Prospects of integration of DePIN and RWA

[Tuareg]

DePIN, or Decentralized Physical Infrastructure Networks, is an advanced technology that integrates blockchain and crypto-economic incentives to manage and expand physical infrastructure in a decentralized manner.

This technology goes beyond traditional centralized models, where large corporations like Microsoft and Amazon, with a combined market capitalization exceeding $5 trillion, dominate infrastructure management. In contrast, DePIN enables individuals and organizations to collaboratively build and maintain networks—such as wireless networks, storage systems, energy grids, and transportation systems—using tokens to incentivize participants.

In simple terms, DePIN is a system that leverages blockchain to coordinate physical resources. For example, you can provide unused hard drive space or an internet connection and receive tokens in return, which can be used or exchanged. This makes infrastructure more accessible compared to traditional centralized models, where large companies control all processes.

The DePIN model operates through a "flywheel effect", where increased network usage boosts token value, attracting more service providers. This, in turn, expands the network’s capabilities, drawing in more users and investors. For instance, if more people use the network for data storage, the token value rises, motivating others to contribute more servers.

DePIN is divided into two main types:

1. Physical Resource Networks (PRNs): These are location-dependent and manage tangible resources, such as energy grids or transportation systems. For example, a project might use sensors to monitor energy consumption in a specific area.

2. Digital Resource Networks (DRNs): These are location-independent and deal with digital resources like storage, bandwidth, and computing power. An example is decentralized cloud storage, such as Filecoin (https://filecoin.io).

In simpler terms, DePIN consists of physical infrastructure (e.g., routers, servers, solar panels) and a digital backbone (smart contracts on the blockchain for transactions and value exchange). Smart contracts automate processes, such as rewarding participants with tokens for providing resources, making the system transparent and secure. For instance, the Nunet project (https://nunet.io) uses AI to optimize unused computing resources, rewarding participants with NTX tokens.

According to CoinGecko (https://www.coingecko.com/learn/depin-crypto-decentralized-physical-infrastructure-networks), DePIN’s market capitalization exceeded $32 billion as of 2024, making this direction and technology significant in the cryptocurrency ecosystem, even surpassing decentralized exchanges (DEX).

Some of DePIN’s advantages include:

1. Horizontal Scalability: The ability to flexibly increase resources, potentially scaling infinitely, as demonstrated by projects like NATIX, which scale faster than traditional Google Maps.

2. Community Control: Decentralization, similar to DeFi, allows participants—akin to PoW miners or DAO members—to govern the network.

3. Accessibility: By factoring in providers’ costs, services are expected to be cheaper than those of centralized systems due to crowdsourcing.

4. Cost Efficiency: Low network costs, provider flexibility, and fair pricing for users—e.g., Silencio (https://depinscan.io/en/projects/silencio), with 350,000 noise sensors across 180+ countries, delivering affordable and rapid scalability.

5. Permissionless: Anyone can contribute resources or use services, making the system resistant to censorship.

6. Crypto-Economic Incentives: Offers passive or active income opportunities—for example, Nunet reduces wasted computing resources while providing participants with revenue.

The appeal of this technology lies in the fact that DePIN not only reduces costs but also creates new investment opportunities and could lead to the development of industrial DAOs governed by communities in the future. This suggests that DePIN is a young yet promising sector that democratizes infrastructure, making it decentralized, cost-effective, and resilient to change.

The overview was compiled using the following sources:
 
https://github.com/iotexproject/files/blob/main/publications/DePIN_Report_v1.pdf  

https://www.peaq.network/blog/what-are-decentralized-physical-infrastructure-networks-depin  

https://www.halborn.com/blog/post/what-is-depin-decentralized-physical-infrastructure-networks


In parallel with this thread, I created a similar thread in the Russian language locale: https://bitcointalk.org/index.php?topic=5534507.0

The text will be expanded further...

[Tuareg]

What is RWA (Tokenization of Real-World Assets)?

RWA, or the tokenization of real-world assets, is an innovative approach that leverages blockchain technology to convert physical or tangible assets into digital tokens. This process enables fractional ownership, increases liquidity, and makes investments accessible to a broader audience.

Tokenization of real-world assets (RWA) refers to the creation of digital tokens on a blockchain that represent ownership rights or shares in physical assets, such as art, real estate, gold, or cars.

The tokenization of various real-world assets is part of a broader trend in the blockchain industry, which is estimated to have a potential market worth hundreds of trillions of dollars, according to Chainlink (https://chain.link/education-hub/real-world-assets-rwas-explained). It makes these assets accessible to global investors.

The tokenization process involves several key steps:

1. Asset Selection: Identifying the asset to be tokenized (e.g., a piece of artwork, a plot of land, a building, a gold bar, and more).

2. Token Creation: Converting ownership rights into digital tokens on a blockchain, using standards from various blockchains. For example, on the Ethereum blockchain, standards include ERC-721 and ERC-1155 for unique assets (NFTs) or ERC-20 for fractional shares.

3. Smart Contracts: Utilizing smart contracts to automate token management, including the transfer of ownership rights and the distribution of profits.

4. Fractional Ownership: Dividing the asset into parts, allowing multiple investors to own shares and lowering the entry barrier for investment.

This model is particularly useful for assets with limited liquidity (such as real estate or artwork), as tokenization makes them more liquid and accessible to a wide range of investors and speculators. RWA tokenization enhances the liquidity of hard-to-sell or expensive assets and provides the opportunity to own portions of various assets. This diversifies investment portfolios and reduces the entry threshold for many new potential investors.

RWA spans multiple sectors, including real estate, commodities, financial instruments, and luxury goods. Below, I’ll provide several detailed examples (this is not hidden advertising; I haven’t assessed the reliability or profitability of the projects chosen as examples—they were selected randomly):

1. Art — one of the most discussed sectors for tokenization, particularly due to the potential for fractional ownership and increased liquidity.

- Sygnum Bank and Artemundi: In 2021, Sygnum Bank tokenized Pablo Picasso’s painting "Fillette au beret" (1964), enabling 50 investors to purchase 4,000 tokens representing fractional ownership. The painting was valued at CHF 4 million, and the tokens were available only to professional and institutional investors through a regulated Swiss bank (https://www.sygnum.com/news/sygnum-bank-and-artemundi-tokenize-a-picasso-on-the-blockchain). The sale in 2023 brought token holders approximately 20% profit, demonstrating strong potential for returns.

- Maecenas and Andy Warhol: In 2018, the Maecenas platform tokenized Andy Warhol’s "14 Small Electric Chairs," raising $1.7 million for 31.5% of the painting, valued at $5.6 million. The auction attracted over 800 participants from 56 countries, primarily from Asia and Europe, and utilized cryptocurrency for payments (https://blog.maecenas.co/blockchain-art-auction-andy-warhol).

2. Real Estate — arguably one of the most popular examples of RWA. The potential for tokenization is enormous, though many early projects turned out to be scams. A key issue, which has been partially resolved, is how the legal transfer of property rights will occur, which is critical for investors.

- Propy: A platform that facilitates the purchase, sale, and tokenization of real estate, allowing investors to own shares in properties (https://propy.com). For example, a house could be tokenized into 1,000 tokens, each representing 0.1% ownership.

- RealT: Tokenizes rental properties, enabling investors to earn rental income by dividing ownership into tokens (https://realt.co). This makes real estate investment accessible to those who cannot afford to buy an entire property or wish to speculate on potential price increases.

3. Gold — I haven’t studied the tokenized gold market in depth. The examples provided are random:

- PAX Gold (PAXG): Each token represents one troy ounce of gold stored by Paxos Trust Company, allowing investors to own gold in digital form (https://www.paxos.com/pax-gold).

- Tether Gold (XAUt): Similarly, each token corresponds to one troy ounce of gold backed by physical gold, simplifying trading (https://gold.tether.to).

The list of examples for the use of real-world asset tokenization will be expanded.

RWA tokenization is already transforming the investment landscape, making markets more inclusive and efficient. According to McKinsey forecasts, the market for tokenized assets could reach $2 trillion by 2030, underscoring its vast potential (https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-tokenization).

This article will be updated further...

[Tuareg]

Prospects of integration of DePIN and RWA on the example of works of art and luxury goods. How will investors profit?

DePIN (Decentralized Physical Infrastructure Networks) and RWA (Real World Assets) are two promising directions within the blockchain ecosystem that can be combined to create innovative solutions. DePIN focuses on the decentralized management of physical infrastructure, such as storage networks or logistics, while RWA deals with the tokenization of real-world assets, like art and luxury goods, to enhance their liquidity and accessibility.

In this part of my research, we will explore how these concepts can be integrated. I will provide specific examples related to artworks and luxury goods. I chose these comparisons because I work in a real business related to antiques and artworks (https://www.kobzar.in.ua). Additionally, I’ve analyzed the prospects of such integration and attempted to understand how investors can profit from it.

Since DePIN and RWA are still relatively underexplored in practice, I propose a concept for combining these two technologies. This concept was previously discussed on the IoTeX project forum (https://community.iotex.io/t/tokenization-of-real-assets/10808), which provides infrastructure for DePIN projects.

The integration of DePIN and RWA involves leveraging DePIN’s decentralized infrastructure to support processes related to the tokenization and management of RWA. I will outline each point here and delve into these topics in detail in subsequent posts:

1. Storage and authentication of assets through DePIN networks.  

2. Creation of a decentralized platform for trading tokenized assets.  

3. Utilization of DePIN’s physical infrastructure for logistics or asset verification.

Although the DePIN and RWA industries are still in their early stages, I will provide examples that I’ve selected randomly (this is not hidden advertising or an investment endorsement).

- Artworks:

The SPIN.FASHION project, utilizing the peaq platform (DePIN), tokenizes artworks by adding RFID tags with peaq ID for authentication (https://alexablockchain.com/spin-fashion-joins-peaq). For instance, a Picasso painting could be tokenized, with DePIN ensuring secure storage and verification through a distributed network. Investors can purchase tokens representing shares in the painting and trade them on decentralized exchanges.

- Luxury Goods:

DePIN can manage logistics or verification for items like Rolex watches or Lamborghini cars. For example, a network of nodes could verify the authenticity of a watch, while the watch itself is tokenized as an RWA. Investors can own shares through tokens, which can be used in DeFi for loans or staking (https://blockapps.net/blog/introduction-to-luxury-goods-and-precious-metals-tokenization/). In this case, DePIN provides decentralized verification and data storage for the asset.

However, the prospects of integrating DePIN and RWA come with both advantages and significant challenges that need to be addressed (we may explore all these points in detail within this topic):

- Regulatory Restrictions: Tokens may be classified as securities, requiring compliance with strict laws.  

- Need for Standardization: Ensuring compatibility between DePIN networks and RWA tokens demands standardization.  

- Technical Risks: Data security and asset integrity must be guaranteed, necessitating substantial investments.

The advantages of this technological collaboration have been widely discussed:
 
- Increased Liquidity: Tokenization through RWA, supported by DePIN, makes artworks and luxury goods more tradable, lowering entry barriers. For example, investors could buy shares in a painting for a few hundred dollars instead of millions.  

- Decentralization and Transparency: DePIN ensures transparent and secure records of assets, reducing the risk of counterfeiting, especially for art and luxury goods.  

- Accessibility: Fractional ownership through RWA, backed by DePIN, can attract more investors, particularly to art, which was previously accessible only to the elite.  

- Integration with DeFi: Tokenized assets can be used as collateral for loans or staking, creating new financial opportunities.

According to forecasts by Messari (https://hackernoon.com/depin-explained-what-are-decentralized-physical-infrastructure-networks) and McKinsey (https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-tokenization), the DePIN market could reach $3.5 trillion by 2028, and the RWA market could hit $2 trillion by 2030, highlighting the vast potential of combining DePIN and RWA technologies.

How will investors profit?

1. Purchasing RWA Tokens: Investors can buy tokens representing shares in assets, such as paintings or watches, and profit from their appreciation. For example, if a tokenized Picasso painting increases in value, the token price rises accordingly.  

2. Participating in DePIN: Providing infrastructure, such as art storage or luxury goods verification, and earning token rewards. For instance, offering secure storage for paintings could generate passive income in the form of platform tokens.  

3. Trading on Secondary Markets: Buying and selling tokens representing artworks or luxury goods on decentralized exchanges for profit.  

4. Staking or Providing Liquidity: If the platform offers staking, investors can earn passive income by locking their tokens to secure the network or by providing liquidity in DeFi protocols. For example, staking IOTX or peaq coins could yield rewards.  

5. Portfolio Diversification: Owning tokenized assets allows investors to diversify their investments, reducing risks.

In conclusion to this part of the series of posts, I’d like to summarize. The integration of DePIN and RWA for artworks and luxury goods creates a decentralized ecosystem that to enhance the accessibility and liquidity of these assets. Investors can profit through token purchases, infrastructure participation, trading, and staking. However, challenges such as regulatory restrictions require comprehensive study and the development of legal and technical solutions.

It is interesting to start a discussion on this topic, I will soon supplement this review with new facts...