_iant partner: differentiate DePIN and DeREN decentralized infrastructure

Author: Mason Nystrom, investment partner of iant Fund; translation: Jinse Finance xiaozou

Decentralized infrastructure networks are rapidly developing, and these encrypted networks use token incentives to generate liquidity to support the operation of physical infrastructure.

The value of these networks is clear: they enable better solutions for consuming resources, from computation to energy to data. In turn, these resources are consumed directly by companies, or by their own products and services. For example, decentralized networks like Hivemapper sell data directly to transportation companies like Uber, which in turn uses this imagery data to improve its own products. Likewise, Livepeer allows livestreaming apps to enter its market for video transcoding services (but is also integrated by companies like Bonfire), making it easy for creators to start their own livestreaming businesses.

To better assess the potential of these networks, we need a better method for network classification. One of the more popular track names at present is DePIN (a term named after a research report by Messari in 2022), but I suggest to look at it in more detail and divide the decentralized infrastructure network into two categories:

· Decentralized Physical Infrastructure Network (DePIN**):** is an encrypted network with irreplaceable consumable resources, using an incentive mechanism to deploy location-related hardware devices.

· Decentralized Resource Network (DeREN**):** is a cryptographic network that uses incentives to build markets and increase the supply of existing or idle replaceable consumable resources that rely on location-independent hardware.

DePIN differs from DeREN in three core aspects:

· Substitutability of resources

· Hardware location deployment

· Resource Creation

1**、Resource Substitutability**

The most meaningful of the above distinctions is that of the fungibility of expendable resources.

In a resource network, consumable resources are fungible because the hardware assets of the network are usually replaceable. For example, computing resources provided by networks like Akash or Render are highly fungible — one GPU is as capable of processing as any other GPU of the same specification and capacity. Outside of highly specialized activities like high-frequency trading, users generally don't care about the geographic location of their hardware, as long as network latency is acceptable compared to centralized architectures.

In contrast, DdPIN utilizes non-fungible or semi-fungible resources. In this case, expendable assets are not easily replaceable, and the hardware is often unique to a particular network. For example, Hivemapper’s dash cam maps a specific location and generates unique data for that location in time. Additionally, imagery networks like Spexigon cannot feed their aerial imagery data into the Hivemapper network; each network's asset is the image map data, unique to each network.

Of course, there are also assets in the middle ground. For example, energy is semi-fungible because it can be used for various purposes, but its utility is limited by the distance it can be transmitted.

2**, hardware location and resource creation**

Hardware location is closely related to resource creation; the deployment of application-specific, location-dependent hardware often occurs concurrently with the construction of proprietary resources.

At this point, DePIN faces more challenges in establishing the supply and demand sides of the market. The supply side requires a location-dependent hardware setup, and generating demand relies on the supply side having sufficient scale to make the network valuable to consumers.

Resource networks make it easier to channel supply, and idle supply can come from anywhere, often without creating new hardware or infrastructure. But resource networks with fungible assets also face greater competition as it becomes cheaper to switch from one resource network to another.

3**, build a moat for DePIN and DeREN**

Cryptographically based resource networks still have to compete with web2 rivals like AWS and Google. While DePIN and DeREN can use tokens to subsidize initial resource costs, the most successful networks will not just compete on price, but unlock new demand or expand markets in unique ways.

Arweave, for example, isn't competing on file storage pricing. It offers new features and conveniences through permanent storage and is finally gaining traction in storing NFT metadata. In the DePIN category, mobile networks like DIMO are aggregating previously siled data to power a new wave of applications, whether those come from battery intelligence and energy management or the automotive industry.

Another successful strategy is vertical integration and generating demand by building an initial product that leverages an infrastructure or resource network. Render combines its GPU rendering capabilities with its Octane software, which drives the use of the underlying network of computing resources.