed include Golem, Ocean Protocol, Prime Intellect, Bittensor, Gensyn, Prodia, Ritual, and Grass. - Data Capture & Management: This sub-sector targets the collection, storage, and management of critical data — often through user-operated networks. Decentralized data management enhances transparency and reduces dependency on centralized data aggregators, with potential applications in areas such as mapping (e.g., Hivemapper) and environmental data.
“There’s more data being collected and uploaded to the internet than ever before, and there’s no reason to expect this trend to slow. In the context of DePIN, it’s easy to see the connection between data and crypto: blockchains are one of the best sources of data as they’re immutable and persist as long as a network remains properly validated. The world of data DePIN is still underdeveloped, but there are four core categories that are particularly interesting in our view: content delivery networks, mapping, positioning, and climate/weather-specific data.”
Some of the projects reviewed include Hivemapper, Spexi, Geodnet, Onocoy, Foam, dClimate, PlanetWatch, and WeatherXM. - Services: This section of the report acts as a catch all for services ad projects that don’t fit nicely in other categories, they are services protocols that are designed to offer a niche functionality. Each of the projects discussed all very unique business models, but their alignment comes from the usage of crypto incentives to drive real-world behaviors. “There’s certainly an argument that the more physical the network is, the more difficult it will be to reach escape velocity. The flipside is that those who do reach escape velocity will have much stronger moats compared to their virtual network counterparts.”
Some of the projects reviewed include Dimo, PuffPaw, Heale, Silencio, Blackbird, and Shaga.
By tackling these six areas, DePIN not only introduces efficiencies but also expands access and participation across industries historically dominated by centralized actors.
Prominent DePIN Projects and Their Challenges
Several projects in the DePIN space illustrate both its promise and its current limitations. Projects like Helium, Livepeer, and Akash have made strides in bringing decentralized infrastructure to real-world applications. Helium, for instance, has made a name in decentralized wireless infrastructure, allowing users to operate nodes and share network access. Despite these successes, the challenges are substantial. Many projects still grapple with issues like “effective tokenomics” and liquidity. According to the article, “very few teams have reached any semblance of [Product-Market Fit]”, underscoring the complexity of translating DePIN’s potential into sustainable growth.
Helium, as a leading example, demonstrates what it takes to succeed: “a team with deep expertise in their field, iterating and pivoting as their assumptions are tested and validated.” The project has achieved what the authors refer to as “escape velocity,” moving beyond the proof-of-concept phase to provide genuine value to users.
Future Innovations in DePIN
There is a vibrant future for Decentralized Physical Infrastructure Networks (DePIN), propelled by rapid advancements in adjacent technologies and emerging market needs. As hardware becomes “better, cheaper, smaller, and more efficient,” the potential for DePIN to revolutionize traditional infrastructure sectors grows substantially.
Innovative Areas for DePIN Expansion:
- Disaster Response Network: There are significant economic and humanitarian costs associated with slow disaster responses, such as during natural disasters like hurricanes, wildfires, and floods. A proposed DePIN solution involves a decentralized network of connected devices using smart contracts to automatically trigger emergency responses based on sensor data. This could enhance coordination and real-time data sharing, potentially revolutionizing disaster response efforts.
- Distributed Robotics Training: The potential for decentralized robotics training is noted as still underexplored. The article suggests that incentivizing individuals to record and share their daily interactions could vastly improve robotics training datasets, thus enhancing the development of more sophisticated and contextually aware robotic systems.
- Water Quality Monitoring: Another promising application is in environmental monitoring, such as water quality. DePIN could enable the deployment of decentralized networks of sensors to monitor water quality in real-time, providing critical data for environmental protection and public health.
- Collaborative Space Debris Tracking: Space debris tracking is mentioned as an area where DePIN could play a crucial role. By using decentralized networks to monitor and track space debris, the system could improve the safety and sustainability of space operations.
These innovations represent just a glimpse into the potential applications of DePIN as it intersects with various public needs and technological advancements. The article emphasizes that while these areas are “far less developed and more speculative in nature,” they embody the essence of venture capital investment in groundbreaking technologies.
“Riding this wave means recognizing all the progress that’s happened because of large data and large models, and then developing algorithms, tools, datasets, etc. to take advantage of this progress. It also means leveraging large pre-trained models from vision and language that currently exist or will exist for robotics tasks”
Conclusion on DePIN’s Future Direction
DePIN’s future hinges on overcoming significant technical, economic, and regulatory barriers. Achieving seamless interoperability and developing shared standards are crucial. The sector must address these challenges if it is to capture mainstream interest and support. The report emphasizes the need for improved collaboration across protocols to establish universal standards that will allow DePIN solutions to compete effectively with centralized counterparts. the future of DePIN is inherently linked to continuous innovation and the expansion of use cases that drive real-world value. The success of DePIN will depend on its ability to not only conceptualize but also implement solutions that address immediate and long-term challenges across various sectors. This visionary approach underscores the need for ongoing investment in and attention to DePIN as a transformative force for decentralized infrastructure development.
