Crypto VCs are Bullish on Decentralized Physical Networks

• The significant interest in the DePIN sector might leave you scratching your head.
• Recent trends suggest that DePINs aren’t just a fleeting curiosity but a paradigm shift in the making.
• Savvy investors are recognizing the potential of DePINs as a smart investment choice.

For a long time, crypto assets were primarily digital, making venture capitalists wary of dipping their toes in the pool. Since then, Decentralized Physical Networks (DePINs) have blurred the lines between digital and physical systems by providing real-life answers to real-world problems using on-chain solutions.

There is undeniable genius in the idea that physical blockchain infrastructure should be able to seamlessly interface with real-world applications. This fundamental value proposition has been the nectar that enticed many players into the Web3 space even in the depths of a two-year bear market. By February 2024, the total market valuation of DePIN tokens had surpassed $25 billion.

Venture capitalists are jumping full speed ahead into the DePIN circuit, with Borderless Capital having the largest share of interests in 17 ventures valued at $8.9 billion . The second largest DePIN market share belongs to Multicoin Capital, thanks to a portfolio of investments in eight ventures valued at $8.3 billion ,

Now, that’s a lot of heavy spending. It makes you wonder why crypto VC firms have Michael Saylor-levels of conviction in the DePIN sector.

Parabolic potential

DePINs have been hailed among the top trends in peer-to-peer infrastructure for 2024, but I believe they aren’t just another passing meta. In a recent study, Messari suggested  that the DePIN side of Web3 may reach a total value of almost $3.5 trillion by 2028. And they shared  a compelling rationale to back up this projection:

“Cloud infrastructure services are a $5 trillion market cap sector in the legacy markets, and DePIN sits at just 0.1% of that. […] A 1% ‘insurance premium’ to eliminate Big Tech deplatforming risks would lead to a 10x in DePIN utilization rates. It doesn’t take much to move the needle, especially with AI-driven demand for GPUs and compute in general.”

In essence, DePINs can help digital businesses to mitigate the risk of being deplatformed by major tech companies. What better way to achieve the aim of decentralization in the real world than by giving people the freedom to build?

Frankly, the answers that DePINs provide fuel the likelihood that investments in the sector will go parabolic as crypto-adjacent technologies continue to develop.

Intangible tech, tangible impacts

Another way to explain venture capitals’ optimistic outlook on DePINs is their ability to connect digital and physical components. By transcending the on-chain environment and weaving into real-world spaces, DePINs open the gateway to potential cash flow from conventional businesses, be they digital or brick-and-mortar.

The real upside here is that it becomes easier for DePIN projects to find and capitalize on their product-market fit. In other words, they do not need to reinvent the wheel or offer something new in order to succeed, because they also shine as impactful upgrades to systems that solve everyday needs.

Unlike the largely financialized projects that DeFi has birthed, DePINs are a refreshing take on the quest to make crypto fit into the real world. That’s their greatest strength. For example, Helium’s wireless network has been used to develop an early flood detection system in Lisbon, Portugal.

DePIN meets Al

If you get excited thinking about the intersection of DePINs with artificial intelligence, then you are not alone. Crypto VCs see this as the site of a significant boom in the near future. Why? Leonard Dorlöchter, a co-founder of Peaq Network, believes  it is because they are both compatible at the core.

In his words, “AI enables machines to function as independent economic agents creating real-world value, and the DePIN model creates an ownership and value distribution framework for that, enabling owners of AI-powered devices to earn from their activities.”

In a world where sophisticated AI is imbued with the properties of DePIN systems, every industry and service area greatly benefits, from healthcare and manufacturing, to finance and entertainment. Hatu Sheikh, Chief Marketing Officer of DAO Maker, even referred to combo as the “power duo of 2024,” because they complement each other in the most efficient way possible.

Sustainable revenue generation

One fatal flaw in the early iterations of Web3 projects is that they lacked a business model at the heart of their technological offerings. This rendered their products and services useless to the market for all intents and purposes other than short-term speculation. It’s a different story with DePINs.

As we’ve established already, DePINs create real-world value that can be monetized. Consequently, crypto VC firms are bullish on DePINs because of the sheer number of  ways that they can be used to create consistent, long-term revenue streams.

Beyond the fact that steady income looks good on quarterly reports, it also provides a natural incentive for people to participate.

DePINs are designed to fairly redistribute resources across decentralized on-chain networks. The same mechanism dispenses the rewards that are reserved for those who contribute to the network. Therefore, when done right, DePINs ensure that the capital providers and the community are not left out when the business turns profits.

To sum it all up, smart money sees DePINs as the right direction for fresh investments, and now you finally know why.

But let me conclude by reiterating that nothing beats the conviction that comes from personal research. This article is not an exhaustive guide, but readers are highly encouraged to dig further into the emerging force of DePINs and formulate their own investment strategies.