New Proposal for Categorizing Decentralized Infrastructure Networks DePIN and DeREN
Proposal for Categorizing DePIN and DeREN Networks
Original author: Mason Nystrom, Variant Investment Partner
Translation: Zen, LianGuaiNews
Decentralized infrastructure networks, especially encrypted networks that use token incentives to generate liquidity for funding physical infrastructure operations, are rapidly increasing. The value of these networks is obvious: they provide better solutions for the consumption of resources such as computing, energy, and data. Otherwise, these resources are directly consumed by companies or, more commonly, used for their own products and services.
For example, decentralized network companies like Hivemapper sell data directly to transportation companies like Uber, which then use the image data to improve their products. Similarly, decentralized streaming protocol Livepeer allows live streaming applications to access its video transcoding service market, but it is also integrated by companies like Bonfire, making it easy for creators to launch their own live streaming.
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In order to better evaluate the potential of these networks, we need a better way to classify them. The currently popular industry term is DePIN, but Variant suggests introducing further divisions to classify decentralized infrastructure networks into two categories:
- Decentralized Physical Infrastructure Networks (DePIN): Encrypted networks with consumable and non-replaceable resources that deploy location-dependent hardware devices using incentives
- Decentralized Resource Networks (DeREN): Encrypted networks that establish markets using incentive mechanisms and increase the supply of existing or idle consumable and replaceable resources that are independent of location-dependent hardware
DePIN and DeREN differ in three core dimensions:
- Resource replaceability
- Hardware location deployment
- Resource creation
The most significant difference among the above distinctions is the replaceability of consumable resources.
In resource networks, consumable resources are interchangeable because the hardware assets of the network are usually interchangeable. For example, computing resources provided by networks like Akash or Render are highly replaceable, as the processing power of one GPU is the same as any other GPU with the same specifications and capacity. Apart from highly specialized activities such as high-frequency trading, users generally do not care about the geographical deployment of their hardware as long as the network latency is acceptable compared to a centralized architecture.
On the other hand, DePIN utilizes non-replaceable or semi-replaceable resources. In this case, consumable assets are not easily interchangeable, and the hardware is often unique to a specific network. For example, Hivemapper’s dashcam can map specific locations, generating unique data for that location. Additionally, imaging networks like Spexigon cannot contribute their aerial image data to the Hivemapper network; each network’s asset is the image mapping data, and it is unique to that network.
Of course, there are also intermediate assets. For example, energy is semi-substitutable because it can be used for multiple purposes, but its utility is limited by transmission distance.
Hardware Location and Resource Creation
Hardware location is closely related to resource creation; the deployment of hardware specific to applications and locations typically occurs simultaneously with the construction of proprietary resources.
At this point, DePIN faces more challenges in building a market for both supply and demand. Suppliers need to rely on location-based hardware setups, and demand generation depends on whether suppliers have enough scale to make the network valuable to consumers.
Resource networks are easier to guide supply because idle supply can come from anywhere and usually does not require the creation of new hardware and infrastructure. However, resource networks with substitutable assets also face greater competition as the cost of switching from one resource network to another is lower.
Building Moats in DePIN and DeREN
Encrypted resource networks based on encryption still have to compete with web2 peers such as AWS and Google. Although DePIN and DeREN can use tokens to subsidize initial resource costs, the most successful networks will not compete solely on price, but will release new demand or expand the market in unique ways.
For example, Arweave does not compete in file storage pricing. It offers new functionality and convenience through permanent storage and eventually found attractiveness in storing NFT metadata. In the DePIN category, mobile networks like DIMO aggregate previously isolated data, providing momentum for new waves of applications, from smart battery and energy management to better vehicle commerce.
Another successful strategy is to vertically integrate and generate demand by building initial products that leverage infrastructure or resource networks. Render combines its GPU rendering capabilities with its Octane software, driving the use of underlying computational resource networks.
Related reading: The Full Picture of the DePIN Track: Disruptive Innovation or “Castle in the Air”?