March 25, 2024 | Read Online

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"DePIN is crypto's crypto."

- Josh Rosenthal

Crypto's First Great Hope: DePIN

The financial systems of history's most consequential economic powers have always been preceded by some kind of economic activity — Mediterranean trade in the Venetian Republic, the East India Company in the Dutch Republic and agriculture and natural resources in colonial America, for example.

Crypto is hoping to be an exception to this rule — a financial system that precedes the economic activity it facilitates.

It hasn't really happened yet.

Crypto builders have been operating on the Field of Dreams Principle (build the infrastructure and the use cases will come) but seemingly every new crypto emerging from the cornfield is just another new way to trade more crypto.

That's not necessarily a bad thing: Speculation has been a way to bootstrap a financial system from nothing, and if nothing else comes of it, speculation is itself a use case.

But the current onslaught of memecoins is starting to make people wonder whether this is all there is and if so, whether crypto could be a net positive to the world.

It seemed both funny and true when Travis Kling captured the crypto zeitgeist with his thesis that crypto prices would go up despite "A Lack of Pretense That Any of This Shit Does Anything or Will Ever Do Anything."

Less than two months on, it seems more true but less funny — concerns around financial nihilism are growing, as captured in the anti-memecoin cri de coeur posted yesterday by the anonymous polynya.

I've been a fan of memecoins — they're fun, permissionless, anti-establishment, and one of only three things in crypto that have found product market fit (Bitcoin and stablecoins being the others) — but I can see why polynya thinks that crypto's "moral compass" is broken.

Memecoins like Bome, Slerp and Jeo Boden are unfortunate wasters of both time and money, but perhaps still amusing.

It's no longer amusing, however, when the "Elisabath Whoren" memecoin starts trending.

(There appear to be even less amusing ones than that, but I'm choosing to stay blissfully ignorant.)

Fortunately, the Whoren memecoin has not caught on with crypto people — it has a market cap of just $13 million.

Unfortunately, it has caught on with media people, to the further sullying of crypto's already sullied reputation.

So, citing the insignificant market cap of unsavory memecoins as evidence that they are not what crypto is about is not a sufficient rejoinder to polynya's blog post.

Instead, we need to make a positive case for what crypto is about.

Helpfully, Josh Rosenthal did just that this morning in a thread on decentralized physical infrastructure networks (aka, DePIN) — a thread that serves as a timely reminder that crypto can be more than just memecoins.

Much more: Rosenthal believes that crypto as a new way to form capital could become a financial and societal revolution on par with the Renaissance.

DePIN is currently crypto's best hope of fulfilling that promise.

All of the above?

Rosenthal's optimistic take on DePIN as "generative tech meets participatory capital" is informed by his doctorate in Renaissance history.

If you don't happen to have one of those, you might find other DePIN explainers more accessible: DePIN is often described as "crowdsourced capex," a way to solve "coordination and cold start problems" and/or "marketplaces for idle resources."

There are less generous descriptions, too.

Qiao Wang, for example, dismisses DePin projects that offer decentralized computing power for AI purposes as "thin wrappers of AWS with a token."

Naval thinks the purpose of those tokens is to "dump on the masses."

These takes might all be correct.

DePIN's biggest success to date is Hivemapper (an alternative to Google Maps), and the only reason Hivemapper has a token is so that people will speculate on it.

That may sound like a polynya-like reason to dismiss the entire project — but it's also exactly what makes DePIN revolutionary.

Yes, Hivemapper's token could be replaced by a points system maintained on a spreadsheet at Hivemapper Inc.

But if so, the points would not have attracted any speculators. And without speculators, they'd have no value. And without value, Hivemapper would have no drivers. And without drivers, Google's monopoly on mapping data would remain unchallenged.

In other words, crypto's rampant speculation is what solves the "cold start" problem of building a competitor to Google Maps.

In DePIN, therefore, speculation isn't the problem, as polynya argues — it's the solution.

Supply and demand

There's no doubt that crypto has enough speculators to give value to a seemingly endless number of tokens — the question is only what and how much DePIN projects can do with it.

Can DePIN be effective at scale?

There are enough Uber and Lyft drivers willing to invest dollars in a dashcam in return for cryptocurrency of uncertain value, but that large pool of speculator/suppliers might prove to be an exception.

The demand for maps might also prove to be an exception.

The DePIN evangelists at Multicoin see DePIN use cases in "telecom, energy, data aggregation, carbon removal, physical storage, logistics, delivery and more."

But even if there is demand for decentralized infrastructure in all those areas, issuing just enough of a new token to incentivize supply without collapsing the value of that token will be a challenge.

Hivemapper has shown it's possible, however, and people are optimistic that others will, too: Messari forecasts that the DePIN industry will be worth $3.5 trillion by 2028.

If so, that would represent a lot of productive capital formed by this new financial system.

Something from nothing

Before reading Rosenthal's post this morning, I'd have said that "crypto's crypto" is memecoins — the purest distillation of permissionless speculation and crypto-native "value."

It's much more optimistic to think it can be DePIN.

The purpose of a financial system is to facilitate productive capital formation by channeling funds from savers to borrowers, and DePin could be the first real capital formation facilitated by crypto.

That's putting a lot of hopes and dreams on the thin reed of DePIN projects that are currently finding limited success.

But even if DePIN proves to be a niche activity, it's already proof of concept that a financial system can precede the economic activity it serves.

DePIN is therefore crypto's first great hope, not its last.

― Byron Gilliam

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