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Over a decade ago, Marc Andreessen, co-founder and general partner of Silicon Valley venture capital firm Andreessen Horowitz (a16z), famously said, “Software is eating the world” as he articulated the bull case for software companies like Apple, Facebook, Linkedin, and Amazon. Few predictions have been more accurate. However, the ultimate expression of software dominance is not the traditional software companies he highlighted but decentralized protocols such as those that power decentralized physical infrastructure networks (DePIN).
Traditional companies have always had trouble evolving, are burdened by high overhead costs, and do not reward early users. DePIN protocols, however, have little overhead, evolve as quickly as their community develops, and reward all users for participating.
DePIN is among the most promising uses of blockchain networks and crypto-economic incentives. Over one million wireless hotspots have joined the Helium Network, 1.8 EiB (2 trillion megabytes) of data has been stored on the Filecoin Network, and 90 million kilometers of open road have been mapped via Hivemapper. This early traction proves the effectiveness of the DePIN model. But despite the growing interest, the market vastly underestimates the potential of this sector and the massive value accrual that will go to the protocols with well-designed tokenomics.
DePIN refers to connecting, provisioning, using, verifying, and rewarding crowdsourced physical infrastructure (e.g., storage and computing resources) via decentralized software protocols and token rewards. DePIN networks can comprise a wide range of physical infrastructure, from computer servers to WiFi routers to cars. They reward a nearly limitless number of participants and, using blockchain, provide trust and mitigate fraud.
DePIN networks maximize underused resources, eliminate the overhead cost of a central company, and allow anyone globally to participate in offering, using, or funding the network. The idea of maximizing underused resources isn’t new, but the ability to do so without the cost and bureaucracy of a central company is new—as is the ability to attract both resources and users from around the globe from day one. Also new is the power of crypto-economics, which allows global, instantaneous payments with no credit risk and, more importantly, allows protocol-native tokens to reward participants.
The Tokens. If designed well, native tokens become more valuable as network use increases. The growth in value rewards early participants who are rewarded with tokens for contributing resources, earning tokens for testing the network, or purchasing tokens. The token design varies, but common to most protocols is higher token rewards for early participants. Helium, Filecoin, Hivemapper, and Fluence reward the contribution of WiFi routers, storage capacity, video data, and compute capacity, respectively. Each platform has attracted global participation, and some are already larger than any centralized offering in their space. All have grown without the need to deploy capital on hardware. Helium, for example, provides nearly global Internet of Things coverage without having purchased or leased any infrastructure—all of the hardware is crowdsourced from its community.
The Offering. With no centralized company or capital expenditures, a network has almost no expenses. Even more powerfully, in many DePIN networks, participants offering hardware compete with each other, driving prices down for users. The platform or protocol provides stability, the tokenomics provides trust, and the physical infrastructure pricing is driven to just above marginal cost (about 80% cheaper than the centralized alternatives). Blockchains can also enable features such as auditability and verifiability, which centralized competitors rarely offer.
The Value. Seven telecom companies are worth over $100 billion, and another ten are worth over $40 billion. Most of these companies operate in only one country, spending billions yearly on capital expenditures. In comparison, the Helium network operates globally and spends zero on capital expenditures, making it potentially far more valuable than any of its traditional competitors. Similarly, a storage or computing protocol can operate globally with no capital expenditures, providing a clear opportunity to scale beyond any traditional companies in their sectors. Teleport, a decentralized UBER protocol, is launching, which will have far lower prices and still reward drivers more by not taking 45% of the revenue from each ride.
DePIN promises to unlock and maximize global infrastructure at a level that makes most companies today look quaint in comparison. Instead of value accruing to shareholders, in DePIN networks, the value accrues to token holders, who are the contributors, early adopters, and enthusiasts. When your first participants can become wealthy based on the adoption of your network, what chance do traditional platform companies have where, instead of being rewarded, early users pay higher and higher fees as the platform grows more powerful? Not only will these DePIN platforms dominate, but their communities, that is—the over 5,000 storage providers for Filecoin, the over 58,000 Hivemapper drivers, and over one million Helium hotspot owners—become an army of devoted supporters that are very, very difficult to stop.
Marc Andreessen was right when he said, ‘Software will eat the world,’ but not in the way he imagined. Software protocols will eat the world, not companies, and DePIN protocols will dominate the legacy companies in their sectors.
