How to Assess a DePIN Project

With so little industry history, many people in the DePIN space go off of vibes or FOMO when it comes to “assessing” a project.

Let’s be clear; “vibes” go a long way and are an important part of any assessment. We humans haven’t yet figured out how it works, but that doesn’t mean it doesn’t work.

FOMO is powerful but clearly not a useful driver of good decisions.

To go beyond mystery and flat out idiocy, we recommend starting with a reasonable method of assessing a DePIN project.

Before we begin, our lawyers reminded us to state that you can and probably will lose all your money on any crypto project. No assessment method is perfect, and results are still unpredicatble. This is still the very beginning, and as recent projects have shown, with limited oversight in unknown territory…all bets are off.

Let’s start with what a DePIN project is. DePIN stands for Decentralized Physical Infrastructure Network. Variously known as TIPIN, PoPW, EdgeFi, or my favorite, blockchain & meatspace, DePIN projects are the physical implementation of web3.

What’s web3? Here’s a quick overview for those of you still wondering. You can always skip ahead if you think you’ve got web3 dialed.

The first version of the internet, web 1.0, can be thought of as “read-only”. You got on the internet, read all about whatever you wanted, and kept your thoughts and comments to yourself because there wasn’t a place to leave ’em. It was cool because you learned something, but you couldn’t share what you learned with others, at least not in any meaningful way.

Web 2.0 was where you got to start to participate; you could comment on a blog (or write one), or create an account on Facebook or Instagram and interact with your friends and the wider world. Web 2.0 was and still is pretty cool, but it’s missing one important thing; you’re not getting paid for participating.

Web3 is the version of the web that acknowledges that your peregrinations around the internet contain valuable data, that your comments and overt input also contain value, and that you should be the one to capture that value.

Unlike Web 2.0, where Google watched your searches and then sold that targeting information to advertisers without ever paying you for being their product, web3 endeavors to include the participants in the value capture chain.

Web3 has 5 main components that enable this capturing of value by the participants. They are:

• Semantic web – Building the web so computers can understand it.
• Decentralization – Power & participation not focused in one group or place.
• Universally available – Anywhere around the globe.
• Trustless & Permissionless – Anyone can participate without asking “May I?”
• Community as a fundamental pillar – The community is the project.

Each of those is worthy of further investigation, but for now let’s leave them be and move on to a very new incarnation of web3, which is the DePIN space.

The DePIN Space

In DePIN projects, you buy and place hardware into the real world. That hardware could be a radio providing LoRa coverage, or a camera capturing mapping data while you drive, or a power monitor on your house that lets you see and sell your data.

All of those projects (Helium, Hivemapper, React Network) reward you for your actions with tokens, which can be sold on the open market.

Many other projects exist, including GEODNET for improving GPS accuracy, WeatherXM for sharing weather data, DIMO for insights into the information stream your car throws off, and many many more.

These projects are typically founded by people with a deep technical expertise in their field. Obviously that’s not all a successful business needs, otherwise every PhD would be a millionaire.

So, how do you assess a DePIN project? The following is a very rough guide to how you might evaluate a web3 project.

Fundamentals of web3

We start with the fundamentals of web3. Think of these as excellent guidelines but not necessarily requirements, and remember that as a project may need to start off by not conforming to these in order to grow into being a web3 company.

Remember the web3 list from above? It starts with the idea of a semantic web. Can the information the project generates be linked to any other source, and in that linking generate value? An example of semantically sound is Helium’s Proof of Coverage update for spring of 2023, where all of the information from every hotspot beacon will be available to evaluate. This generates an enormous data set that is easily machine readable. When the ingestion of data is built into the project, that is a good indicator of being semantically sound.

Second, is the project decentralized as far as governance and control? In the early days of a project this usually isn’t possible, but any project roadmap would point inevitably to community governance as a long term goal.

Third, is the project globally available? While a few repressive governments will prevent their citizens from access technology, there shouldn’t be anything in the technology itself that limits it to one nation or one region.

Fourth, is participation trustless and permissionless? Is the project set up so that you don’t have to trust a person to do a good job deploying the hardware, the proof of deployment excellence is in the quality of the data stream? Additionally, there should be no permission barrier to onboard a unit; users can remain anonymous and no one entity controls the blockchain.

Fifth, is the community the center of the project’s power? Web3 is built on the idea that each of us can contribute and be rewarded for that contribution, and the idea of community as the central pillar in a project’s success is core to making this evaluation. Ask yourself how far this project could get without community participation and you’ll have a good idea of whether the community is central or not.

Once you’ve gone through the web3 general characteristics and decided if the project has reasonable merit, now we dive into DePIN specific success markers.

Pillars of Success – External

The following three external facing elements are critical for a project to consider going the DePIN route. Just because DePIN is currently the hot craze doesn’t mean it’s the right structure for every company, and projects ignore this at their peril.

• Low barrier of entry for participants, somewhere around $500
• Project is pre-revenue. If a project is already making money, it probably doesn’t need to leverage DePIN
• Must cross international borders to succeed. Regional projects are less advantaged than globally available networks.

Pillars of Success – Internal

The project team itself needs to either have or have a reasonable expectation of having the following elements.

• Deep technical expertise
• Incentive expertise
• Transparency & messaging expertise
• Compelling community involvement
• Device data flow
• Improvement proposal flow, including reward & compensation for proposals
• Clean & clear governance. For now, DAOs are bullshit.

Project Technical Explainer – Community Onboarding Process

• Whitepaper/contract
• Transparent dev backdoors in early stages
• Open source / closed source disclosures
• Programming language used, and why
• Audits

Community Aspects

The strongest projects will have vibrant communities that spread and communicate across platforms. Current practices (early 2023) is to manage a community around a well organized Discord server for day to day communications and new user onboarding, host regular AMAs on Twitter to mark and explain milestones, and make longer term / strategic updates on a website.

We think significant progress will be made by companies integrating semantic web aspects into community management, including an AI to assist community managers, assess current sentiment, and make sure participants feel “seen, right, and heard”.

This includes new user onboarding processes, chatbots that help answer regularly asked questions and surface emerging issues, and identifying project weaknesses quickly, then enlisting & organizing community support to remedy shortfalls.

Finally, the strongest communities will actively lean into rewarding their members, whether through straightforward token economics for well-deployed hardware, or the softer side of in-server games, competitions, and recognition for contributions.

A Scoring System

Max & I have investigated various scoring systems applied to the major aspects above, assessing and discarding various ideas. We still think that “vibes” based on extensive research is the best way to assess a project. At the end of the day all of these are too new for any kind of mature rubric to have emerged yet.

As we continue to develop and assess new methods, we’ll make sure our clients and advisors have access to that information first, and together we aim to improve the output and outcome of the entire DePIN ecosystem.

If you have any thoughts or suggestions, we’d love to hear back from you in the comments below!

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Disclaimer: Financial Interests and Consulting Services Disclosure

This blog post may contain references to various cryptocurrency projects, tokens, or assets. It is important to note that the authors of this blog post and Gold Hawks & Associates may have a financial interest in some of these projects or may provide consulting services to them, or in some cases, both.

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