2025 and beyond: DePIN's role in the next crypto wave

[00:00:03] Tom Trowbridge: I was in DePIN before it was DePIN. And I honestly think that most of crypto, for better or worse, are memes. If you’re on Amazon, you’re subject to an 80-page term of service, which effectively means they can cut you off at any moment for any reason. We are about 80% cheaper than the centralized alternatives because it’s an open network.

[00:00:24] Elisha Owusu Akyaw: Since Q3 2024, all we’ve been hearing is DePIN, DePIN, DePIN. That’s why we’ve been bringing a lot of DePIN projects onto Hashing It Out so our listeners would understand the ecosystem and get the gist and the alpha of everything that is going on. And today, joining me to discuss the DePIN ecosystem, the challenges, what’s been built and what the promise is for the end-user, I have Tom. Hi, Tom. Welcome.

[00:00:53] Tom Trowbridge: Hello. Thanks for having me. Thrilled to be here.

[00:00:56] Elisha Owusu Akyaw: Tom Trowbridge is co-founder and CEO of Fluence Labs. And we’re going to be having a very long conversation about DePIN. So, let’s get right into it. First question for you, Tom, would be how did you end up in Web3, and how did you end up in the DePIN sector? There are so many other sectors that you could have ended up in. There’s NFTs. Recently, there’s memecoins. So, it’s interesting that you are building in the DePIN sector.

[00:01:24] Tom Trowbridge: I was in DePIN before it was DePIN because Fluence was started in 2017, actually, long before the name DePIN was created. But backing up before that, I started off by helping found a layer-1 consensus algorithm called Hedera Hashgraph. HBAR is the token. Right now, top 20 cryptocurrency. Basically an Ethereum/Solana competitor that does a terrific amount of transactions very cheaply, very quickly. And so, I basically joined that project and launched the public ledger of that from 2017 to 2019. And so, that was an incredibly intense experience, but a very rewarding one. And I left there in 2019 and was introduced to Fluence, the Fluence team, by one of our investors at Hedera and joined Fluence as a co-founder. And I was interested to do it because I wasn’t interested in another layer 1. And there are tons of people, even now, layer 1s are still launching, and I thought I’d sort of understood that I had accomplished something there. And I felt the technology kind of innovations would probably slow, and I was looking for a different sector to spend my time, effort and energy on. And the Fluence team, you know, what they were building was very different. Just like, by the way, the Hedera technology was very different, but with Fluence was building was different and tackling a market that hadn’t really been addressed before. So, was very excited to dive into Fluence.

[00:02:58] Elisha Owusu Akyaw: That’s a very interesting story. And you are an OG in this space, considering all that you’ve already built. So, let’s talk about DePIN. Before we talk about relatively new, because DePIN has been around for a long period, this new narratives, I usually want the people listening to understand. Chances are someone is listening for the first time, and this is the first time they’re hearing the term DePIN. So, what is DePIN, and what’s the hype about?

[00:03:26] Tom Trowbridge: It’s funny, when I host a podcast as well called DePINed, and one of the first questions I asked many guests their definition of DePIN. Because there are a lot of definitions, and kind of what you’re implying there, I think, is accurate, which is an interesting, relatively hot space. And so, a lot of projects are trying to grab that label that may or may not meet what I call DePIN. So, my definition of it is pretty succinct, which is crowdsourced physical infrastructure that is bound together in a network providing a service which is secured and incented by cryptoeconomics. And so, what I think that means is, to expand on that a little bit, is any project which is using infrastructure that that project or company doesn’t own. So, it’s using crowdsourced infrastructure from consumers, from individuals, even from businesses, but not owned infrastructure, that they put a software layer on creating a network, providing a service. And then they are compensating and securing that network with cryptoeconomics. And to me, that is what makes DePIN.

And then you have companies like the very first one, I think, which would be Filecoin, which does that via storage, by people storing data on their computers or data centers, storing data in a distributed, decentralized way. You’ve got Helium, which is doing it basically using people’s WiFi to provide internet connectivity. And you’ve got a whole, those are sort of the cloud ones. And then physical ones, which are mapping roads with Hivemapper or providing decentralized weather stations with WeatherXM. Drone mapping with Spexi. Kind of a whole wide range of different types of infrastructure that can be used. It’s not just computers. It can be cameras, it can be phones, it can be antennas. It’s almost an incredibly wide variety of infrastructure that’s being basically maximized and monetized.

[00:05:20] Elisha Owusu Akyaw: One of the biggest criticisms blockchain has faced in a long time has been the meme of a sort that blockchain fixes everything. Do we really need to bring infrastructure and our interactions with the infrastructure around us into the Web3 space? Is this just a meme, or is this something that really matters?

[00:05:45] Tom Trowbridge: So, great. I mean, love the comment. I mean, literally, one of my talks is titled “DePIN is not a meme,” and I honestly think that most of crypto, for better or worse, are memes because we’ve gone through cycles where we’re trying to find metrics that matter. So, we’ve looked at TPS, transactions per second, we’ve looked at GitHub repository, we looked at community size, looked at trading volume, looked at TVL, all these different metrics to try to underpin valuations with some type of metric. But as we sort of know, over the long term, it’s revenue that really matters. And so, I think that DePIN is unique in that these services have real customers that are outside of the crypto world, and they’re generating real revenue. And so, that’s why I think DePIN is not a meme, because every one of the companies I mentioned is generating real revenue, either from consumers or from businesses.

But to answer your question a slightly different way, DePIN exists now, and it couldn’t have existed even five years ago, because you’ve had to have a confluence of three things happen. You’ve had to have the technology get to a price point that people can buy and use it cheaply, like the Helium hotspots. Where thousands of dollars years ago, when a particular piece came off patent, now it’s available for hundreds of dollars. The same is true for the cameras at Hive Mapper for the chips at DIMO. You keep going down the spectrum. So, you’ve got to have this technology, hardware at a price point that consumers can buy it. And then you also have to have the software have a maturity that these networks can be bound together and created in a way that doesn’t take decades but takes a year or so to work.

And then, finally, you have to have the cryptoeconomics and the crypto ecosystem mature enough that there actually are rewards and funding and enough capital to make this interesting for people to get involved in. So, you kind of had to have all three of those components in order for DePIN to exist. So, it couldn’t have existed five years ago at any scale. And now we have these maturities which are allowing it to operate. So, I think that’s why we have it. That’s why we’re seeing this explosion in DePIN projects now.

[00:08:05] Elisha Owusu Akyaw: Really great answer. So, we have established, to a large extent, that this is a real thing and that people are building in this ecosystem. So, what led you to build Fluence? What were the gaps that you identified that you felt needed to be filled that led to the building of Fluence?

[00:08:26] Tom Trowbridge: Well, Fluence started in 2017. And I think what the other two, my two co-founders, Evgeny and Dmitry, realized, and I certainly concur with, is that... There’s kind of two elements to it, but that effectively, the world back then and even now more so is trending towards oligopolist control of the clouds. And so, the internet is a fabulous, incredibly powerful invention, but the global nature of it leads to almost like global monopolies or certainly duopolies, because scale begets scale. And so, you see the growth of AWS, you see the growth of Google, and you see the growth maybe of Microsoft as well. And in the East, you have maybe like a Tencent or others.

But you have a handful of companies, and their concept of the internet originally was to be this decentralized, democratized, fragmented space that wasn’t controlled or operated or owned by any dominant entities. But the economics of the web are such that, you know a certain amount by advertising, you invest more in your reach, more in your advertising, more in your infrastructure. That gets you more revenue. You can invest more in, pretty much if you have a lead, you are able to accelerate that lead and, effectively, over time, dominate. And that’s why you have Amazon at such scale and a couple of other big companies.

And so, we realized that these large companies were really dominating the world in terms of commerce and in terms of internet kind of services, like the cloud services. And that is not a healthy place to be. And it’s not healthy for a couple reasons. I think three reasons. One is that pricing there, you become subject to higher pricing because there are just fewer options of any interest or any scale, and that’s not good. The second is that when you become very, very large, inevitably, governments are very involved, and that leads to single points of failure from either a technical side or a government policy side. If you’re on Amazon, you’re subject to an 80-page term of service, which effectively means they can cut you off at any moment for any reason. And that’s not a comfortable place to be building a business.

And then the third point is innovation. And if you’re constrained to any particular ecosystem, no matter what it is, inevitably, your innovation will not be as great as if you were not constrained. And so, those three reasons, this was back in 2017, 2019, the world has only, the centralization and dominance of those companies have only grown since then. But we wanted to build and provide an alternative service for compute that would be an open, so non-closed, open platform, very easy to innovate on, that would be far cheaper than the cloud, and it would be decentralized. So, not subject to any central control. And we feel that that is not for everybody by any means, but that that alternative should exist. And that alternative, it’s important that that alternative exists. And that is what we have been building for years and have recently launched and are starting to scale.

[00:11:37] Elisha Owusu Akyaw: I think you already started answering parts of the question that I wanted to ask next, but how does the decentralized or decentralization that comes with DePIN enhance the security and scalability of physical infrastructure compared to existing traditional models?

[00:11:53] Tom Trowbridge: Well, I guess this really depends on the specific DePIN project and DePIN sector you’re talking about. And so, I divide the DePIN sector, not just me, but Messari, I think, came up with this, into two sectors. There’s the digital or cloud side, which is where Fluences, which is either storage like a Filecoin or a CDN service, content delivery network, or compute like Fluence. And to be clear, I have mentioned this before, but Fluence is a decentralized compute platform. So, compute is the part of all the work that goes on, all the calculations that underlie all the applications you’re using on the internet are run by this computation that’s happening. That’s what we’re doing is that compute bit, which is the hard bit. I can talk about that later. But then the physical side are all the other DePIN projects that are providing much more of a tangible service. These are maps. These are connectivity. Like there’s a variety of telco DePIN projects.

And so, what I think the answer, what I like to look at this, and I even have a slide to talk about sometimes, is several of these DePIN projects, because you’re using the power of the community and crowdsourcing, you are able to have far superior products than any centralized competitor, which could never invest the amount of money necessary to drive that level of performance. And so, an example of that would be, you know, one of the things I love to talk about is Geodnet, which does RTK location services. And so, you think of Google Maps. Google Maps maps you to about a couple of meters precision. Using RTK, Geodnet gets you to within three millimeters. So, it’s incredibly precise. And it does that without ever buying any antennas. Purely crowdsourced. So, it can offer a superior service at less than half the cost of its competitors, sometimes even like 80% less. So, you have a superior service, for which they paid nothing for capital expenditures. And because of that, they can charge a fraction of the price.

And so, what I think about is that, in general, DePIN needs to offer superior products or it won’t work. And so, the product has to be superior. And then, the DePIN will succeed or not based on the strength of the products. Because no one... The customers who are buying DePIN products are not doing it because it’s DePIN. They’re only interested because of the product and the service. And so, that is what it’s competing on, which I think is pretty important. If you turn back to Fluence, we are about 80% cheaper than the centralized alternatives, and we’re cheaper because it’s an open network. So, any customer can switch to another provider very easily. So, if someone tries to raise prices, guess what? People will change. If someone decides, if a company comes on and realizes they have excess CPUs, the computers, and very cheap energy, they’ll come on, offer at a low price, and guess what? People will move to that group.

So, you basically eliminate the pricing power for compute or for computation. And that is on a global network will always compete to the lowest possible price, whereas it’s usually driven by the lowest cost basis. And so, that’s a structural reason for why that DePIN compute will be cheaper. And there’s also a structural reason for the other DePIN projects, because consumers and individuals are often buying the hardware, and they’re rewarded in tokens, that there is no capital expenditure. So, the project can price those things low and have a far greater network than the centralized competitors.

[00:15:38] Elisha Owusu Akyaw: You mentioned something that is really interesting about why people would buy DePIN products. How does that affect the way you market DePIN projects? I have this school of thought where I think some Web3 projects do not necessarily have to explain their Web3 parts of what goes on in the background, and they just simply have to tell the people, this is the project, this is the product, and this is what it does for you. Do DePIN projects need to adopt a similar approach to marketing their products, or should they lead with the DePIN narrative?

[00:16:14] Tom Trowbridge: Listen, I think you are spot on, and I would go a step further though, which is we, for example, at Fluence, we have a two-pager that doesn’t mention the word cryptoeconomics, token, DePIN, anything. So, we think people will use us based on the basically the value of the service. And I think that’s true for pretty much every DePIN project should and has to compete just based on the quality of the product. And frankly, DePIN is probably a negative, a net negative, for most of the customer bases that the DePIN projects are looking to close.

And the step further I’m going to mention is that early generations of DePIN projects, and certainly most crypto projects, required payment in the native token. And so, I think, and it’s not just us, but having a fiat front end is critical, I think, to success at scale in DePIN. So, a customer will swipe a credit card, send a wire, be invoiced, and that fiat, USD, euro is what goes in, and that’s the payment. And then underneath, under the hood, that payment is converted into the coin to basically make the network work or secure the network in whichever way it needs to be done. But that is, we think, fundamental in getting DePIN to scale. So, it’s not just not talking about DePIN, not talking about crypto, but actually not even needing crypto for customers to access and use the network.

[00:17:47] Elisha Owusu Akyaw: Interesting answer. I’m glad we agree on the approach in terms of normies and how we should market these projects to them.

[00:17:56] Tom Trowbridge: The thing that’s confusing, and I got asked this recently, which is it’s a very tough question, if you’re a DePIN project, and we have CPUs. We’re going to add support for GPUs at some point. And there’s plenty of projects out there that just do GPUs, which is for AI training. And that becomes the question, are you an AI project, or are you a DePIN project? And so, it’s kind of confusing. And if you’re a Helium, are you a telco or are you DePIN? And so, it really depends on the audience you’re talking to. Because it’s kind of a funny thing where you’re in a particular sector that your customers are in, the service you’re providing is in, but your infrastructure is completely different than the competitors in that sector. And so, your infrastructure and the fact you have a token and your infrastructure is crowdsourced makes your back end completely different than everyone else in your sector. So, I think most DePIN projects are going to be straddling two entirely different ecosystems of the centralized competitor ecosystem and what’s there, and then the DePIN ecosystem, which they share a lot with as well. And so, they have to also be very cognizant to market themselves as DePIN to the crypto and other ecosystem, so that that world knows they exist as well for a whole number of reasons we could get into. But you basically have to be straddling these two worlds, the one that you’re providing the service in, and then the one that is yours, on which your infrastructure is based and runs.

[00:19:27] Elisha Owusu Akyaw: I completely agree that the audience would determine how you explain things, and it’s important that the Web3 space begins to recognize that. Because sometimes I’m at a conference, and I look at the audience and someone starts talking about some technical stuff, and I’m like, no one understands what you’re saying. Talking about the Web3 part of DePIN projects and what makes DePIN projects separate and different from their traditional counterparts, the big thing, or one of the big things, would be incentives, and that usually happens with tokens. So, what are the roles that tokens play in the DePIN ecosystem? And I’ll let you deal with this generally, and then we’ll get into tokenomics in a bit.

[00:20:10] Tom Trowbridge: Well sure. I mean, I guess I can kind of weave that together, but I guess I’ll say the headline is I’m writing a piece on DePIN token economics, which is pretty much done. I just got to go through the checkings of it, so I don’t know if it’ll come out this year or early next. I’m not yet sure. Sort of have to time that. But I think this goes back to your earlier question of memes, right? I think DePIN isn’t a meme because most, not all, but most DePIN projects have built a very clear link between the revenue those projects generate and the token. And so, that is where I think fundamentals come in. And I think the way... I will also back up and say this a separate way, which is because DePIN projects have real customers generating real revenue, they’re going to be interesting to a wider set of investors than historic crypto projects, which have been much more sentiment-, news-, partnership-, etc.-based. And so, once you’re generating real revenue, I think you both have that first group will certainly be interested because there is news flow on it, but then you also have a lot more revenue-, more fundamental-focused investors are going to pay attention.

And I think that’s terrific. It greatly expands the pie of investor base for the DePIN world. But that comes at a price. And that price is incredible scrutiny on the token economics. And so, I think traditional investors are going to say, great, you’re generating $50 million in revenue. What does that mean for the token? How does that flow to the token? In a way, that scrutiny hasn’t really been applied across the rest of the crypto ecosystem, at least certainly not systematically and not with any kind of discipline.

And the way I think that is shaking out is that the token economics both have a component of rewarding participants in the network for providing the service, whether you’re providing storage or whether you’re providing compute like Fluence, or whether you’re providing a camera or an antenna or a phone, whatever it is. And then what happens when that network generates revenue, and how does that flow in? And so, the best and easiest way for that to happen is by buy-and-burn, which is revenue comes into the network and that is used to buy, you know, say 80% of the revenue is used to buy the token and then burn and destroy it.

And what to me is so compelling about that is if you like a project, and you’re convinced they’re going to generate revenue, and they do, you don’t care if no one else discovers this project, because that revenue means that company is going to be buying that token and destroying that token and burning that token, which means you have a built-in demand buyer for that token. So, if no one else buys it, you still have someone every day that they generate revenue going in, buying that token and basically doing like a perpetual stock buyback is sort of the equivalent without generating more stock. And so, I think that, to me, is what makes these token economics potentially so compelling, which I think we will start to see in 2025 as real revenue starts to flow into these networks. And that’s one piece of it. That’s kind of the most, sort of how why I consider it not a meme, because I think there is a real link between the success, traction and revenue of a project and the value of the token.

[00:23:28] Elisha Owusu Akyaw: Awesome. Because there are multiple use cases of DePIN, which one are you most bullish on?

[00:23:35] Tom Trowbridge: Well, that is a hard one. I think that a lot of the projects that I’ve referenced, I find really interesting in the physical world. They are great, whether it’s mapping... I just talked to Wingbits last night, which is basically doing tracking of airplanes from a global level. I mean, it’s fascinating. Haven’t even thought about that. So, there are dozens of these projects which are doing very specific things that I’m sure no one has even considered this. RTK mapping, for example. Multibillion-dollar industry that I guarantee you very few people have heard of. So, these are all terrific projects and I think have potential to be really scaled.

But I think the cloud ones, which is where Fluence is, in particular. But whether you’re talking about an Arweave or a Filecoin or one of the CDN networks, those have a $100-billion-scale potential given the global nature and the incredible growth. And that’s also the cloud GPU markets as well. I think those have much larger potential in aggregate, given the scale of the cloud market and the growth of the cloud market. And the thing that’s interesting on the Fluence economics is that every CPU added requires a stake, and that stake is in our token, FLT, but it is denominated in dollars, and so it takes $12,000. But if the token is at $0.50, you need 24,000. Token is at $1, you need 12,000. And so, what that means is that as you add compute to the network, you know how much dollars’ worth of FLT must be bought and staked to have those CPUs added. And so, I think from our side, our revenue goes to providers, so we can’t do buy and burn, but we can have the demand for the token and the security, which is important for the security of the network. We have the demand for the token tied to the scale of the network, which is what I think you want to see. So, I’m interested by that.

And I think in terms of this is where we get to scale. One Amazon data center has 50,000 CPUs. That would require $600 million of FLT stake. That’s multiples of our market cap, right? And that’s one Amazon data center. And they have lots, and Google has lots, and Microsoft has lots, right? So, if you start to think about the blue-sky scenario of how many data centers you could potentially build or have or devote to Fluence, and still a tiny fraction of the overall world compute that would be, you see the scale of the opportunity that we’re chasing. And by the way, that’s Fluence. Filecoin is doing this for storage, which is an enormous market as well. And they’re well ahead of anybody else in terms of the scale of storage they’re adding. And then there are the GPU marketplace, whether it’s Akash or IO.net or others, which are basically leading the GPU compute marketplace, because there really are very few centralized competitors. Like cloud is sort of more or less the same level of development as them.

So, I think that in terms of your question about what am I most excited about, I think in the near term, these physical networks are going to scale and are going to do buy-and-burn and are going to be incredibly interesting and compelling investments and projects and add a lot of value. But over the long term, it is the digital ones that have the potential to be really global scale if they are able to execute correctly.

[00:27:07] Elisha Owusu Akyaw: You’ve been building in the DePIN sector for a while now. I would want to know what your biggest lesson has been so far.

[00:27:12] Tom Trowbridge: I think the first lesson, I guess, that I think is not just me, but everybody has learned, is that it is easy to get supply in the DePIN sector. And so, whether it is storage capacity, whether it is compute capacity, whether it is Helium WiFi nodes, that is, you can find lots of people who want to contribute to a network. That has been the easy part. The harder part is the actual business development, selling and bringing in customers. And I think this is the truism of technologists, where they love building technology, and the selling of it is kind of the annoying, mundane part of it that no one really wants to bother with. And furthermore, in crypto, it’s been very much historically a build-and-they-will-come on the DeFi side, right? You build things, and if there’s a good yield, and there’s a compelling product, people move to things very quickly. And so, being out, I think the focus and the need to sell and get customers is something that we’ve known, but is certainly something that I think us, and all DePIN businesses and DePIN projects, learn again every day as to how important that is. I think that’s kind of one thing.

The other is, listen, you’re building technology, and you’re building technology, and that’s hard. There are delays. Things happen that you don’t expect. You run into little hiccups and bumps, and things always take longer. I guess those are two sort of relatively obvious lessons that I don’t think are massively insightful, but those are some of the things that certainly have been highlighted in my time at Fluence and in the DePIN sector, for sure.

[00:28:50] Elisha Owusu Akyaw: 2025 is around the corner. What should we expect from Fluence, and what are your expectations in the DePIN space?

[00:28:58] Tom Trowbridge: Well, listen, I’ll first start with DePIN Space. I think 2025 has the potential for breakout of DePIN. And what I’ve said before, and I think is right, is I think DePIN... You know, someone asked me what sector, what’s the new sector going to be in crypto. And, you know, people have rotated from some memecoins to other memecoins and have gone from DeFi to, you know, all these different rotations. Right now, there’s a meme rotation post-Trump, and then there’s a US crypto project rotation based on some potential tax components or benefits, right? So, there’s all these newsflow rotations.

My thought is that DePIN, as it generates revenue, will decouple from the rest of the crypto market. It won’t be fully decoupled, but it will be less subject to those waves because of the revenue, which is going to be generally buying and burning tokens in some of the projects I’ve mentioned. And I think that is going to insulate it somewhat from the boom-bust capital rotation that you’ve seen in many other sectors, and I expect that to start in 2025 as real revenue kicks in. Maybe that’s mid-’25. These contracts take a long time to close. So, maybe it’s early ’26. But that’s one thing I expect. Fluence has a couple of technical updates and technical milestones we are going to achieve late this year or early next year. We’re going to be able to onboard more customers and onboard more CPUs, and that’s all that really matters. And those technical developments are going to help us scale. And that I think is really important.

[00:30:32] Elisha Owusu Akyaw: That sounds great. Thank you very much for jumping on. It’s been amazing talking to you. Definitely calling you back if there’s a DePIN conversation. Really insightful.

[00:30:41] Tom Trowbridge: Fantastic. Well, listen, Elisha, thanks for having me on. I really appreciate it. Anything comes up, I’ll look forward to catching up.

[00:30:47] Elisha Owusu Akyaw: Amazing.