Bitcoin and other cryptocurrencies run on blockchain, the distributed ledger technology that could retool or transform payment and market infrastructures and is lately being deployed to tokenize a wider array of real-world assets (RWAs).
Now another “real world” crossover, with resemblances to decentralized finance (DeFi), is emerging: DePINs, or decentralized physical infrastructure networks. This represents a convergence that one company in the field, IoTeX, puts in the context of artificial intelligence: “To unlock its full potential, AI needs real-time, real-world data from real machines and humans.”
The GENIUS Act brought regulatory clarity to crypto – and to stablecoins specifically – that is lacking, but necessary, for DePIN, IoTeX head of product Aaron Basi argued in a Cointelegraph article.
Aaron Basi of IoTeX
“Unlike many blockchain use cases,” Basi wrote, “DePIN is already operational and growing fast . . . DePIN protocols across the ecosystem collectively generate over $250 million in revenue. These are not pilots; they are functioning networks delivering value to users and contributors” while still in a legal “gray zone.”
Just as stablecoins advanced faster than the legislative process, DePIN applications are surfacing at an accelerating pace. As in the digital financial realm, use cases tend to be where infrastructures are historically centralized and capital-intensive, according to Tom Phipps, head of strategy at marketing agency Flight3.
The systems can include distributed networked hardware – e.g., solar panels, GNSS (Global Navigation Satellite System) antennas, IoT (internet of things) sensors, charging stations, WiFi hotspots – in a tokenized framework providing user incentives and accountability, says “green economy” RWA innovator and Arkreen Foundation co-founder Merlin Ostermann.
Arkreen says its peer-to-peer DePIN network model “provides blockchain-based solutions to unlock renewable energy’s potential through a globally coordinated community.”
Arkreen’s renewable-asset DePIN global energy network, showing distributed energy resources (DERs) at left, monetized with onchain economies and protocols.
“A clear regulatory framework is essential to define tax treatment and reporting requirements for tokenized infrastructure assets, giving investors and operators the certainty they need,” Ostermann explains. “Equally important is the formation of cross-sector consortiums to share lessons on hardware lifecycle management, cybersecurity best practices and governance models, ensuring DePIN deployments are both robust and scalable.”
“Participants deploy and operate nodes, then earn digital rewards or tokens based on measurable contributions such as uptime, data throughput, energy generation or service quality,” Ostermann adds. “Consensus mechanisms (often proof-of-stake or proof-of-authority variants) validate node performance, while oracles and edge computing ensure reliable real-world data feeds. This architecture shifts [capital and operational expenditures] from central operators to a community of stakeholders who co-own and co-govern the infrastructure and get incentive rewards.”
As in, for instance, the Ethereum proof-of-stake blockchain, DePIN participants make tangible contributions for the benefit of the network as a whole. Blockchain is the coordination layer that cryptographically verifies resources have been provided, and it distributes the token rewards.
Phipps says that the contributed resources take different forms depending on the application. They can include bandwidth, computing power, data storage, mobility data, energy and mapping.
Lighthouse Partners founder Pete Harris points out that DePIN has elements of crowdsourcing and has forebears like SETI@home, the mass-participation search for extraterrestrial intelligence.
With DePIN, infrastructure can be provided to the network operator collectively – by startups, small- and medium-size enterprises, communities and individuals, perhaps on a part-time basis or by contributing excess capacity in the background of their primary tasks.
For compute services, Harris says, software would be installed on workstations or servers to register and manage DePIN participation, and rewards come back “generally in an operator-specific cryptocurrency.”.
Pete Harris of Lighthouse Partners
Smart contracts can enforce service-level agreements, penalties and reward schedules automatically. In keeping with decentralized governance principles, stakeholders may be invited to vote on protocol upgrades and other technical or policy matters.
On the Lighthouse Partners website is a presentation series, where DePIN 101 goes into the concept’s “alignment with the needs of artificial intelligence training and inference.”
Harris sees a critical role for DePIN in view of AI’s appetite for data and the vast opportunities and risks that need to be identified and managed. DePIN can apply in managing AI’s essential scalability as well as in the decentralization that will help to protect privacy.
A benefit of well-structured decentralization is resilience – avoidance of a single point of failure. If communications latency is a concern, it can be addressed through network design and its proximity to users.
Supporting the economic proposition, blockchain technology is easy to access, the build-out can be quick, and the customer captures rewards on top of the efficiencies.
Tony Saliba of Liquid Mercury
Liquid Mercury, a digital-asset technology venture founded by veteran trader and financial-market entrepreneur Tony Saliba, introduced the MERC utility token, giving holders “the opportunity to participate in generating and receiving value from the Liquid Mercury ecosystem.”
In March, the Chicago firm announced a strategic partnership with dVIN Labs to develop a wine trading platform leveraging data, DePIN and RWA tokenization, “using the same technology that powers crypto trading for professional traders, brokers and exchanges.”
In September, the Nasdaq-listed, AI-driven drug discovery company Predictive Oncology unveiled a digital asset treasury strategy using ATH, the native utility token of the Aethir DePIN ecosystem. The token “functions as a proxy for a unit of GPU compute power, and serves as a medium of exchange and unit of incentives for participants in the Aethir network. Participants in the Aethir network can generate yield or other rewards by staking or lending ATH or by otherwise serving as a source of ATH liquidity.”
Phipps cautions that in its early stages, DePIN presents multiple risks. In addition to those related to unresolved legal and compliance issues, they include:
-- Market risk, from fluctuations in the values underlying tokenized assets and related disruptions to the reward or yield system.
-- Systemic risk, which may stem from network concentration, location and other factors, requiring resilience to recover from operational or financial shocks.
-- Operational risk in physical components, such as wireless network coverage, uptime or available storage, which must be monitored and verified.
-- Governance and controls, which when effective prevent stakeholder manipulation and gaming.
Jeffrey Kutler of GARP contributed reporting for this article.