An in-depth discussion of DePIN’s ecological development and the opportunities brought by its integration with AI

Author|Wu Shuo Blockchain

In this podcast, Colin Wu, founder of Wushuo, and EO Hao, CEO and founder of Future Money Group, discuss the development of DePIN and its potential to integrate with the real world. The conversation covered DePIN’s historical origins, investment logic and how it is integrated with hardware, AI, and the real-world economy, the impact of ecosystems such as Ethereum and Solana on DePIN, and how different participants (including groups with right and left cultural backgrounds) Shaping the future of this field, changes in the U.S. regulatory environment and its potential boost to Web3 and DePIN, opportunities to integrate real world assets (RWA), AI computing power markets, hardware mining, etc. with blockchain, and the real world How economic value passes through DePIN and blockchain technology to achieve innovation.

opening introduction

Colin: EO, how about you first introduce your previous experience and the situation of your current fund?

EO: Let me introduce, I am a loyal reader of Lao Wu. In fact, I follow you on Twitter, and it seems that you also follow me accidentally, but I have not been very active on Twitter recently. The avatar I always use is Milady. My name is EO, and I entered this circle from the end of 2016 to the beginning of 2017. I have always been an entrepreneur. Before entering the cryptocurrency field, my background was in traditional finance. I worked in an investment bank doing asset securitization and non-performing asset processing. Later, I joined FinTech and started some businesses such as cash loans and loan service companies based on big data.

Our product at that time had 3 million to 4 million mobile users in China and Indonesia, and the target was the American credit card loan platform. Later, in cross-border business, we discovered that we could transfer Indonesian income back to China for cash through Bitcoin payment. At that time, I came into contact with some OGs of Huobi, including the founders and early veterans of the currency circle, and entered this industry by accident. It has been seven or eight years now.

From the end of 2017 to 2018, we officially launched our current investment business, called FMG (Future Money Group), because we believe that Bitcoin and cryptocurrency are the currencies of the future. Currency is not only a measure of wealth, but also an iteration of technology. It requires digitizing the concept of traditional currency and becoming part of the database. We are fascinated by this technology and continue to support it.

So far this year, we have done about three funds, including a direct investment fund, a fund for the primary market, and a fund for the secondary market. The areas we focus on are mainly directions that are less valued, especially tracks that are integrated with the real world, such as DePIN and RWA. We have been investing in this area since three or four years ago. We have also been named a leading DePIN investor in Asia by Messari's DePIN report. Here’s my background and some of what’s going on with our fund right now.

Key opportunities to get in touch with the Solana ecosystem and DePIN

Colin: I have the impression that you pay attention to DePIN, or that you focus more on your contact with Solana in the introduction. Is this an important opportunity for you to enter the currency circle, and also an important node for you to enter DePIN later?

EO: Yeah, Solana was in 2018, probably 2018 or 2019, when it was raising capital. At that time, an American friend introduced us to participate in Solana's early investment. But frankly speaking, in the last cycle, the understanding of Solana was not particularly comprehensive.

Colin: What was the approximate valuation when you invested in it?

EO: The valuation at that time was several hundred million US dollars. It was not a particularly early stage, but it was indeed a very cheap valuation compared to now. At that time, our understanding of Solana had not yet reached the level of DePIN, but viewed it more as a replacement for Ethereum, the so-called "Ethereum killer". Especially in the last cycle, the FTX system has played a big role in supporting it.

However, some clues can already be seen in that cycle, such as the Helium project supported by MultiCoin Capital. We came into contact with Helium relatively early in the system, and started to buy it when its token price was one or two dollars. We are familiar with many miners, have a lot of cooperation with mining machine manufacturers, and support mining machine production companies in this ecosystem.

Later, this company developed seven or eight DePIN hardware products, and we were involved in all of them. It can be said that this is the earlier and representative DePIN project on Solana. In the current cycle, Solana is the ecosystem that most supports DePIN and is also the most daring to promote innovation. It can be said that it was because of Solana that we began to pay attention to DePIN; at the same time, the development of DePIN further strengthened Solana's ecology. Therefore, I think this is a mutually reinforcing process and an effective path to find Alpha (excess returns).

History and development of the DePIN concept

Colin: In fact, if we talk about DePIN, it cannot be said to be a new concept, because it has been in the history of cryptocurrency for a long time. If not strictly defined, Bitcoin can be regarded as the earliest DePIN, and the way it is combined with hardware has been the most important component in the encryption field until now. For example, in 2017, Wanke Cloud launched by Xunlei was very popular at the time. In the last cycle, Helium and Filecoin were the most popular DePIN projects. In comparison, the hot spots in this cycle seem to be more in the field of AI, such as IO.net and ATH. Although they are quite popular at a certain stage, compared with previous cycles, there seems to be no phenomenal DePIN product yet. Appear. This is my personal understanding of the history of DePIN. What do you think?

EO: You are absolutely right. When we first came into contact with DePIN, it was not actually called this name. There were several related concepts at the time. I had lived in the United States for the past two or three years and was relatively familiar with Messari's team. I basically watched them invent the word DePIN.

Colin: When was this term coined?

EO: It should be from the end of 2022 to the beginning of 2023. Before they proposed the DePIN concept, they had some other related concepts. For example, "EdgeFi", or edge finance (combined with edge computing), emphasizes computing through end devices and rewarding these computing nodes for completing tasks. In addition, MultiCoin Capital proposed "POPW" (Proof of Physical Work). This type of proof relies more on offline physical work, such as building 5G base stations to run the network. This is a very practical and "blue collar" job. . In the future, this type of physical proof of work may become the Web3 version of the Web2 sharing economy.

Later, the concept that was close to DePIN was "TIPIN", which is a physical network that uses Token incentives. Finally, two researchers from Messari, Sami and Stephanie, decided on the name DePIN (Decentralized Physical Infrastructure Networks). Because of its popularity on Twitter, the name quickly spread widely and became a trending topic. This shows the complete workflow of narrative word creation in Europe and America and how the community creates a concept. I think in Asia, there are relatively few word-making phenomena like ours, but there are also some in recent years, such as BRC and inscriptions.

Although the concept of DePIN has received a lot of attention, we also face some difficulties. For example, some entrepreneurial teams arbitrarily label their projects as DePIN in order to raise funds, which is not completely consistent with the direction we value. What we would rather see are projects that are truly valuable, rather than simply chasing hot words. We believe that DePIN should provide more people with the opportunity to join the blockchain network and exchange labor for income by creating offline jobs. This kind of network is more like a future work network.

My views on the current crypto industry are relatively mixed. Although the overall situation is optimistic, it has a relatively pessimistic attitude towards the short and medium term. Currently, too much energy is focused on gambling, Bitcoin, and ETFs, and this single direction fails to attract new people into the market. It is difficult for new entrants to benefit or get rich through their labor, which is a huge challenge to the globalization and popularization of the encryption industry. We need to allow more people without initial chips to participate in the network through their own labor and earn a certain amount of income, thereby forming a bond with the network.

A great example is Axie Infinity. While not quite DePIN, it has managed to attract mass participation by allowing Filipinos to play games and earn money ($50 to $300 a month). This way of binding users through labor is exactly the direction we hope to explore, rather than letting DePIN become a purely financial system dominated by whales or capital-intensive networks.

Colin: Got it. Judging from your description, a DePIN project that is more in line with general public participation may be the direction you expect. But projects like Bitcoin and Filecoin, which require expensive hardware, don’t seem to fully fit this vision. In comparison, mobile mining or driving mining, for example, might be closer to your ideal?

EO: Yes. I think a very important economic system in the network is its distribution mechanism. Taking Bitcoin as an example, its wealth distribution coefficient is very high, almost close to the wealth distribution level of North Korea. The status quo of whales, large miners, and equipment manufacturers owning large amounts of Bitcoin is difficult to change.

What we would rather see is a change in the token distribution mechanism through creative labor and innovative work, not just a capital-intensive network. Considering that there are millions or even tens of millions of users onboard, it is obviously unrealistic for them to mine. A better way is to design some activities that they can participate in daily, such as contributing data or behaviors, and join the network and obtain benefits through these methods. This model is more in line with our ideal vision.

Exploring Solana Mobile Phones and Hardware Devices

Colin: The mobile phone launched by Solana was once very popular. Do you think this is an interesting path?

EO: I think in the short term, this is a more interesting attempt. As far as Solana phones go, I think its reliability is relatively high. In contrast, it is actually very difficult for many small companies to make mobile phones. There have been many failure cases in the Web2 era. For example, Amazon tried to launch mobile phones, but the result was a failure. Many software companies in China also tried to make their own mobile phones, such as Meitu, but ultimately failed.

The main reason is that the supply chain of mobile phone manufacturing has become extremely mature. Our research found that in Huaqiangbei, the cheapest mobile phone molds can produce mobile phones with a cost as low as US$35, and these mobile phones can even be sold in Africa. However, the real difficulty lies in the ecosystem and distribution channels. Taking Africa as an example, distribution channels are almost monopolized by four large Chinese companies. In addition, building your own application ecosystem is also a very difficult task.

Therefore, I am not optimistic about small companies or entrepreneurial teams doing mobile phone projects in the Web3 field. But if I want to choose an exception, I think Solana's phone is relatively more reliable. Because it has a complete ecosystem and supports many applications and tokens (such as Meme Coin), it can provide enough attraction for mobile phones and support its operation.

Secondly, the mobile phone also has a possible highlight feature. If Apple or Android opens up more support for cryptocurrency in the future, I think the development of offline DePIN will get a better carrier. By then, we may not need to buy professional equipment and can accomplish many functions just by encrypting our phones. If the Solana mobile phone can be successfully launched, it may become an important connection node in the Solana DePIN ecosystem.

For example, the phone can roam through the Helium 5G network and can also authenticate to Helium's network. In addition, it can connect to Hive Mapper to upload road data and integrate with other applications in the Solana ecosystem, such as the taxi-hailing service Teleport. With these features, it can become a connector for many DePIN devices. Therefore, I think mobile phone projects launched by the big ecosystem, especially those DePIN projects that can be combined with offline scenarios, including some payment scenarios, are relatively worth looking forward to.

Colin: What do you think of hardware devices such as rings, bracelets, and game consoles?

EO: I think these devices usually rely on the support of a certain large ecosystem. It is more difficult for them to form a strong closed loop or network effect on their own, and they are more suitable as part of the ecosystem to attract users to join. However, I think it is very difficult to expect them to develop independently and achieve strong economic value.

At the 2021 Ethereum Paris Conference, I shared a study at the Filecoin session to explore the frequency of use of DePIN devices. Frequency, equipment cost and labor intensity are three key factors. Devices that are used more frequently, such as mobile phones or e-cigarettes that are used every day, tend to have lower economic value. For equipment with high economic value, it is difficult to increase the frequency of use. If there is too much emphasis on purchasing a large number of devices to obtain profits without introducing user labor participation, this will lead to a concentration of capital, and only the rich or those who control the rules can benefit.

Therefore, we need to introduce users’ labor participation and create “sweat equity” for them. This user investment deeply binds them to the network. Taking this into account, the economic value and network value of some small hardware projects often have upper limits, and they are more suitable as an entrance to the ecological drainage, rather than independently developing into a large ecosystem.

Colin: Are there any examples of health devices?

EO: Yes, for example, Fred from Paradigm Foundation is developing an infrared brain wave device to help users improve sleep and regulate endocrine. As biomedical technology evolves and demand for data increases, such devices may unlock more economic value. This is a direction that the United States is currently exploring.

Colin: So, maybe devices like e-cigarettes or Berachain are more of a marketing ploy?

EO: That's true. Such devices usually gain attention in the short term, but in the long term, it is difficult to truly empower their token economy or develop into large-scale projects. They may be very popular at one stage and then quickly decline in popularity.

Additionally, the DePIN project will need to create real-world revenue streams if it can bring in greater labor participation. Most current crypto protocols generate revenue from on-chain financial activities, such as transaction fees and lending. This revenue model is closely tied to the crypto market cycle, with significant declines during bear markets and recovery during bull markets.

If we want to attract more funds to stay in the crypto market and allow TVL (Total Locked Volume) to grow further, we need to introduce an external source of income that is more stable and does not rely on crypto market fluctuations. For example, creating external protocol revenue through DePIN equipment, or bringing more value to the network through market expansion. This is something we pay close attention to when evaluating the DePIN project.

The development prospects of RWA (Real World Assets)

Colin: If you generalize the concept of DePIN, would Worldcoin be considered a DePIN project that is more in line with your ideal? It does provide a way for the general public to participate.

EO: I think it is a high-quality cryptocurrency project overall. Its fundamentals, investor lineup, and resources are all excellent. As a project, its airdrop mechanism is very high quality. However, it still takes time to verify whether it can develop into a valuable economic network. We don’t know exactly how the team will develop next, but this is definitely one of the projects we will continue to pay attention to.

Colin: Got it. What do you think is the difference between a good coin and a good network?

EO: A good Coin is an excellent speculative product or MEME project; while a solid network requires more time to verify its value.

Colin: In the last cycle, storage projects like Filecoin were very popular. Did you also participate? The projects later seemed to have waned in popularity.

EO: The fundamentals of Filecoin are really good. We have been following this project. Its ecosystem, including AI-related projects such as IO and Akash, also requires Filecoin's underlying storage and computing power support. Filecoin itself is also building a computing power network, aiming to achieve a truly decentralized platform.

Filecoin's vision is very grand. It is not only a DePIN project, but also hopes to turn the entire computer into a distributed ecosystem. Similar to it are ICP and Ethereum, which have taken different paths. Ethereum prioritizes breaking through the software level and focusing on smart contracts; Filecoin starts with hardware, such as solid-state drives and storage.

It turns out that Ethereum's path is lighter and easier to implement quickly. Due to the challenges of the hardware, Filecoin's direction was difficult to attract users in the early stages. However, if given enough time and cycle, Filecoin may eventually form a complementary form with Ethereum by enriching the content level.

Another point worth noting is that Ethereum is pushing towards decentralization of its hardware layer. Currently, Ethereum's POS system relies heavily on centralized hardware resources, such as AWS and computer rooms in the United States and Europe. In other regions, such as Africa, the cost of cloud services and offline servers is very high. Therefore, Ethereum is developing more lightweight nodes (Node), allowing families to run nodes and even develop hardware devices. These hardware can store block data and run Ethereum nodes at the same time, promoting decentralization at the hardware level.

In the long term, projects may end up going in similar directions, but with different paths and timelines. When it comes to investing, we need to evaluate which paths are more likely to lead to “revolutionary wins.”

Colin: In addition to DePIN, you also pay special attention to RWA. What background or logic is this based on?

EO: I studied real estate and finance at Columbia University and delved into the history of real estate financial instruments in the United States. Much of the cause of the subprime mortgage crisis stemmed from the collapse of real estate derivatives. However, looking at it conversely, the largest asset classes in the United States, besides Treasury bonds, are corporate bonds and real estate.

The current crypto field is beginning to break through the treasury bonds (for example, MakerDAO purchases stablecoins derived from treasury bonds). Possible next steps are corporate bonds, Class B bonds, REITs (real estate trusts) or real estate backed securities. These asset classes are large, liquid, and have stable yields. Combined with blockchain technology, these transactions can be completed in a more digital way, reducing distrust issues and improving efficiency.

I think the emergence of RWA is very necessary. Currently, most assets in the crypto space are highly volatile and rely on cyclicality. If we want funds to be able to settle and stay in this field for a long time, we need a richer asset structure. By introducing stable assets such as RWA, gaps in the existing capital structure can be filled.

The development of RWA requires a team that understands both traditional finance (TradeFi) and on-chain technology. These teams need to move traditional asset classes onto the chain and create a banking ecosystem that can deposit funds. This is one of the directions we are currently focusing on.

The new direction of combining AI and blockchain

Colin: I just mentioned some combinations of AI and DePIN. Although the current hot spots may be more in AI Agent and token distribution, you should have also studied a lot of projects like IO and ATH. What do you think of the direction of the integration of AI and hardware in this cycle?

EO: Blockchain is more like a secondary market for the computing power market. In fact, we do not produce hardware in the encryption field, nor do we directly manage computing power. Instead, we move these high-quality computing power to the chain so that it can be traded. In the geopolitical context of last year, some computing power was not open to developers in specific countries, and projects such as Akash and IO proposed a concept of "computing power freedom." One of their narratives is to allow computing power to flow freely like spice in Dune, without any restrictions on nationality or country. Developers should be free to purchase computing power at reasonable prices, and the blockchain is completely a permissionless network. I think this philosophy will hold true for a long time.

Through the blockchain, computing power is turned into a commodity for developers to purchase, and computing power can also be innovatively tokenized. For example, computing power can be staked in the protocol, and the income generated is distributed to computing power holders and token holders. This model provides a pricing mechanism for the computing power market and can better manage market liquidity. I think this is a very interesting direction, and companies like Akash and IO have performed well in this area.

Colin: Are there any particularly interesting AI projects in the United States? For example, autonomous driving or Internet of Vehicles, what are these directions like now?

EO: The Internet of Vehicles is indeed a good scenario, especially in the United States. Basically every household has a car, and there are no power banks in the United States because everyone charges in the car, and even eats and spends a lot of time in the car. As a mobile "indoor scene", the car contains a lot of private data and user habits. This is a very potential application scenario.

Dimo and Hive Mapper are doing related things. For example, the founder of Dimo ​​shared a very interesting idea with me at a conference in Hong Kong: convert on-chain vehicle data (such as mileage, safety level, behavior trajectory) into on-chain credit scores. These credits can be used directly on MakerDAO to secure car loans or personal loans. This model can track vehicle and personal data, and combined with offline loan service companies to ensure loan recovery, is a very good direction. In this way, blockchain can be deeply integrated with DeFi, and vehicle data can also provide more support for AI.

In addition, AI development requires more data. Scale AI is a very popular example. They employ tens of thousands of people in dozens of countries around the world to train and provide data for AI. Similarly, DePIN can be used to incentivize people in marginalized areas to collect data. For example, a company in India once distributed mobile phones to aunts in vegetable markets, allowing them to record vegetable prices. This data not only helps predict CPI (Consumer Price Index), it is also faster and more accurate than the Bureau of Statistics data. If this closed loop of data collection and monetization is combined with AI and blockchain, it is a direction worth exploring.

Colin: In addition to the computing power market and data, what other AI-related directions do you think are worthy of attention?

EO: I think in the future the Agent itself will become an asset. Agents may be some form of knowledge assets that can be stored on the blockchain. Agents can engage in gaming, negotiation and settlement through smart contracts, forming a decentralized agreement. This model also has great potential. I believe that the combination of computing power, data and intelligent agents are several areas worthy of in-depth exploration.

The future of DePIN and market error correction mechanism

Colin: Yes, but I have a question. One of the difficulties in the currency circle now is its "casino attribute". To put it bluntly, it is a casino; to put it nicely, it can be called a transaction attribute. This attribute seems to overwhelm all other orientations. For example, trading tools like PumpFun or some Meme Coin, their daily profits can easily reach hundreds of thousands or even millions of dollars.

In such an environment, it is difficult for people to calm down and work on projects that are truly integrated with real society. Especially hardware-related projects are more expensive. Ultimately, it looks like a lot of DePIN or similar projects have become some form of "dish". Whether it is the project party or the user, the focus is often on the token economic model rather than the actual value of the project. What do you think of this dilemma?

EO: I couldn’t agree more with you. First of all, I often read your tweets and I think you are a breath of fresh air in the currency circle. The issues you mentioned are ones that many people tacitly agree on but are unwilling to discuss openly. I think this is indeed a crisis we are facing: in order to survive, the currency circle often has to cater to quick money and speculation. This state of affairs is truly regrettable.

However, I still believe in the power of the free market. Markets have the ability to adjust themselves, sometimes faster than we think. For example, in the past two years we have seen the market's correction of VC coins and Ethereum already taking place.

A few years ago, I attended the Ethereum DevCon conference. At that time, Ethereum was still dominant, but I already felt the bureaucracy in the ecosystem. To do Ethereum-related projects, you may need to "know someone" or someone to help you retweet. This bureaucracy just doesn't feel right to me. However, the market corrected this problem faster than I expected. Everyone's attention has gradually shifted from Ethereum to Solana and other applications that can directly make money.

Similarly, the market corrects VC coins very quickly. Retail investors are gradually reducing their participation in VC coins, and many VCs are also aware of the problem and have begun to launch more fair launch projects (Fair Launch). This showed me how efficient the free market is at correcting errors. Although it will take time, it may be shorter than we think. What we need to do is stick to the direction we believe in and wait for the market to correct.

As for the "casino" attribute you mentioned, I think casino itself is also a business model. In traditional finance, there are also casino-related stocks, such as Sands Corp. or certain British online gambling companies. Although they are regulated, they are still essentially a business and can be fairly valued by capital markets. The same is true in the blockchain field. If certain casino projects in the future can withstand the test of time, obtain compliance licenses and operate stably, they may also receive reasonable market valuations.

However, we also see that the blockchain space is not limited to casino properties. Besides gambling, there are many great projects and companies emerging. These projects provide the blockchain industry with diversity and future development opportunities. I believe that casino properties will only be a part of the entire industry, rather than the only direction that dominates the entire industry.

US Regulatory Environment and Opportunities for DePIN

Colin: We all want to see the industry become more diverse and not concentrated in a single direction. Although the current situation is not entirely ideal, I still hope that things will change in the future. What do you think of the current entrepreneurial atmosphere combining AI and Crypto in the United States? Especially with the possibility of Trump returning to office, will this create huge grounds for support?

EO: I think this point is actually quite clear. After years of development, the regulatory thinking in the United States has gradually become clearer. Rather than taking a “one size fits all” approach, they prefer to set a framework. As long as you pay taxes and follow the legal process within this framework, it will work. For example, Binance, although they paid a lot of fines, have gained a relatively firm foothold in the United States by adjusting their shareholder structure and other methods.

Under such a framework, and the status of the U.S. dollar needs to be further consolidated through methods such as Bitcoin, the U.S. regulatory system is becoming clearer and more stable. I think the key areas in the future will include AI, Crypto and DePIN. There are great opportunities in these areas.

Interestingly, the portrait of the people engaged in DePIN in the United States is very different from that of traditional Crypto. They were mostly men in their 30s and 40s, wearing plaid shirts and trucker hats, a slightly right-wing style. This is in sharp contrast to the white left culture of the Ethereum community. At Ethereum conferences, you will see many young people wearing rainbow clothes and wearing dreadlocks. But in the ecology of DePIN and Solana, the participants are more from right-wing cultural backgrounds.

These new players will have a great impact on Crypto's future. The value proposition they bring is more practical, focusing on whether industry can benefit, whether the public can easily participate, and whether the project is good for the United States. This pragmatic value is driving Crypto from the "extreme left" to the "center" or even the "right".

Especially under the influence of the new US government, this change has become more obvious. For example, David Sacks' Craft Ventures has invested in many Crypto projects, including DePIN projects such as Solana and Hive Mapper. JD Vance also mentioned some Crypto applications in his speech, especially its potential in the communications field, such as real-world integration applications like Helium.

This administration and this new wave of players clearly have different preferences and concerns. They are more inclined to support projects that can be integrated with the real world rather than purely pursuing decentralization. This is a trend worthy of in-depth study, and also reflects the direction that the U.S. government may pursue in the future.

Colin: Got it, very interesting observation. So let’s stop here today, and we’ll discuss some related hot topics or interesting topics in depth later when we have the opportunity.