The key to building sustainable DePIN – dynamic rewards

Author: Ariel Seidman, CoinDesk; Compiled by: Songxue, Golden Finance

Many of the smartest minds in crypto seem to believe that the Decentralized Physical Infrastructure Network (DePIN) will be the first to make crypto mainstream One of the batch use cases. They predict there will be a wave of growth, similar to NFTs or stablecoins before it.

That’s because DePIN can achieve extraordinary things. By using cryptocurrency incentives to coordinate millions of participants, DePIN projects can build new products that were not possible before.

In December, Helium Mobile launched a nationwide $20-per-month unlimited mobile phone plan powered by community-owned 5G hotspots. Render Network created a powerful, permissionless machine learning cloud in less than six months during the global GPU crisis. Before the DePIN crypto-economy, these things were simply impossible.

DePIN is an exciting vision for the future, but for it to become more than just a passing fad, new projects must learn from the pioneers in the space. The first DePIN projects tried many different models, made many mistakes, and learned from them. However, these experiences seem to have disappeared into the black hole of memory. Without this context, new DePIN projects risk creating a boom-and-bust cycle that will stain the entire industry.

More broadly, for anyone looking to get involved with DePIN, these tendencies are also key points to understand when assessing whether a DePIN project is likely to be successful in the long term.

Static reward trap

Tokens are used as rewards in a gamified way to encourage contributors to jointly build a A product that is greater than the sum of its parts. On the other hand, use of the product causes tokens to be consumed.

To be sustainable, the DePIN project needs a sound strategy to generate supply and, perhaps more importantly, real demand for the product. Without this, the demand for the token is purely speculative – a meme coin rather than a useful infrastructure project that can impact the lives of billions of people.

Generating supply is easy with the right tools: providing tokens for work. The tricky part is figuring out how much to give. Don’t give too much so that there is nothing to distribute during the later stages of growth, but don’t give too little that no one wants to participate in the work. New projects also need to pay special attention to the "cold start" problem: a new network cannot provide much value with one, or even a hundred, contributors; it needs to reach a certain threshold size before it can be considered meeting demand.

Generating real demand is fundamentally harder - you have to find product-market fit quickly. In our experience, it helps focus on a very real pain point that a decentralized approach is uniquely positioned to solve. It's tempting to take shortcuts, and the most common shortcut we've seen is to use static rather than dynamic rewards. We call this the "static reward trap."

If you allow contributors to be rewarded simply for participating in the project, regardless of how much value they add, it will be easier to attract them in the first place. But static rewards are fatal in the long run because they destroy the underlying incentive structure of the network.

Imagine if Helium offered the same static reward for every 5G hotspot, whether it was installed where people live and work (like Manhattan) or in a sparsely populated area (like Death Valley) ). There is no incentive to enhance coverage where people need it most, hampering its mission to democratize communications and defeat centralized cellphone providers.

Imagine if the same static reward was issued for every dash cam. This would be a disaster. People can earn rewards by installing a dash cam in any car, or even having an extra car in their driveway that is rarely driven. They can install 5 to 10 dash cams on the same vehicle, gaining the added bonus of capturing the same map data over and over again.

If DePIN projects treated all contributions equally—with rewards everywhere—they would not be able to reach critical mass anywhere. Productivity needs to be the mantra of the agreement: establish baseline rewards for the least useful contributions, then focus on quality and outright reject duplication of effort or low-quality data.

Using utility tokens to align incentives is DePIN’s superpower. But if a project falls into the trap of static rewards, contributors have no incentive to help make the product better in the long term. Don’t trade this for short-lived growth.

Design of dynamic rewards

There are four main dimensions of dynamic rewards for most DePIN projects. They are:

• Geography (Infrastructure is more available in some places than others value);

• Contributor productivity (contributors with higher productivity should receive more rewards);

• Contributors Quality (higher quality contributions deserve more rewards);

• Network Progress (more useful networks should generate more rewards overall)

Incentive design is not easy. But if DePIN builders stay focused, and if stakeholders hold them accountable, we can realize the potential of DePIN and build a world where more of humanity’s critical infrastructure is owned and operated by the people who use it.