Mankun Web3 Research: DePIN Promotes Greater Network Democracy and Easier Compliance

Satoshi Nakamoto Would Certainly Appreciate DePIN

During the 2024 Wanxiang Blockchain Summit, Mankun Law Firm participated in organizing three events. On the opening day of the summit, Attorney Liu Honglin of Mankun Law Firm was invited to help organize a sub-forum on DePIN, focusing on exploring the value and application cases of this infrastructure within the Web3 and blockchain ecosystems.

DePIN, an acronym for “Decentralized Physical Infrastructure Network,” is a concept first proposed by pioneer teams in the blockchain industry. It refers to the integration of decentralized technologies with actual physical infrastructure, utilizing blockchain technology to achieve data sharing, secure transmission, and decentralized governance models. Unlike traditional virtual networks, DePIN exists not only in digital space but also connects to the real world through actual physical devices and hardware.

A characteristic of this sector is that users become part of the network by deploying hardware devices, thereby constructing a more distributed and stable network ecosystem. Currently, there are several successful projects in the DePIN sector. For example,Heliumprovides wireless network services through IoT devices, where users become part of the network by deploying hotspot devices and receive token rewards;Filecoincombines the concept of decentralized storage, where users help build a distributed storage network by providing storage space;DIMOis dedicated to sharing automotive data through a decentralized network, providing users with more efficient and secure vehicle management solutions.

As a panelist in the roundtable discussion, the moderator raised an interesting question: How does everyone perceive the differences between the DePIN field and traditional blockchain projects?

My response is: DePIN may be the second important entrepreneurial sector, following NFTs, capable of developing in compliance with Chinese regulations in the short term. There are three main reasons. Over the weekend at home, I further refined my answer to share with interested friends.

DePIN’s Retro Appeal: Making Networks More Democratic

First, compared to traditional Bitcoin mining projects, DePIN is more retro and aligns more closely with the decentralization philosophy proposed by Satoshi Nakamoto. Early Bitcoin mining was very “grassroots”; users could participate in mining with just an ordinary computer, truly achieving decentralization at that time. The original intention behind this network design, accessible to everyone, was to establish a decentralized financial system free from authoritative control. However, with the development of the network and the surge in computing power demands, Bitcoin mining gradually became highly centralized, turning into a game for large-scale professional mining farms and institutional investors. For ordinary users to participate, it is no longer sufficient to rely on a single computer; they must either use expensive ASIC mining equipment or purchase cloud mining services. These options have inadvertently raised barriers, causing the initial vision of equality and openness to fade.

In contrast, DePIN projects are designed with very low participation thresholds. You may only need a small hardware device, similar to consumer electronics in your home; simply plug it in, connect to the internet, and you can join this decentralized network. Compared to traditional mining projects, DePIN no longer requires users to expend significant resources purchasing expensive equipment and paying high electricity bills. Instead, participants can easily become part of the decentralized network at a lower cost, truly returning decentralization to its roots. This not only reduces the difficulty of user participation but also makes the distribution of nodes across the entire network more widespread, thereby enhancing the network’s security and stability.

From the perspective of network participation, DePIN aligns more closely with the community-oriented and democratic network construction advocated by Web3, which embodies the true spirit of decentralization. Under this model, users become part of the network rather than appendages of giant mining farms, truly reflecting the Web3 pursuit of the principle that “everyone can participate and everyone can benefit.” By lowering technical barriers and costs, DePIN allows more people the opportunity to join in building blockchain networks, undoubtedly making the entire ecosystem more diversified and vibrant.

The Future of DePIN: Enhancing User Engagement

Under the traditional corporate business model, the three main entities within a company—shareholders, executives/employees, and external users—often exhibit clear interest conflicts and information asymmetry. Shareholders, as providers of capital, focus more on corporate profitability and dividend distributions; management seeks higher bonuses and compensation through corporate performance; and ordinary employees hope to securely receive salaries and benefits in their positions. From the perspective of external users, they expect good product quality, reasonable prices, and solutions that truly meet their needs.

In this model, the company’s operational objectives and the needs of different interest groups can easily lead to conflicts due to short-term versus long-term interest disparities. For instance, shareholders may wish for the company to achieve high profits in the short term to generate more dividends, which might lead management to adopt short-sighted behaviors, sacrificing long-term development for immediate performance. Furthermore, incentives, salaries, and benefits for ordinary employees may conflict with management’s profit-seeking goals. For external users, as stakeholders, they often find it difficult to directly influence corporate decisions, and information asymmetry with the company places them at a disadvantage regarding feedback on needs and service experiences.

DePIN projects offer a new approach, transforming the traditional tripartite interest conflict into a more integrated trinity model. Within the DePIN ecosystem, users are not merely consumers of products; they are also community ambassadors and holders of network equity. This role transformation means users do not consume solely for consumption’s sake but also receive rewards for participating in network construction. This aligns the interests of users, shareholders, and management.

In this process, the DePIN model cleverly integrates user consumption behavior with network growth through token reward mechanisms. While using products, users can also obtain tangible benefits by participating in promotion and network construction. This economic incentive significantly reduces issues related to information asymmetry and interest conflicts. Users are no longer just “payers” but become part of the network ecosystem, actively sharing and promoting the project while enjoying the value appreciation of network development. For project developers, this also means reduced marketing costs and increased user loyalty.

Transitioning from the original tripartite interest conflict to the current trinity, DePIN projects allow participants to derive benefits from the “consumption–investment–dissemination” chain, achieving optimization and unification of interests. This model is not only more economically feasible but also more sustainable in terms of business logic, laying a solid foundation for the long-term development of projects. This is why DePIN is considered a highly innovative and promising model in the Web3 world.

DePIN Implementation: Easier Compliance in China

Returning to Attorney Honglin’s area of expertise, legal compliance for Web3 projects is a topic of significant concern both in China and globally. As is well known, China’s ban on cryptocurrency mining primarily stems from policy objectives such as promoting carbon neutrality, energy conservation, and environmental protection. The Proof-of-Work (PoW) mining model of Bitcoin requires substantial electricity consumption, which directly conflicts with China’s environmental policies. Consequently, many traditional mining projects in China have either shut down or relocated overseas, but the costs and uncertainties associated with such relocation are unbearable for many small-scale entrepreneurs.

However, the advantage of DePIN projects lies in their realization of network node construction primarily through the sale and use of hardware products with actual functionalities. In other words, DePIN devices themselves are smart hardware with independent functions; they can provide daily services to users like smart home devices or routers, rather than existing solely for the purpose of obtaining token rewards. This makes DePIN more compliant under regulatory scrutiny, as it does not involve “mining” through massive energy consumption but rather contributes to the network ecosystem through the reasonable use of user devices. For instance, in a previous article written by Attorney Honglin,“Web3 Lawyer: Which Projects Are More Suitable for RWA Financing?”a core viewpoint presented is that facilities with inherent internet connectivity may be more suitable for real-world assets (RWA). While RWA may be a financial description, from a sector perspective, it corresponds to DePIN.

For example, DePIN can be designed as a smart device that, while functioning normally, uploads user contribution data to the blockchain network, records user contributions, and provides certain token rewards. Essentially, this model does not rely on resource-intensive Proof-of-Work (PoW) mechanisms but achieves true decentralization through the integration of user devices with blockchain networks. Moreover, as smart devices, DePIN fully complies with China’s current environmental protection and energy conservation policies, avoiding any breach of regulatory red lines concerning virtual currencies.

This business model gives DePIN greater compliance possibilities compared to traditional token projects, avoiding direct clashes with regulatory red lines. Particularly in the Chinese market, blockchain projects like DePIN, “disguised” as consumer electronics hardware, are more likely to find space for survival. Through actual hardware sales and services, DePIN projects can also collaborate with traditional enterprises, legally combining blockchain technology with commerce, thereby opening up new market opportunities.

Summary by Mankun Lawyers

Through the exchanges and discussions at the Wanxiang Blockchain Summit, Attorney Honglin gained an intuitive sense that DePIN, as an innovative decentralized infrastructure, demonstrates significant potential in promoting Web3 infrastructure construction and user participation. It not only achieves more democratic network participation but also opens new paths in terms of compliance and business models. In the future, we have reason to believe that models like DePIN will bring more meaningful innovative projects, allowing blockchain technology to cease being aloof and instead integrate practically into everyone’s lives, truly realizing a decentralized, inclusive network.

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