DePIN Projects: Breaking Free from Unsustainable Models

Decentralized physical infrastructure networks (DePINs) represent a massive undertaking, far more complex than launching a fleeting memecoin. Connecting real-world assets to blockchains requires time, resources, and scale, which explains the recent all-time high of $1.91 billion in funding. However, not all DePIN projects are created equal, and those that survive must overcome significant structural issues.

The Token Obsession

A major issue lies in the mistaken notion that startups need a native token to be successful. This can be a fatal error, as it ties the network’s value to market and macroeconomic events beyond its control. The Helium project serves as a prime example, where the success was largely due to the token’s launch during a bull run, generating FOMO among investors. The project’s annual recurring revenue reveals a sobering statistic: even with $1 billion worth of hardware, it would take nearly 1,000 years to break even.

Red Flags and Lessons Learned

Other DePIN projects, such as peaq, claim to be home to over 50 DePINs, but this raises concerns about the blockchain’s ability to handle transaction volumes. The biggest lesson for emerging DePIN brands is that they don’t need a native token if rewards for users are liquid. In fact, native tokens can land projects in hot water, as seen with Pollen Mobile facing lawsuits in the US.

DePIN projects deliver one of the poorest returns on capital employed across any industry, with the financial burden passed on to investors. To make an impact, founders should focus on creating demand-driven solutions, shifting their efforts to attracting more clients rather than making their networks bigger.

A Demand-Driven Approach

A demand-driven approach means hotspots are installed in areas with existing paying customers. India, for example, has an insatiable demand for internet connectivity, with 600 million people lacking access. By severing ownership from installation, a DePIN investor could purchase hardware that is then used where it is needed.

Rethinking DePINs

Hardware is crucial for DePINs, but incentives are currently misaligned. Many projects have sold equipment at inflated prices, becoming reliant on shifting more units to bolster revenues. Others have allocated a share of each purchase to token burning, which can inflate the price in the short run but makes the cryptocurrency a security. This often means investors prioritize financial interest over benefiting others.

A demand-first approach means the native token’s value is secondary, and the focus can return to ensuring the DePIN does the most good. The first step is to find consumers who would benefit from the infrastructure and ensure hardware funded by investors goes to those who reach them. This generates actual revenue and allows the network to grow organically.

Best Practices for DePIN Projects

DePIN projects should follow the same approach as traditional infrastructure development, with careful planning and research before investing capital. Feasibility studies should examine whether a project is achievable, who it would serve, and where they are based. Blockchain technology can be transformative, enabling emerging markets to access the technology they need to grow their economies.

Tips for DePIN success:

  • Focus on creating demand-driven solutions rather than making networks bigger.
  • Sever ownership from installation to ensure hardware is used where it is needed.
  • Distribute revenue in the form of stablecoins for more transparent and predictable income streams.
  • Put end-users at the heart of the strategy.
  • Conduct feasibility studies to ensure the project is achievable and serves a real need.

By prioritizing demand-driven solutions and sustainable models, DePIN projects can thrive and make a meaningful impact. Stay informed about the latest developments in the DePIN sector and the world of cryptocurrencies with Global Crypto News.

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