What DePIN Got Wrong and How to Fix It | Opinion

Decentralized Physical Infrastructure Networks (DePINs) are ambitious projects aimed at connecting real-world assets like energy grids and transportation systems to blockchain networks. However, many DePIN ventures are struggling with sustainability, largely due to an overemphasis on native tokens and the misplacement of hardware in low-demand areas. While the sector is still in its infancy, it faces growing pains that need to be addressed if it is to succeed in creating lasting value.

The Token Obsession: A Fatal Flaw?

A significant issue with many DePIN projects is the overwhelming focus on launching native tokens as a central part of their business models. This approach can be detrimental, as it ties the success of the project to volatile market conditions and macroeconomic events that are beyond the project's control.

Take Helium as an example. Helium’s vision was to create a decentralized, people-powered wireless network, with users rewarded in HNT tokens for operating hotspots. However, the token’s value soared during a bull market, creating a sense of FOMO among investors. This surge, though, was not based on any real-world success or demand for the network’s services. In reality, Helium’s network had a sobering financial reality—despite having over $1 billion in hardware investments, it would take nearly 1,000 years to break even based on the current revenue streams.

Helium’s trajectory is a cautionary tale for DePIN projects—relying too heavily on native tokens can lead to a situation where the network becomes little more than a speculative asset, akin to a memecoin. As more DePIN projects emerge, it is essential to understand that success does not hinge on creating a token; rather, it comes down to generating tangible value and demand.

Building on Demand, Not Speculation

The focus for DePIN startups should shift away from simply issuing a native token and toward developing demand-driven solutions. Many of the current models adopt the “build it and they will come” mentality, which is inherently flawed. Instead of aiming to expand the network and hardware installation indiscriminately, projects should focus on identifying real, existing demand for infrastructure and directing resources to meet it.

India is a prime example of where demand exists: with 600 million people lacking internet access, the need for connectivity is immense.

However, too many DePINs are focused on deploying hardware in areas where there is little immediate demand. A smarter approach would be for investors to purchase the necessary hardware and install it in regions where it can directly serve paying customers, even if that means shipping it halfway around the world.

The Hardware Dilemma: Misaligned Incentives

The hardware component of DePINs is essential, but current models are misaligned in their approach. Too many projects are selling hardware at inflated prices while relying on the continued sale of these units to sustain their revenue streams. Others go as far as allocating a portion of each sale for token burning, attempting to boost the price of the token in the short term. This may inflate token prices temporarily, but it raises serious legal and regulatory concerns, particularly under the Howey Test that determines whether a digital asset is a security.

The core issue here is that such schemes attract investors who are more interested in speculative returns than the long-term success of the network. These misguided incentives create an unsustainable business model, where hardware often sits unused while investors demand a return. The “build it and they will come” mentality not only results in wasted resources but also leads to investor apathy when the promised returns fail to materialize.

A Shift to Stability and Sustainability

To truly thrive, DePINs need to adopt a more sustainable model. The solution lies in putting demand first—ensuring that hardware is deployed in areas where it is needed, based on actual market conditions. This demand-driven approach shifts the focus away from the price volatility of native tokens and places it squarely on generating real revenue.

For reward systems, utilizing stablecoins instead of native tokens can provide more predictable and transparent income streams for investors and users alike. Stablecoins, which are pegged to traditional currencies, offer a more reliable form of compensation than volatile tokens that fluctuate wildly with market trends.

Additionally, as with traditional infrastructure projects, DePINs should conduct rigorous feasibility studies before committing to large investments. By carefully analyzing potential markets and understanding where demand exists, DePIN projects can ensure that they are building solutions that will be embraced by end users.

The Future of DePINs: A Transformative Opportunity

DePIN projects have the potential to radically transform infrastructure access, particularly in emerging markets, by using blockchain to spread funding costs and offer technology to areas that traditionally lacked it. But to unlock this potential, founders must focus on building sustainable models. The goal should not be to create speculative tokens but to provide infrastructure that people actually need and can pay for.

In conclusion, DePINs can have a profound impact on global connectivity and infrastructure. However, for this sector to evolve into something truly transformative, it must move away from the pitfalls of token speculation and toward demand-driven growth. By doing so, the DePIN sector can grow organically and sustainably, offering real-world solutions that can scale and endure.