A More Measured Approach to DePIN
DePIN is failing, this is how we are fixing it
defli team
7/24/20245 min read
The reader should be aware that for the purpose of this article we consider “DePIN Projects” to be only those that require the acquisition and hosting of dedicated hardware and not projects that make use of existing hardware/capacity such as GPU or bandwidth sharing.
Measuring DePIN Success
How do you measure the success of a DePIN project? Is it the amount of hardware deployed, is it the revenue accrued from actual users of the network or is it the revenue returned to hardware hosts? In our opinion it is the 2nd option.
Measuring by hardware deployed is fervently pointless especially where 80% of the hardware could be abandoned with no detrimental effect to the network. In actual fact, measuring the “success” of a project by hardware deployed would, in most cases render the project as a commercial failure on the simple calculation of accrued revenue vs cap ex. Aiming for vast hardware deployments serves only to dilute the earnings under almost all tokenomic conditions where there is a reward simply for being “online”. The model of boosting (pumping) token price through a portion of the hardware sales falls foul of the Howey Test and is tantamount to a Ponzi approach.
Revenue returned to hardware hosts is often seen as a good measure of “success” but it could (and should) be argued that rewarding in cryptocurrency enables network operators to manipulate earnings and take advantage of market conditions, this is not a sustainable model for determining success. In the non crypto world it is akin to a company marking borrowed funds as revenue/profit and then paying a dividend using those funds so as to boost the share price and attract further investment, it is a house of cards that will fall on the last to join.
The only true way of measuring the success of a DePIN Network is to isolate the accrued income from network users and divide it by the number of hardware hosts, not in a cryptocurrency but in a stablecoin or fiat value. Only this will determine the indicative success of a project and be a yardstick for measuring growth and development. A successful and developing network should show an increase in isolated user revenues that is equal to or greater than the expansion in deployment numbers whilst also maintaining steady expansion in deployment numbers. A network that relies on market conditions to deliver revenue to hosts should be treated with the upmost concern.
A New Way of Doing DePIN
Almost all DePIN projects (Spexigon aside) appear to follow the Wayne’s World mantra of “If you build it, they will come” and, given that only really Helium MOBILE and Geodnet have any real world traction that maps to deployment numbers, the question has to be asked if this is the best way if “doing DePIN”.
The question also needs to be asked “how many hosts are in it for anything other than the potential returns?”. Sure there are a small number of deployers who are doing it for the love of Rf or because of their personal views on the product being delivered but the reality is that most deployers would be just as happy in investing in to any project that offers a similar potential return. In the main, hardware ownership simply creates a falsified sense of scarcity and/or the relatively false promise of being “in control of your earnings”.
DeFli believe that a better way of “doing DePIN” is as follows:
Redefine DePIN as “Sponsored Hardware”.
Engage with end-users to build case specific micro networks with hardware costs covered by “sponsor hosts” and these costs being built in to the pricing models.
Offer each micro-network as a separate investment opportunity with it’s own token and supported by its own liquidity.
Offer hosting to investors via an NFT with the pricing being based on the agreed revenue from the micro network broken down by the “importance” of each device to the network.
Allow sub-network tokens to be swapped for a master token at a rate determined by the sub network vs total network value rate.
Provide investors with data access to their hardware.
7. Allow hosted hardware to be part of multiple sub-networks based on geographical location.
8. Utilizing hardware that can be moved based on demand
Here are some examples as to how this works:
Paris
DeFli Networks proposed a novel solution to the Paris Olympics Committee as part of their drone defence plans. Other operators were quoting prices based on the acquisition of hardware and long term hosting plans, this does not suit the needs of the end-user. DeFli offered to supply a fixed number of DeFli Device’s for a period of 6 weeks at a fixed cost. Whilst the pro rata cost for utilizing DeFli was greater than other competitors, the overall price was significantly lower. This specific contract delivered nearly $800,000 to 62 sponsored hosts. These units will be redeployed at the end of the contract.
Belgium
The national rail infrastructure provider of Belgium had a 6 month requirement for the deployment of drone detection devices to support both security and network mapping plans. Once again, the rates offered by DeFli were matched specifically to the term of the contract and delivered a ero Cap-Ex and cost saving result for the client. This will return nearly $320,000 to sponsored hosts.
Ukraine
The government of Ukraine wish to build a large scale drone detection programme to cover a rolling period of deployment. Enabling the Ukraine to build out this programme on a modular and flexible term ensures that they can reserve their cap-ex for other projects specifically reconstruction and humanitarian aims and are not left with redundant hardware post-conflict. This type of mobile project will allow for re-use of the host devices once they are no longer needed with interest already being shown by Baltic states who are looking to build a “drone wall”. DeFli Networks have removed their own profit margin from the pricing and hosts can choose to donate their earnings back to a Ukranian fund if they so choose. This contract is for 4,000 devices and has revenues in excess of $3.8M per month.
Why This Matters
Ultimately, the whole point of DePIN Networks is to enable end-users to roll-out their products and services without capital expenditure. The problem comes when network revenues must be shared across a vast swathe of hardware deployments, many of which provide no use to the actual client base, this dilutes the earnings dramatically and leads to network apathy. Network apathy reduces the ability of the network to attract new clients.
By matching hardware deployments solely to revenue generating client cases we reduce the earnings dilution whilst also being able to acquire clients on the “no upfront capex” sales methodology. Network apathy is not felt as the earnings remain consistent. The modular nature of the hardware means flexibility within the deployment architecture which leads to sustained earnings.
Enabling the swap to a master token alongside fixed liquidity for sub-tokens still allows for speculation amongst “deployers” in-keeping with the “HODL” crypto thesis.
Currently there are open opportunities for remote hosting on both the Ukraine project https://opensea.io/assets/ethereum/0xcaa04eb2888d25979579f2675cacc0a1ec78d17d/1 and our “roaming units” with details provided upon request.