DePIN: A recipe for public goods on public goods

Today, enjoy the Empire newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the Empire newsletter.

The Place Beyond DePINs

Crypto is absolutely magic internet money. But what’s missing in that definition is just how physical the space actually is.

Like the Web2 “cloud” that doesn’t really exist in the sky — it’s all kept on servers in data centers scattered across the globe — most crypto projects are backed by physical machines.

With this in mind, Bitcoin is actually the premier DePIN project. Users looking to participate in the network can acquire and run a specialized machine (an ASIC rig), which will both service the Bitcoin blockchain and reward the user for their efforts.

And it’s not just proof-of-work blockchains that are like this. Ethereum validators, and other proof-of-stakers, also must run dedicated machines that keep the network smooth. A physical box that pays out digital money for doing some kind of work.

Bitcoin, Ethereum, Solana and practically any other layer-1 or layer-2 network have long been pitched as public goods. Ethereum is a world computer that can compute whatever you like — but most importantly it can host decentralized apps that nobody can censor at the protocol level. 

There’s no “Ethereum company” that you pay to use that service. You instead pay the validators on the network transaction fees (alongside a small degree of currency dilution), which might even be yourself, if you’re running your own fully validating node.

The DePIN segment of the crypto market has taken this concept and run with it over the past few years, so much so that it’s very much its own thing. 

Which makes sense. Blockchains, despite some individual instances of specified branding for particular use cases, are mostly general purpose these days. 

A crypto startup, like Helium or today’s Empire guest DAWN, that wants to sell specialized hardware — say that boosts the range and power of a wireless network in return for tokens — might use that general-purpose blockchain as a means of distributing payouts and automating various processes.

It’s a recipe for public goods (DePIN services) on public goods (layer-1 blockchains). Why pay corporations for services like the internet or file storage when I can effectively pay my neighbor for running the infrastructure themselves — or even take part in the network myself, serve other people and be paid for it?

The devil is always in the details, and the viability of all these concepts isn’t yet completely proven. It’s largely dependent on tokenomics, adoption and frustratingly, the price of bitcoin. 

As you can see on the chart above, DePIN as a whole has clearly transcended bull markets — with its total market cap almost reaching an all-time high in March alongside BTC. But it hasn’t yet shaken its correlation with the original DePIN token, which puts a certain damper on whatever growth in adoption they’ve enjoyed.

— David Canellis

Data Center

• BTC and ETH have extended their recoveries, up 3.8% and 2% over the past day. (BTC: $57,260; ETH: $2,350.)
• AI super-token ASI is leading the top-100 over the past week, having gained 11%.
• NEAR stablecoin supplies are up 17% in the past week after its second-biggest daily inflow on Monday: $101 million, bringing its total to $774.7 million.
• Average Solana transaction fees are at their lowest since February, down to $0.005306, per Blockworks Research data.
• ETH staking protocol Copper has attracted 39% more ETH in the past month, reaching 9,984 ETH ($23.5 million).

Crypto’s comeback

Gemini’s trying to get a sense of the state of crypto in a new report released this morning. 

The worldwide survey — focusing on the US, UK, France, Singapore and Turkey — took place earlier this year and wrapped up in late June, but the findings show some interesting trends. 

Not surprisingly, US investors held steady, with 21% of respondents saying they continue to maintain crypto holdings. Same thing with the UK, though France had an uptick from 2022 — up to 18% (the same percentage as the UK), from 16%. 

Singapore saw a decline in ownership, down to 26% from 30% two years prior.

“Nearly two in three crypto owners across these geographies (65%) report buying and holding cryptocurrency for its long-term investment potential, and nearly two in five (38%) hold cryptocurrency as a hedge against inflation,” the report said.

Focusing on the US, the spot ETFs actually seem to be attracting some retail. 

“In the US, nearly two in five (37%) cryptocurrency owners surveyed said they hold some crypto through an ETF. More than one in 10 (13%) own crypto exclusively through an ETF, suggesting they entered the market through ETFs when they were introduced this year,” the survey said.

We’ve talked a lot about institutional interest and how that has, so far, helped lead the charge this cycle. It’s however been a struggle to see much retail participation. Outside of, say, memecoins when Pump.fun was in its heyday. 

We all know how 2022 went down. It started off with so much hope until investors were burned by Terra, FTX and the destructive waves they caused. It would be fair for some in the crowd to remain skeptical or hesitant about reentering crypto, though the industry has clearly been through a lot of change since then. 

Source: Gemini

Here’s where it gets interesting: Gemini’s survey found that many folks who previously sold during a downturn were interested and bullish about crypto once more. Over 70% of respondents said they’ll be buying crypto in the next year. 

And, given the sideways action we’ve seen since the survey wrapped on June 28, perhaps some of them have already taken advantage of the market. 

Source: Gemini

The majority of folks surveyed are most interested in the long-term growth of crypto. Still, there were a fair amount — 45% — who said they’re just looking to make a profit. 

Another segment, making up 38% of respondents, noted that they wanted to hedge against inflation with their crypto.

Across the board, there are two things that the majority of respondents could agree on: bitcoin and ether will just continue to go up, and companies are going to start accepting bitcoin, ether and stablecoins as payment in the next decade. 

Source: Gemini

We may have gone sideways price-action wise since this survey happened, but there are some green shoots to keep an eye on. Let’s just hope they keep growing.

— Katherine Ross

The Works

• Pantera Capital and ParaFi Capital are among the funds that bought Metaplex tokens formerly owned by the FTX estate, The Block reported.
• Polymarket bettors think there’s a 21% chance former President Donald Trump mentions crypto or bitcoin at Tuesday’s presidential debate.
• Investors lost $5.6 billion to crypto scams last year, the FBI said.
• Prediction market Kalshi won’t be able to roll out US election markets until at least Friday after a judge granted the CFTC a temporary stay in the case. 
• Regulators from several states, including Texas, reached a settlement with GSB Group to return millions of dollars to investors who put money into crypto projects including tokenized ownership of a skyscraper and metaverse bets. 

The Riff

Q: Are billion-dollar crypto fraud cases still “news”?

I suppose it boils down to what kind of “news” it really is.

Take the recent story about tens of thousands of investors losing $1 billion in a tokenized fraud scheme. Through fractionalized shares, backers had reportedly been told they’d earn 5% per week on metaverse land rights, as well as additional passive income apartments in a yet-to-be-purchased Dubai skyscraper, among other schemes.

None of it panned out and regulators in the US and Canada are working to have all funds returned to investors. 

Now, is that a crypto story, or a fraud story? It could even be a tale of desperation, set on a backdrop of accelerating income inequality and financial nihilism. 

As crypto grows and seeps into all corners of our daily lives, it can only ever be the latter two. The sooner the better.

— David Canellis

Maybe it’s just the journalist in me — I just struggle to think we’ll get to a place where they aren’t still news. But I definitely don’t think they still hold the relevance that they once did. 

Fraud stories now serve as more of a PSA, or a sign of what was. The industry’s worked so hard and come so far since 2022, and we can all agree that we want those types of headlines to go poof forever. 

Sadly, it’s not that easy. And, heck, it’s not that simple in any other industry either. A billion-dollar case on any level would still be news, technically. 

One rotten apple doesn’t spoil the bunch if isolated, so crypto can keep on keeping on as long as the bad actors are kept at arm’s length.

— Katherine Ross

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.