Research on the business model and related legal issues of the DePIN project

Recently, with the good performance of projects on the Sol chain such as honey and mobile in the secondary market, more and more investors are turning their attention to projects on the DePIN track. . So what is the business logic of DePIN, a so-called trillion-dollar track? What are the possible legal risks involved in the DePIN project? The author will analyze it for everyone through this article.

DePIN’s business model

DePIN is decentralized The abbreviation of Decentralized Physical Infrastructure Networks, its core is to encourage users to purchase hardware equipment deployed using the project ecology by rewarding the issued project tokens, thereby providing real-world goods and services or digital resources. The physical infrastructure mainly includes two categories: Physical Resource Networks (PRN) and Digital Resource Networks (DRN).

The physical resource network mainly refers to users participating in the project ecology providing maps, road data, cars, energy data information, wifi and other real-world information through purchased hardware devices. Unique goods and services, such as honey, a decentralized map data project, and dimo, a decentralized Internet of Vehicles data project.

Digital resource network mainly refers to the physical basis for users participating in the project ecology to provide idle broadband networks, GPU computing power, storage space and other digital resources through hardware devices Facility networks, such as decentralized GPU computing project RNDR, decentralized storage project AR, Filcoin, and decentralized wireless network protocol Helium.

It can be seen that DePIN mainly improves, innovates and reshapes the traditional ICT industry through the model of blockchain and token economy. As we all know, the traditional ICT industry requires a large investment in manpower, factory buildings and equipment maintenance costs in the early stage. Through the decentralized model of DePIN, tokens are used to incentivize the completion of the cold start of the project, which will lighten the asset-heavy industry and significantly reduce the project cost. Upfront investment costs.

In addition, some decentralized storage and computing projects aggregate scattered idle digital resources and then provide them to Relevant business parties, so that users obtain token incentives for projects by providing idle digital resources, and projects can also obtain digital resources at a lower cost through this form and sell them to demand parties. This is actually a sharing economic model similar to P2P and Didi, which maximizes the use of idle digital resources to create additional market value.

Legal risks that may be involved in the DePIN project

1. Is DePIN’s model of motivating users through tokens a virtual currency “mining” activity prohibited by domestic regulations?

It can be seen from the above analysis that DePIN’s advantage over traditional industries is to significantly reduce the initial investment cost, but its reduction The cost method is to use tokens to incentivize users who purchase project hardware equipment to participate in the ecosystem. Users can continue to receive token rewards after purchasing hardware equipment and installing it, and providing digital resources such as data information or storage required for the project. Is this method a “mining” activity prohibited by domestic regulations?

In September 2021, the National Development and Reform Commission and other departments issued the "Notice on Regulating Virtual Currency "Mining" Activities" (hereinafter referred to as: "Document No. 1283") Definition of "mining" activity: Virtual currency "mining" activity refers to the process of producing virtual currency through special "mining machines". It consumes large amounts of energy and carbon emissions, has low contribution to the national economy, and has little impact on industrial development, technology and technology. Progress and other driving effects are limited, and the risks derived from the production and transaction of virtual currency are becoming more and more prominent. Its blind and disorderly development has a negative impact on promoting high-quality economic and social development and energy conservation and emission reduction.

It can be seen from Document No. 1283 that the reason why regulatory authorities crack down on domestic “mining” activities is that the power consumption and The carbon emissions are large and the contribution to the national economy is low. Secondly, the production and trading of virtual currencies often lead to some illegal and criminal activities.

For the process of token generation, traditional POW "mining" is that the mining machines in the mine perform hashing through a large amount of computing power The calculation package processes the transactions on the chain to obtain the Bitcoin reward for the block. A large number of DePIN projects may use hardware devices or digital resources such as driving recorders, hard drive storage space, routers, etc. to obtain project token rewards.

From the perspective of environmental protection and resource reuse, the DePIN project does not seem to consume a lot of energy or produce a lot of carbon emissions. However, the core point of the project lies in the market value management of incentive tokens. Only by maintaining the incentive tokens in a good price range and ensuring the benefits of participating users can the project ecology be continuously expanded. This will inevitably include the trading link of virtual currency, and the derivative risks mentioned in Document No. 1283 may arise. Therefore, there are still high regulatory risks for the DePIN project in China, and both entrepreneurs and investors need to treat it with caution.

2. Prevention of criminal risks that may be involved in the DePIN marketing model

DePIN track projects will involve upstream and downstream roles such as hardware equipment providers and channel agents due to their complex models. In the process of marketing hardware equipment sales, channel agents may use the growth method of joint local promotion teams to invite commissions and fission mechanisms to quickly open the market. If the invitation commission method is used during the promotion process, The rebate chain reaches level three and above. When attracting users to join, they require the purchase of digital resources with various names or hardware equipment that cannot match their own value. They also fabricate and distort national policies, fabricate and exaggerate the annualized income of participating in the DePIN project, etc. As a means to enable channel agents or their downline channels to obtain part of the investment income of fission users, then this model has criminal risks involving organizing and leading pyramid schemes.

With the rapid development of the DePIN project, there will definitely be some projects that use the DePIN concept as a gimmick, euphemistically called development sharing. Economy, digital economy, using various online and offline forms to promote high returns to attract investors to invest and establish a capital pool, then it may be illegal, open, social, and attractive, thus constituting the crime of illegally absorbing public deposits. If The project party subjectively has the purpose of illegal possession, which may further constitute a crime of fund-raising fraud.

3. Be cautious about data export compliance issues in the DePIN project

The picture shows the HONEY project map data distribution

In addition, you can see many projects currently on the market They all focus on providing data information such as maps and vehicles as the core resources of the project to overseas demanders. At present, domestic regulatory authorities attach great importance to the compliance issues of data export. Didi was severely punished by regulatory authorities for data processing issues that seriously affected national security. Some information technology companies were also found to be illegally providing intelligence overseas for illegally collecting domestic sensitive data and providing it to overseas companies. According to the data, the company's legal person and sales manager were arrested on suspicion of stealing, espionage, bribery, and illegally providing state secrets and intelligence for overseas purposes. Therefore, the entrepreneurs, investors and participating users of the DePIN project must pay attention to data issues, treat them with caution, and never try to take the law personally.

Summary and Outlook

Although DePIN In the process of rapid development, there may be regulatory, technical, market and other risks that may have an adverse impact on the project, but I believe that as long as entrepreneurs treat it with caution, maintain communication with regulatory authorities, and make timely improvements and optimizations when problems arise, in the near future, With the development and application of blockchain technology and the Internet of Things, the DePIN project will definitely expand to more infrastructure fields such as energy management, transportation and logistics systems.

Innovate and reshape these fields through DePIN's unique model to make it more efficient, secure and transparent, providing real-time data analysis and better Resource allocation optimization allows more users to participate in the ecosystem that combines blockchain technology with the real world.

Although DePIN may have regulatory, technical, market and other risks that may adversely affect the project during its rapid development, I believe that as long as it Entrepreneurs should be cautious, maintain communication with regulatory authorities, and make timely improvements and optimizations when problems arise. In the near future, with the development and application of blockchain technology and the Internet of Things, the DePIN project will definitely expand to energy management, transportation and logistics systems. and other infrastructure areas. Innovate and reshape these fields through DePIN's unique model to make it more efficient, secure and transparent, provide real-time data analysis and better resource allocation optimization, and allow more users to participate in the integration of blockchain technology and the real world. in ecology.