The Trick is to Make it Sexy
The landscape of venture capital is often driven by emerging trends and narratives that promise substantial returns. One such trend capturing significant attention is Decentralized Physical Infrastructure Networks (DePIN). We canvassed VCs on their interest in DePIN as well as invested players to gauge the financial returns offered by this nascent sector.
VC Perspective
We began with the OG of crypto investing, Tim Draper, founder at Draper Associates, who kicked off the conversation with no small degree of excitement.
“We are highly interested and focused on DePIN, and all the technologies that decentralize control, ownership, decision making, resources in all aspects of life. DePIN will have a profound effect on all services, enabling better utilization of resources, as well as new opportunities that were not previously considered possible. I expect to see DePIN technologies permeate most industries that benefit from decentralization, like robotics/AI, shared web services, automation, machine to machine smart contracts, etc,”
Filippo Chisari, General Partner at Agile GTM, shared his perspectives on why VCs are increasingly drawn to this sector, despite its relatively nascent state.
DePIN, according to Chisari, is not a revolutionary concept but rather a rebranding of existing ideas.
“It’s the combination of decentralized software and hardware,” he explains. This amalgamation of IoT (Internet of Things) and decentralized technologies has been around for a while but is now being spotlighted under the DePIN umbrella. Chisari points out that the core idea of decentralized physical infrastructure has always been present, particularly in supply chain management, real estate, and retail.
“While the rebranding to DePIN might seem superficial, it plays a critical role in the venture capital world, which thrives on narratives. Our space is very much narrative-focused,” Chisari notes.
“The introduction of a catchy term like DePIN helps encapsulate a range of technologies and applications, making it easier for investors to grasp and rally around. This narrative-driven approach often results in a surge of interest and investment, even if the underlying technologies remain unchanged.”
The Appeal and Challenges of DePIN
Conor Cantwell, partner at Cosmo Ventures, shared his perspective on the burgeoning DePIN sector. While Cantwell’s views reflect a mix of enthusiasm and caution, they underscore why many venture capitalists (VCs) are increasingly drawn to this emerging area.
According to Cantwell, the excitement around DePIN began about a year ago, catalyzed by industry players like CoinGecko, who identified a cluster of companies operating in similar domains. This clustering, part marketing and part strategic positioning, helped establish DePIN as a distinct sector within the broader blockchain and decentralized technology space.
“A lot of the companies in there are well-established and very good. They were probably surprised to know that they now are the core of a new sector.”
Conor Cantwell (Cosmo Ventures)
Despite being in its nascent stages, the potential for DePIN to grow is significant. Cantwell points out that CoinGecko has identified a market cap of around $30 billion for DePIN, with expectations that it could scale to much larger figures. This potential growth is a key reason why VCs are paying attention. The theory behind DePIN’s scalability is compelling, driven by the increasing demand for decentralized infrastructure in various industries.
Lex Sokolin, Managing Partner at Generative Ventures agrees that IoT is the centralized version of DePIN and that the market is worth several hundred billion in revenue, although only a small part of the $2 trillion in total crypto value.
“So far, much of crypto usage has been financial in nature. Digitizing value has led us to DeFi and the economic architecture of Web3. That’s very powerful. But I think there is a tacit split in the market between (1) finding it sufficient to have financial memes and speculation be the driver of the space, and (2) looking for a connection to real-world value and commerce. For the latter, we see themes like RWAs, integration of stablecoins into payment processing, and DePIN. The idea that you can anchor the machine economy on-chain and track it in an open source way is powerful.
“A few years back, this was happening on private chains, which had been an economic failure due to the lack of bootstrapping incentives and open access. Now, we are seeing meaningful DePIN activity on chains like Peaq and Solana, where the protocol can process throughput sufficiently. Once you attach physical devices to blockchains, you have access to all the financial and economic innovations that are already in place.
Market venues exist to tokenize the robots and their labor. This is also helpful in the sense that the numbers are harder to manipulate. Some of the fraud around usage that plagues Web3 projects is less likely to falsify the usage we see in DePIN. Of course, there is much to build, including verification of what happens off-chain, but I am optimistic,” says Sokolin.
Real-World Applications and Future Potential
Cantwell highlights a critical challenge for DePIN companies: navigating regulated sectors. Many of the potential applications for DePIN involve industries with stringent regulatory requirements, such as telecommunications and energy.
He states, “A lot of what could work in theory needs to be proven in practice, and some of that practice is going to be complex because they’re starting to touch on regulated industries.”
For Chisari, the true potential of DePIN lies in its application within the supply chain. “Where there’s a physical good, and its traceability, DePIN can play a significant role,” he asserts.
Despite this, he acknowledges that the market for blockchain in supply chain management has not matured as expected. The initial hype around blockchain’s potential in supply chains has not translated into widespread adoption, but DePIN could rekindle interest and innovation in this area.
One of the reasons for the slow uptake in supply chain blockchain projects, according to Chisari, is the lack of ‘sexiness’ in the sector. Supply chain management, though critical, does not have the immediate appeal of other high-tech sectors. However, DePIN is changing this narrative by bringing it back into the spotlight.
“Maybe DePIN has made it sexy again,” Chisari speculates, suggesting that the renewed focus might attract more innovative solutions and investments.
Despite the excitement, Chisari remains cautious. The firm has yet to deploy its funds into DePIN projects, with plans to start in the next quarter. This cautious approach reflects the complex and regulated nature of many industries that DePIN aims to disrupt. Real-world applications often face regulatory hurdles and require substantial proof of concept before gaining traction.
One company to buck that trend is Morpheus.Network, which is addressing the global supply chain which is an industry valued over 15 trillion USD. Morpheus.Network, established in 2016, is focused on helping companies and Government organizations remove barriers to optimize and automate their global supply chain operations.
James Toland, GM of Morpheus.Network, says: “DePIN is uniquely crafted for the supply chain sector, offering unparalleled transparency, efficiency, and security. By leveraging decentralized infrastructure, Morpheus.Network ensures that every transaction and movement within the supply chain is immutable and fully traceable, revolutionizing the way goods and services are managed and delivered globally.”
Cantwell’s insights paint a picture of DePIN as a sector brimming with potential but fraught with challenges, particularly around regulation. The enthusiasm among VCs stems from the foundational technologies and the established companies driving early adoption. As Cantwell aptly summarizes, “The sector itself is still very nascent, and I think a lot of what could work in theory needs to be proven in practice.”
For VCs, the allure of DePIN lies in its promise of revolutionizing physical infrastructure through decentralization. While there are hurdles to overcome, the combination of innovative technology and significant growth potential makes DePIN a compelling area for investment. Cantwell’s perspective offers a balanced view, highlighting both the excitement and the cautious optimism that defines the current VC sentiment towards DePIN.
Chisari’s insights underscore the dual nature of DePIN as both a continuation of existing trends and a fresh narrative driving new investments. While the technology itself may not be new, the rebranding to DePIN has reinvigorated interest and innovation in decentralized physical infrastructure.
For VCs, the potential applications across various industries and the promise of tangible, real-world benefits make DePIN an exciting and promising sector. As Agile GTM prepares to deploy its funds, the coming quarters will be crucial in determining whether DePIN can live up to its newfound hype.
Author Profile
- Jillian godsil is an award winning journalist, broadcaster and writer. co founder and editor at Blockleaders.io