DePIN: Allowing traditional telecom infrastructure to also share a piece of the pie in Web3

Written by: Telefonica

Compiled by: angelilu, Foresight News

Telecom operators, as the infrastructure providers of the previous generation of the internet, have long dominated the fields of mobile communications and the internet. However, with the emergence of new Web3 technologies, telecom operators have also begun to show a strong interest in them.

According to Wikipedia's ranking of global mobile network operators based on total number of customers, the top 7 are China Mobile (Mainland China), China Unicom (Mainland China), Singapore Telecom (Singapore), Reliance Jio (India), AT&T (USA), China Telecom (Mainland China), and Telefonica (Spain). These telecom giants have all made moves in the Web3 space:

• China Mobile launched the Hong Kong Web 3.0 Association in April this year in collaboration with various sectors;
• China Unicom released its metaverse strategy at the end of last year and established the Metaverse Innovation Industry Alliance;
• Singapore Telecom joined the metaverse platform under South Korean telecom giant SK Telecom in January this year;
• Reliance Jio (India) announced its entry into the blockchain and central bank digital currency (CBDC) space in August this year;
• AT&T (USA) has been involved in blockchain since 2016 and has applied for blockchain server patents;
• China Telecom launched blockchain SIM cards aimed at Web3.0 in May this year;
• …

Countless examples exist, and recently, Telefonica has disclosed its investments and strategies in the Web3 field on its official blog, as well as the directions it is focusing on in Web3 development. This highlights Telefonica's emphasis on blockchain technology and provides insights into the areas of interest for telecom operators in this field.

Telefonica S.A. is the seventh largest fixed and mobile communications operator globally, primarily providing fixed-line and mobile communication services in Europe and Latin America, with projects including voice communication, value-added services, mobile data and networks, roaming, fixed wireless services, relay, and paging services.

The following is the complete translation:

Telefonica's journey into "Web3" began with the establishment of its "Metaverse" business unit, but within Telefonica Ventures, we have already made some strategic investments: Bit2me, Nova Labs (Helium), and Borderless, supporting the roadmap of the TEF Metaverse business unit.

This article focuses on using blockchain to achieve the decentralization of resources through tokenization, specifically a decentralized physical infrastructure network - DePIN.

Decentralized Physical Infrastructure Network -- DePIN

DePIN is defined as a network that uses tokens to incentivize people to crowdsource and build real-world physical infrastructure networks.

To better understand, we will elaborate: the network (decentralized blockchain network) uses tokens (digital tokens and/or cryptocurrencies) to incentivize people to crowdsource and build (form communities, fund, and establish) real-world physical infrastructure networks (composed of real, connected machines, devices, vehicles, or machines that provide goods and services to people and machines in the real world).

This trend may also be referred to by other names, such as EdgeFi, Proof of Physical Work (PoPW), or Token Incentivized Physical Networks (TIPIN). However, it seems that the industry has now reached a consensus on DePIN.

This term may seem unremarkable, but it has the potential to unify the most promising areas of Web3—the internet and the IoT economy. Being part of a decentralized physical infrastructure network means earning token rewards, which can be used to purchase tangible items (such as power networks, telecom services, network access, etc.) or to manage the networks that govern these tangible benefits. It can be said that it differs from some other aspects of Web3 in that it links utility and governance to real-world products or services.

In other words, DePIN leverages blockchain and tokens to create and incentivize the deployment and use of physical infrastructure that generates value. DePIN relies on decentralized networks and communities rather than centralized backends and companies for transactions and business logic.

Positive Feedback Loop of DePIN

Due to the use of tokens, DePIN projects can benefit from a positive feedback effect, where increased usage (demand) raises token prices, providing additional incentives for contributors to continue building the network as the dollar value of the tokens they are paid increases.

As the network grows, investors become increasingly interested and begin to fund the project. If the project is open-source or provides contributor/user data to the public, developers can build dApps based on this data, thereby creating additional value within the ecosystem and attracting more users and contributors. The following diagram illustrates an example of how this positive feedback works in the market.

Source: Telefonica

The positive feedback of the DePIN economy effectively resolves the chicken-and-egg dilemma. Through token incentives, DePIN encourages participants to build and expand the supply side until end users find it attractive. This allows DePIN to establish the initial momentum needed for adoption and to compete with Web2 companies.

Comparison of DePIN with the Status Quo

Here are some reasons why DePIN will change the current situation:

• By crowdsourcing the implementation of physical infrastructure, DePIN can achieve super-scale faster than traditional projects, as they are distributed among network participants and offset future growth and revenue.
• Communities can own the hardware that constitutes the network, the hardware/services they need and use. This aligns the interests of stakeholders with the direction of promoting adoption and growth.
• While traditional infrastructure projects are typically determined by a centralized entity regarding execution and usage conditions, DePIN is open, democratic, and accessible.
• In addition to being permissionless and open, DePIN is also resistant to censorship, with no centralized gatekeepers able to deny access for any reason.

Despite the aforementioned advantages of DePIN, innovation must always be based on clear business advantages to ensure long-term sustainability. In terms of business advantages, DePIN also has a competitive edge over traditional models:

• By crowdsourcing hardware and its maintenance, DePIN's operating capital and operational costs are only a fraction of those of traditional companies, as this model incentivizes network members to handle the issue themselves, benefiting everyone.
• By leveraging blockchain, DePIN provides its members with secure peer-to-peer payments without relying on payment processing intermediaries.
• As a Web3 native, DePIN also offers network participants direct access to various Web3 tools and DeFi services, unlocking more revenue sources for them, such as financing for new hardware.
• By distributing the upfront capital requirements, DePIN lowers the barriers to entry for various stagnated industries, thereby stimulating innovation across the entire field.

Physical Resource Networks and Digital Resource Networks

DePIN is divided into two types, depending on the products and services provided by the network:

• Physical Resource Networks (PRNs) incentivize people to directly deploy location-related hardware to provide irreplaceable goods and services in the real world (such as geography, mobility, energy, or connectivity).
• Digital Resource Networks (DRNs) incentivize people to directly deploy hardware to provide interchangeable digital resources (such as storage, bandwidth, or computing).

DePIN Ecosystem

With all these competitive advantages and their community spirit, they will be able to achieve breakthroughs across various industries, disrupting traditional companies.

The following diagram is the DePIN ecosystem created by Messari:

Source: Messari.io Navigating DePIN Domain

Telecom DePIN

Let’s take a look at internet access in developing countries: the infrastructure needed to connect small and remote communities often involves high upfront costs, which are generally not suitable for companies to profit from. DePIN enables communities to solve problems themselves, taking on the upfront costs and labor.

The situation of internet access is particularly interesting because it is a replicable model. The more people who have internet access, the more DePIN projects related to telecommunications, energy, IoT, and so on can be conducted.

Clearly, Telefonica is influenced by four sub-industries that have already deployed some networks and are operational, so we are tracking their progress from the inside, incorporating Nova Labs into the Telefonica Ventures portfolio, which is the core company of the Helium network.

Source: Borderless, Helium Ecosystem

Telefonica Ventures is one of Telefonica's corporate venture capital tools for strategic investments. Our goal is to address significant challenges facing the telecommunications industry and create new businesses and verticals that align with Telefonica's core strategy through cutting-edge technology. Undoubtedly, DePIN absolutely fits our investment philosophy.