DePIN Supply Side Market Map!
How we can better categorize the DePIN sectors? the supply side's features and specifications.
The article mainly focuses on the Physical Resources Networks(PRNs), not the Digital ones(storage and computing)
Key Insights:
Hardware Choices Matter: Whether a project leverages popular devices like mobile phones, requires specific dedicated hardware, or adopts an open-source hardware approach, can significantly influence its bootstrapping process.
Geographical Dependencies: Not all decentralized systems are created equal when it comes to geographical influence. While some projects, like GNSS, can operate globally with minimal constraints, others, like the energy sector, or the 5G networks rely heavily on local connections and infrastructures.
Circulating Economy: In some projects, the distinction between supply and demand becomes fuzzy. The supply side can also be significant consumers of the service they provide. This creates a sustainable and synergistic economy where tokens received by suppliers can be used to access services, ensuring a continuous circulation of value within the system.
The Double-Edged Sword of Locality: While local focus can foster social capital, network effects, and organic word-of-mouth promotion, it can also limit global scalability and outreach in geographically dependent projects.
Supply Resilience: A project's success isn't just about attracting supply but maintaining it. Factors like hardware sunk costs and demand predictability play a crucial role in ensuring a robust supply base, even amidst demand uncertainties.
Strategic Token Emission: Distributing token emissions based on network coverage milestones can motivate the supply side to expand its reach, ensures consistent network growth, and fosters a sense of community among service providers.
In the dynamic realm of Crypto & DePIN, understanding the nuances that drive success is paramount. This article delves into the multifaceted world of DePINs’ supply side.
Highlighting the importance of understanding factors like easy bootstrapping, geographical dependencies, the blurred lines between supply and demand, and the democratizing potential of decentralized projects. It also touches upon the resilience of supply amidst fluctuating demand. As the decentralized landscape continues to evolve, this article serves as a beacon, guiding both innovators and investors through its intricate pathways.
Dissecting The Components of Any DePIN Supply Side
1️⃣Easy Bootstrapping:
Easy bootstrapping your project's supply side hinges on several factors:
Hardware Accessibility:
Bootstrapping is simpler if projects use popular devices people already own, like mobile phones or laptops, rather than requiring specific hardware.
E.g. Natix uses mobile phones as the supply side device with an app to control service quality. In contrast, Hivemapper produces its own $399 cameras. Similarly, Wynd, a proxy service in the DRN sector, operates solely as a browser app on laptops.
Hardware System - Open vs. Closed Source: Open-source hardware systems (In which, users can use existing devices already being manufactured, sold, and not customized for the project), like Onocoy's, offer flexibility and ease of integration, aiding in smoother bootstrapping. In contrast, Geodnet partners with specific manufacturers for device production
Device Affordability: The cost of the necessary devices or equipment to get started. Lower prices typically enhance the easiness of bootstrapping.
E.g. Helium's IoT devices, priced at $150, enabled the bootstrapping of 1M hotspots globally. Conversely, Filecoin service providers face a steep entry cost of $50-100K+ for infrastructure.
ROI (Return on Investment): Arguably the most crucial metric, a favorable ROI period is essential to attract and retain investors. Typically, prospects are more inclined to invest if they anticipate a capital return within 1-2 years. To achieve this, it's imperative to set targeted supply-side benchmarks for each phase, aligned with generated demand and token valuation.
This directly correlates with the rewards allocated to miners. By structuring the reward system so that early adopters receive higher returns, you not only incentivize early belief in the project but also foster loyalty. This loyalty becomes pivotal when rewards decrease, ensuring that longstanding miners remain committed.
Target Audience: The breadth of the target audience. A “larger”, “more accessible” audience can simplify the bootstrapping process as it allows for greater initial engagement.
To expand more on the “Audience Reachability” It refers to the ease with which a project or service can connect with its designated target audience. This metric is pivotal during bootstrapping as it dictates the efficiency and effectiveness of marketing strategies. The reachability is often influenced by the specificity of the audience: generic audiences might be easier to approach in volume, but specialized groups, such as tech enthusiasts, homeowners, or drivers, might require tailored engagement strategies. A high reachability means the core message can be delivered seamlessly, accelerating the bootstrapping process.
E.g. Mapping projects target the vast number of vehicle drivers, while energy projects focus on the limited demographic owning solar panels and batteries. On top of that, they are not siloed, it would be hard to access and get exposure to them, no obvious channels to send your message.
Operational Barriers: These are the hurdles encountered during the setup and running of the DePIN device. Fewer operational hurdles indicate a smoother bootstrapping experience.
E.g. Natix faces challenges like battery drain and phone overheating when users run their app. On the other hand, systems like DeWi & GNSS require a one-time setup, after which users can passively earn rewards. Filecoin providers, however, need regular monitoring and client interactions, demanding constant attention.
Insights:
Utilizing an open-source hardware ecosystem, like Onocoy, or leveraging popular devices such as smartphones, offers the flexibility to charge customers for specific needed services. In contrast, if the user pays and owns the device, it would be absurd to make him pay for services built on top of the data he provided
Challenges with Popular Devices: While operating on widely-used devices, like the approach taken by Natix, can be advantageous, it comes with hard challenges. Controlling image quality from diverse phone cameras or executing AI operations on varied phone chips can be daunting. However, the key lies in innovation and adaptability to navigate these hurdles, as opposed to the easy solution of producing your customized hardware
Benefits of Open Source Hardware: Open-source hardware offers users the freedom to choose devices suitable for their needs, potentially avoiding additional costs like shipping and customs. This also opens the possibility of buying used devices or selling them in 2ry markets which reduces users' risk, making them more likely to join as supply-side participants.
Advantages of Proprietary Hardware: Having dedicated hardware offers better control over data collection, analytics, and customization to fit specific use cases. Additionally, user retention is higher with proprietary devices. Customers, having invested in the hardware, are less likely to abandon the platform, even if they face challenges or dissatisfaction. Even harder to re-sell those customized devices. Simply they have a “Moat” from the moment the user purchases the device
Outsourcing Hardware Development: By making the hardware system open-source and allowing third-party contributions, projects can save significant time, effort, and resources, while also getting the advantages above.
2️⃣Demand's Supply Threshold
This concept underscores the interdependence between the maturity of supply coverage and the viability of a product or service. In essence, the demand for certain services can only flourish when the supply reaches a specific threshold of completeness, and partial & fragmented supply becomes a problem.
Recognizing the level of supply needed criticality helps projects if they need to prioritize the supply side and strategize rollouts effectively.
Wide Coverage Requirement: The necessity of having a complete or near-complete supply before the demand can be adequately met. Also, there will be hesitation from potential demand-side users or clients if the supply isn't perceived as complete or extensive enough, fearing that you can’t be a “long-term” business partner.
E.g. This is evident in projects like Hivemapper, where a partially completed map might not attract businesses that require comprehensive geographic data.
Incremental Utility: Some systems can function and deliver value even with minimal suppliers, while others need a critical mass to operate effectively.
E.g. while an IoT system can operate efficiently with just one provider-client pair, a system like GNSS requires extensive initial coverage to ensure data accuracy.
Network Effect Dependency: This refers to the phenomenon where the demand for a service grows in tandem with an increase in supply, emphasizing the interdependency between both in such models.
E.g. The value of certain services, like Dimo, escalates with the accumulation of extensive and historical data. Conversely, for services like Hivemapper, adding new suppliers in an already well-covered area might not significantly enhance its value.
3️⃣Geographical Dependency
Physical Resource Networks(Location-dependent networks), exhibit varying levels of geographical dependency. This refers to the extent to which location-specific factors influence the supply side of decentralized systems. Key aspects include:
National Compatibility: Some projects are restricted to specific countries due to technological constraints. For instance, 5G networks using CBRS spectrums are currently limited to the US.
Infrastructure Availability Certain projects hinge on the presence of specific infrastructures. Broadband internet with speeds around 100Mbps is vital for networks like Helium 5G, while renewable energy sources, such as solar panels, are essential for some energy sector projects.
Concentration Requirement: Some decentralized systems need a dense supply side within a particular region for optimal functionality. These projects often prioritize building their supply side city-by-city or country-by-country. Examples of this can be seen in mapping services.
Proximity Factor: Some projects necessitate that their supply and demand sides exist within the same geographical vicinity. This is typically seen in sectors like DeWi where supply and demand need to be co-located.
Examples:
GNSS Sector: Despite being a PRN (location-dependent network), GNSS isn't heavily influenced by the aforementioned factors. It operates globally, needing only electricity and internet. While denser supply improves data quality, it's not a prerequisite.
Energy Sector: Part of this sector relies on local grid connections for providing energy & data only valuable for local entities, making worldwide operations challenging. Similarly, mobility and ride-sharing platforms emphasize local outreach, necessitating both supply and demand sides to operate within the same region.
Insights:
Opportunities for Multiple Players: When geographical factors are pivotal, it paves the way for multiple successful entities to coexist within the same niche. They can operate in different regions but still fall under the DePIN umbrella. This contrasts with sectors like GNSS, where the lack of strong geographical constraints could make it a winner-take-all area.
The Double-Edged Sword of Locality: Geographical focus offers both advantages and challenges. On the positive side, it fosters social capital, amplifies network effects, and promotes organic word-of-mouth within local communities. However, this localized approach can also limit global scalability, potentially capping the total addressable market and influencing go-to-market strategies.
4️⃣ Recirculating Economy
This describes a system where the lines between supply and demand blur, where you create useful and needed services for your supply-side users, leading to a more sustainable and synergistic economy. Key elements include:
Token Utility: Tokens received by the supply side can be used to access services, ensuring continuous circulation of value within the system.
Self-Consumption: The supply side often becomes a significant consumer. For example, a provider of 5G services might themselves be a primary user of that very service, promoting organic growth and demand.
Consumer-to-consumer (C2C) models are perfect for this approach, but a consumer-to-business(C2B) setup can also work out, depending on how services are tailored.
For example; Natix mainly targets institutions and governments for their services, but they managed to come up with ways to offer valuable services to their supply side to use their tokens for. While Entheos in the energy sector has a broad scope of activity with different roles for distinct supply-side operators. making it harder for this feature to exist.
Insights:
Users who invest in proprietary devices, especially at significant costs, often anticipate complimentary free in-app services. They contribute the data used and have made a hardware purchase, so additional charges can be off-putting. Conversely, open-source hardware projects or those leveraging common devices like phones can introduce premium services more flexibly.
Token Retention: A significant benefit of this model is reducing the selling pressure from the supply side. Users are more likely to hold onto their tokens for potential future uses, with a notable percentage of token emissions reverting to the protocol.
Supporting Demand: Selling innovative solutions to institutions and corporates is often challenging. The recirculating economy can bolster the demand side, providing a buffer as you further refine and promote your offerings.
Integrated Engagement: The recirculating economy model encourages profound user involvement. Participants aren't merely suppliers or consumers; they're vital components of the system, involved in both production and usage. This dual role transforms them into marketing advocates for the platform, embodying a true ownership economy
5️⃣ Barrier Dissolution
It is the ability of a project to circumvent traditional obstacles, enabling broader market accessibility and more efficient supply chain mechanisms. This effect is most evident when projects provide services to markets previously inaccessible to or overlooked by conventional Web2 companies, thus democratizing the service provision. For instance, a project like Hivemapper can bypass the need for tech giants like Google to physically set up in under-serviced areas.
The Factors affecting here:
Web2 Company Parity: If the service provided by the decentralized project can also be offered by a traditional Web2 company, it demonstrates the project's competitive potential.
New Market Introduction: The project's ability to introduce services to markets that were previously hard to reach or underserved, such as the introduction of digital mapping in certain developing nations.
Immediate Local Supply: The empowerment of local communities to instantaneously contribute to the supply, eliminating the waiting period typically associated with technological advancement.
Diverse Socio-Economic Profitability: The varying levels of profitability across different regions due to socio-economic factors. Areas with lower living costs should tend to bootstrap supply faster. This accelerated adoption is not just due to the financial advantage, but also the potential value these services bring to such regions. (We haven’t seen that yet, unfortunately!)
The last point recognizes the inherent alignment between regions seeking economic upliftment and the services that can catalyze that growth. By understanding these dynamics, projects can strategically target areas where their impact will be magnified both in terms of profitability and socio-economic benefit. This is an interesting and very important topic that needs to be discussed more!
6️⃣ Supply Resilience
NB: It is not listed in the rating as it’s hard to do so, but it’s crucial to take into consideration for founders building their DePIN projects.
Supply Resilience examines the sustainability and robustness of a bootstrapped supply side in the face of fluctuating demand. At its core, it delves into:
Supply Stickiness: How steadfastly does the supply side adhere to your platform, especially when demand wavers? Factors like sunk costs in hardware, which may not fetch much resale value, can keep suppliers engaged even in lean times.
Demand Predictability: It's crucial to gauge how easy to get your demand side figured out. In areas where it's challenging to secure clients or anticipate demand, careful planning before launch becomes essential.
Strategic Design: The relationship between how predictable the demand is and the loyalty of the supply side is key. For instance, in scenarios where demand is uncertain, it's beneficial to cultivate a recirculating economy, have your customized hardware, and ensure suppliers have reasons to stay. On the other hand, when demand is easier or predictable, these aspects might not require as much emphasis.
In essence, Supply Resilience is a comprehensive assessment of maintaining a strong supply base amidst the uncertainties of demand and the strategic choices that can reinforce
Additional Factors Worth Noting but to a lesser degree
Participatory Governance
This refers to the degree of influence that the supply-side community has over a project. This influence can be broken down into several key factors:
DAO Transition:
1-A well-defined structure where token holders can propose and vote on various aspects of the project
2- Projects with transparent intentions to evolve into a DAO, handing over the reins to the community, typically showcase robust participatory governance.
Supply-Side Benefits: Projects that offer additional benefits or influence to supply-side users (device owners) beyond what is given to average token holders can further empower the supply side.
Despite these aspects, it's worth noting that some argue that token ownership, reflective of network contributions, might be the best proxy for determining influence and stake within the network.
Emission Threshold Incentives
This strategy centers on the strategic distribution of token emissions, with rewards contingent on the supply side achieving specific network coverage milestones.
Drawing from models like Filecoin, this approach introduces a dual-mining system. Which might look like the following:
Base Emission Rate: A foundational rate at which tokens are emitted.
Adaptive Bonuses: Additional rewards that are activated when the network meets designated growth markers or KPIs.
Benefits:
Supply Side Motivation: Encourages the supply side to expand its reach.
Network Growth: Ensures robust and consistent expansion of the network without leaving much value on the table.
Collaborative Spirit: Fosters a sense of community among service providers, promoting mutual support rather than a race to capitalize on the value before others catch on. A positive-sum game is created.
Many thanks to the Onocoy team (Mark and Uros) for helping with a few points and Alireza the Founder of Natix for the Recirculating Economy point
If you are building in DePIN, I would love to connect and help if I can 🤝