Author | Wu says blockchain
In this podcast, Colin Wu, founder of WuSay, and EO Hao, CEO and founder of Future Money Group, discuss the development of DePIN and its potential to integrate with the real world. The conversation covers the historical origins of DePIN, investment logic and how it integrates with hardware, AI, and the real world economy, the impact of ecosystems such as Ethereum and Solana on DePIN, how different participants (including groups with right-wing and left-wing cultural backgrounds) shape the future of this field, changes in the US regulatory environment and their potential to promote Web3 and DePIN, opportunities for real-world assets (RWA), AI computing power markets, hardware mining, etc. to integrate with blockchain, and how real-world economic value can be innovated through DePIN and blockchain technology.
Opening Introduction
Colin: EO, why don’t you first introduce your previous experience and the situation of your current fund?
EO: Let me introduce myself. I am a loyal reader of Lao Wu. Actually, I follow you on Twitter. It seems that you also follow me unintentionally, but I have not been very active on Twitter recently. I have always used Milady as my profile picture. My name is EO. I entered this circle in late 2016 and early 2017. I have always been an entrepreneur. Before entering the field of cryptocurrency, my background was in traditional finance. I worked in asset securitization and non-performing asset disposal in investment banks. Later, I joined FinTech and started some businesses such as cash loans and loan service companies based on big data.
At that time, our products had 3 million to 4 million mobile users in China and Indonesia, and our competitors were credit card loan platforms in the United States. Later, in cross-border business, we found that we could transfer Indonesian revenue back to China for cash through Bitcoin payments. At that time, I came into contact with some Huobi OGs, including the founder and early senior people in the cryptocurrency circle, and thus I accidentally entered this industry. It has been seven or eight years now.
At the end of 2017 and into 2018, we officially launched our current investment business, called FMG (Future Money Group), because we believe that Bitcoin and cryptocurrencies are the currency of the future. Currency is not only a measure of wealth, but also an iteration of technology. It requires the concept of traditional currency to be digitized and become part of the database. We are very fascinated by this technology and have been supporting it.
So far this year, we have done about three funds, including a direct investment fund, a fund for the primary market, and a fund for the secondary market. The areas we focus on are mainly some less valued directions, especially tracks that are combined with the real world, such as DePIN and RWA. We have been investing in this field since three or four years ago. We were also nominated as the leading DePIN investor in Asia by Messari's DePIN report. This is my background and some of the current situations of our fund.
The key opportunity to get in touch with the Solana ecosystem and DePIN
Colin: I remember that you paid attention to DePIN, or that your introduction focused on your contact with Solana. Was this an important opportunity for you to enter the cryptocurrency circle, and also an important node for your later entry into DePIN?
EO: Yes, Solana was in 2018, probably 2018 or 2019, when it was raising funds. At that time, an American friend introduced us to participate in Solana's early investment. But to be honest, in the last cycle, the understanding of Solana was not particularly comprehensive.
Colin: What was the valuation when you invested in it?
EO: The valuation at that time was several hundred million US dollars, which was not a particularly early stage, but it was indeed a very cheap valuation compared to now. At that time, our understanding of Solana had not yet reached the level of DePIN, but we regarded it more as a substitute for Ethereum, the so-called "Ethereum killer". Especially in the last cycle, the support of the FTX system played a great role in promoting it.
However, some clues can be seen in that cycle, such as the Helium project supported by MultiCoin Capital. We came into contact with Helium early in the system, and started to build positions when its token price was about one or two dollars. We are familiar with many miners, have a lot of cooperation with mining machine manufacturers, and support mining machine production companies in this ecosystem.
Later, the company developed seven or eight DePIN hardware products, and we participated in all of them. It can be said that this is an earlier and more representative DePIN project on Solana. In the current cycle, Solana is the most supportive ecosystem for DePIN, and it is also the most courageous to promote innovation. It can be said that it is because of Solana that we began to pay attention to DePIN; at the same time, the development of DePIN has further strengthened Solana's ecology. Therefore, I think this is a complementary process and an effective path to find Alpha (excess returns).
History and Development of the DePIN Concept
Colin: Actually, if we talk about DePIN, it cannot be said to be a completely new concept, because it has a long history in the history of cryptocurrency. If it is not strictly defined, Bitcoin can be regarded as the earliest DePIN, and the way it is combined with hardware has been the most important component in the field of encryption until now. For example, in 2017, the Wanke Cloud launched by Xunlei was very popular at the time. In the last cycle, Helium and Filecoin were the most popular DePIN projects. In comparison, the hot spots in this cycle seem to be more in the field of AI, such as IO.net and ATH. Although they were quite popular at a certain stage, compared with the previous cycles, phenomenal DePIN products do not seem to have appeared yet. This is my personal understanding of the history of DePIN. What do you think?
EO: You are right. When we first came into contact with DePIN, it was not actually called this name. There were several related concepts at that time. I have lived in the United States for the past two or three years and am familiar with the Messari team. I basically witnessed them inventing the term DePIN.
Colin: When was this term first proposed?
EO: It should be between the end of 2022 and the beginning of 2023. Before they proposed the concept of DePIN, there were some other related concepts. For example, "EdgeFi", which is edge finance (combined with edge computing), emphasizes computing through end devices and rewards these computing nodes for completing tasks. In addition, MultiCoin Capital proposed "POPW" (Proof of Physical Work), which relies more on offline physical work, such as building 5G base stations to run the network, which is a very practical and "blue-collar" job. In the future, this type of physical proof of work may become the Web3 version of the Web2 sharing economy.
Later, the concept close to DePIN was "TIPIN", which is a physical network motivated by tokens. Finally, two researchers from Messari, Sami and Stephanie, decided to name it DePIN (Decentralized Physical Infrastructure Networks). Because of its popularity on Twitter, the name quickly became widely spread and became a hot topic. This shows the complete workflow of narrative word creation in Europe and the United States and how the community builds a concept. I think in Asia, we have relatively few such word creation phenomena, but there have been some in recent years, such as BRC and inscriptions.
Although the concept of DePIN has received a lot of attention, we also face some problems. For example, some startup teams arbitrarily label their projects with DePIN in order to raise funds, which is not completely consistent with the direction we value. We hope to see those truly valuable projects rather than simply chasing hot words. We believe that DePIN should provide more people with the opportunity to join the blockchain network and exchange labor for income by creating offline jobs. This network is more like a future work network.
My view on the current crypto industry is relatively complex. Although I am optimistic about it overall, I am pessimistic in the short and medium term. Currently, too much energy is focused on gambling, Bitcoin and ETFs, and this single direction cannot attract new people to enter. It is difficult for new entrants to benefit or get rich through labor, which is a huge challenge to the globalization and popularization of the crypto industry. We need to allow more people who do not have initial chips to participate in the network through their own labor, earn certain income, and thus form a bond with the network.
A good example is Axie Infinity. Although not exactly DePIN, it has successfully attracted mass participation by allowing Filipinos to earn income by playing games (50-300 USD a month). This way of binding users through labor is exactly what we want to explore, rather than allowing DePIN to become a purely financialized system dominated by whales or capital-intensive networks.
Colin: Got it. From your description, the DePIN project, which is more suitable for the participation of the general public, may be the direction you expect. But projects like Bitcoin and Filecoin, which require expensive hardware equipment, do not seem to fully meet this vision. In contrast, mobile phone mining or driving mining may be closer to your ideal?
EO: Yes. I think a very important economic system in the network is its distribution mechanism. Take Bitcoin as an example. Its wealth distribution coefficient is very high, almost close to the wealth distribution level of North Korea. The current situation where whales, big miners and equipment manufacturers own a large amount of Bitcoin is difficult to change.
What we hope to see is a change in the token distribution mechanism through creative labor and innovative work, rather than just a capital-intensive network. Considering that we have to onboard millions or even tens of millions of users, it is obviously unrealistic to ask them to mine. A better way is to design some activities that they can participate in on a daily basis, such as contributing data or behavior, so that they can join the network and gain benefits through these means. This model is more in line with our ideal vision.
Solana Mobile and Hardware Exploration
Colin: Like the mobile phone launched by Solana before, which was very popular, do you think this is an interesting path?
EO: I think in the short term, this is a more interesting attempt. As for Solana's mobile phone, I think it is relatively reliable. In contrast, it is very difficult for many small companies to make mobile phones. There have been many failed cases in the Web2 era, such as Amazon's attempt to launch a mobile phone, which failed. Many software companies in China have also tried to make their own mobile phones, such as Meitu, but ultimately failed.
The main reason is that the supply chain for mobile phone manufacturing is extremely mature. Our research found that in Huaqiangbei, the cheapest mobile phone mold can produce mobile phones with a cost as low as $35, and these mobile phones can even be sold to Africa. However, the real difficulty lies in the ecosystem and distribution channels. Taking Africa as an example, the distribution channels are almost monopolized by four large Chinese companies. In addition, it is also a very difficult task to establish your own application ecosystem.
Therefore, I am not optimistic about small companies or startups doing mobile phone projects in the Web3 field. But if I have to choose an exception, I think Solana's mobile phone is relatively more reliable. Because it has a complete ecosystem, supports many applications and tokens (such as Meme Coin), which can provide enough appeal for mobile phones and support their operation.
Secondly, the phone has another possible highlight feature. If Apple or Android opens up more support for cryptocurrencies in the future, I think the development of offline DePIN will have a better carrier. By then, we may not need to buy professional equipment, and we can complete many functions only through encrypted phones. If the Solana phone can be successfully launched, it may become an important connection node for the Solana DePIN ecosystem.
For example, this phone can roam through the Helium 5G network and verify the Helium network. In addition, it can connect to Hive Mapper to upload road data and integrate with other applications in the Solana ecosystem, such as the taxi service Teleport. Through these functions, it can become a connector for many DePIN devices. Therefore, I think mobile phone projects launched by large ecosystems, especially those DePIN projects that can be combined with offline scenarios, including some payment scenarios, are relatively more worth looking forward to.
Colin: What do you think about hardware devices like rings, bracelets, and game consoles?
EO: I think these devices usually rely on the support of a large ecosystem. It is difficult for them to form a strong closed loop or network effect on their own. They are more suitable as part of the ecosystem to attract users to join. However, I think it is very difficult to expect them to develop independently and realize strong economic value.
At the 2021 Ethereum Paris Conference, I shared a study at the Filecoin branch that explored the frequency of use of DePIN devices. Frequency, equipment cost, and labor intensity are the three key factors. Devices with higher frequencies, such as mobile phones or e-cigarettes used every day, often have lower economic value. And devices with high economic value are difficult to increase in frequency of use. If too much emphasis is placed on purchasing a large number of devices to gain benefits without introducing user labor participation, this will lead to capital concentration, and only the rich or those who know the rules can benefit.
Therefore, we need to introduce user labor participation and create "sweat equity" for them. This kind of user investment can deeply bind their dependence on the network. With this in mind, the economic value and network value of some small hardware projects often have an upper limit, and are more suitable as an entry point for ecological drainage rather than independently developing into a large ecosystem.
Colin: Are there any examples of health-related devices?
EO: Yes, for example, Fred from Paradigm Fund is developing an infrared brain wave device that helps users improve sleep and regulate endocrine. With the development of biomedical technology and the increase in demand for data, such devices may unlock more economic value. This is a direction currently being explored in the United States.
Colin: So, devices like e-cigarettes or Berachain are more likely a marketing ploy?
EO: That's true. Such devices usually gain attention in the short term, but in the long run, it is difficult to truly enable their token economy or develop into large-scale projects. They may only be very popular at a certain stage, and then the attention will drop rapidly.
In addition, if the DePIN project can introduce more labor participation, it also needs to create a real-world source of income. Currently, the income of most crypto protocols comes from on-chain financial activities, such as transaction fees and lending. This income model is closely related to the crypto market cycle, which will drop sharply in a bear market and will only rise in a bull market.
If we want to attract more funds to stay in the crypto market and let TVL (total locked volume) grow further, we need to introduce more stable external revenue sources that do not rely on crypto market fluctuations. For example, creating external protocol revenue through DePIN devices, or bringing more value to the network through market scaling. This is a point we pay close attention to when evaluating the DePIN project.
The development prospects of RWA (real world assets)
Colin: If we generalize the concept of DePIN, would Worldcoin be considered a DePIN project that is more in line with your ideal? It does provide a way for the general public to participate.
EO: I think it is a high-quality cryptocurrency project overall. Its fundamentals, investor lineup, and resources are all excellent. As a project, its airdrop mechanism is of very high quality. However, whether it can develop into a valuable economic network still needs time to verify. We don’t know how the team will develop next, but it is definitely one of the projects we will continue to pay attention to.
Colin: Got it. What do you think is the difference between a good coin and a good network?
EO: A good Coin is an excellent speculative product or MEME project; a solid network needs more time to verify its value.
Colin: In the last cycle, storage projects like Filecoin were very popular. Have you participated in them? Later, these projects seemed to lose popularity.
EO: Filecoin's fundamentals are indeed very good. We have been following this project. Its ecosystem, including AI-related projects such as IO and Akash, also needs to use Filecoin's underlying storage and computing power support. Filecoin itself is also building a computing power network to achieve a truly decentralized platform.
Filecoin has a very grand vision. It is not only a DePIN project, but also hopes to turn the entire computer into a distributed ecosystem. Similar to it are ICP and Ethereum, which have taken different paths. Ethereum prioritizes breaking through the software level and focusing on smart contracts; Filecoin starts from hardware, such as solid-state drives and storage.
It turns out that Ethereum’s path is lighter and easier to guide quickly. Filecoin’s direction is difficult to attract users in the early stage due to the hardware challenges. However, if given enough time and cycle, Filecoin may eventually form a complementary form with Ethereum by enriching the content level.
Another point worth noting is that Ethereum is promoting the decentralization of its hardware layer. Currently, Ethereum's POS system relies heavily on centralized hardware resources, such as AWS and data centers in the United States and Europe. In other regions (such as Africa), the cost of cloud services and offline servers is very high. Therefore, Ethereum is developing lighter nodes, allowing families to run nodes and even develop hardware devices. These hardware can store block data and run Ethereum nodes at the same time, promoting decentralization at the hardware level.
In the long run, various projects may eventually move in similar directions, but the paths and timelines for entry are different. For investment, we need to evaluate which paths are more likely to achieve "revolutionary victory."
Colin: In addition to DePIN, you also pay special attention to RWA. What is the background or logic behind this?
EO: I studied real estate and finance at Columbia University and have studied the history of real estate financial instruments in the United States. Most of the causes of the subprime mortgage crisis stem from the collapse of real estate derivatives. However, looking at it the other way around, the largest asset classes in the United States, apart from government bonds, are corporate bonds and real estate.
The current crypto space is beginning to break through government bonds (such as MakerDAO's stablecoins that buy government bond returns). The next possible direction is corporate bonds, Class B bonds, REITs (real estate investment trusts) or real estate mortgage securities. These asset classes are large in scale, have good liquidity, and have stable yields. Combined with blockchain technology, these transactions can be completed in a more digital way, reducing the problem of distrust and improving efficiency.
I think the emergence of RWA is very necessary. Currently, most assets in the crypto space are highly volatile and cyclical. If we want funds to settle and stay in this space for a long time, we need a richer asset structure. By introducing stable assets such as RWA, we can fill the gaps in the existing capital structure.
The development of RWA requires teams that understand both traditional finance (TradeFi) and on-chain technology. These teams need to move traditional asset classes to the chain and create a banking ecosystem that can deposit funds. This is one of our current focus areas.
New directions in combining AI and blockchain
Colin: I just mentioned some combinations of AI and DePIN. Although the current hot spots may be more on AI Agent and token distribution, you should have studied a lot of projects like IO and ATH. What do you think about the direction of the combination of AI and hardware in this cycle?
EO: Blockchain is more like a secondary market for the computing power market. In fact, we do not produce hardware in the crypto field, nor do we directly manage computing power. Instead, we move these high-quality computing powers to the chain so that they can be traded. In the geopolitical context of last year, some computing power could not be opened to developers in specific countries, and projects such as Akash and IO proposed a concept of "computing power freedom". One of their narratives is to let computing power flow freely like spices in "Dune", without nationality or country restrictions. Developers should be free to purchase computing power at a reasonable price, and the blockchain is a completely permissionless network. I think this concept will be true for a long time.
Through blockchain, computing power can be turned into a commodity for developers to purchase, and computing power can be innovatively tokenized. For example, computing power can be staked in the protocol, and the generated income is distributed to computing power holders and token holders. This model provides a pricing mechanism for the computing power market and can better manage market liquidity. I think this is a very interesting direction, and Akash and IO have performed well in this field.
Colin: Are there any particularly interesting AI projects in the United States? For example, autonomous driving or connected vehicles, how are these areas doing now?
EO: The Internet of Vehicles is indeed a good scenario, especially in the United States. Almost every family has a car, and there are no power banks in the United States because everyone charges in the car, even eats and spends a lot of time in the car. As a mobile "indoor scene", the car contains a lot of private data and user habits. This is a very potential application scenario.
Dimo and Hive Mapper are doing related things. For example, the founder of Dimo shared with me an interesting idea at a conference in Hong Kong: converting on-chain vehicle data (such as mileage, safety level, and behavior trajectory) into on-chain credit scores. These credit scores can be used directly on MakerDAO to mortgage car loans or personal loans. This model can track vehicle and personal data, combined with offline loan service companies to ensure loan recovery, which is a very good direction. In this way, blockchain can be deeply integrated with DeFi, and vehicle data can also provide more support for AI.
In addition, AI development requires more data. Scale AI is a popular case. They employ tens of thousands of people in dozens of countries around the world to train and provide data for AI. Similarly, DePIN can be used to incentivize people in marginal areas to collect data. For example, a company in India once distributed mobile phones to aunts in the vegetable market and asked them to record vegetable prices. This data not only helps predict CPI (Consumer Price Index), but is also faster and more accurate than the data from the Statistics Bureau. This closed loop of data collection and monetization is a direction worth exploring if it is combined with AI and blockchain.
Colin: In addition to the computing power market and data, what other AI-related directions do you think are worth paying attention to?
EO: I think that in the future, agents themselves will become an asset. Agents may be some form of knowledge assets that can be stored on the blockchain. Agents can conduct games, negotiations, and settlements through smart contracts to form a decentralized agreement. This model also has great potential. I think the combination of computing power, data, and smart agents are several areas that are worth exploring in depth.
The future of DePIN and market error correction mechanism
Colin: Yes, but I have a question. One of the difficulties in the cryptocurrency world right now is its "casino attributes". To put it bluntly, it is a casino; to put it nicely, it can be called a trading attribute. This attribute seems to overwhelm all other directions. For example, trading tools like PumpFun or some Meme Coins can easily make hundreds of thousands or even millions of dollars in daily profits.
In such an environment, it is difficult for people to settle down and do projects that are truly integrated with the real society. Especially hardware-related projects are more expensive. In the end, many DePIN or similar projects seem to have become some form of "plate". Whether it is the project party or the user, the focus is often on the token economic model rather than the actual value of the project. What do you think of this dilemma?
EO: I agree with you very much. First of all, I often read your tweets, and I think you are a breath of fresh air in the cryptocurrency world. The problem you mentioned is something that many people know but are unwilling to discuss publicly. I think this is indeed a crisis we are facing: in order to survive, the cryptocurrency world often has to cater to quick money and speculative attributes. This situation is indeed regrettable.
However, I still believe in the power of the free market. The market has the ability to self-regulate, sometimes faster than we think. For example, in the past two years, we have seen that the market has corrected VC coins and Ethereum.
A few years ago, I attended Ethereum’s DevCon conference. Ethereum was still dominant at the time, but I already felt the bureaucracy in the ecosystem. To do Ethereum-related projects, you might need to "know someone" or someone to retweet for you. This bureaucracy made me feel wrong. However, the market corrected this problem faster than I expected. People's attention gradually shifted from Ethereum to Solana and other applications that can make money more directly.
Similarly, the market corrected VC coins very quickly. Retail investors gradually reduced their participation in VC coins, and many VCs also realized the problem and began to launch more fair launch projects (Fair Launch). This made me see the efficiency of the free market in error correction. Although it takes time, the time may be shorter than we think. What we need to do is to stick to the direction we believe in and wait for the market to correct.
As for the "casino" attribute you mentioned, I think the casino itself is also a business model. In traditional finance, there are also casino-related stocks, such as Sands Group or some British online gambling companies. Although they are regulated, they are still a business in essence and can be fairly valued by the capital market. The same is true in the blockchain field. If some casino-like projects in the future can stand the test of time, obtain compliance licenses and operate stably, they may also receive reasonable market valuations.
However, we also see that the blockchain field is not limited to casino properties. In addition to gambling, there are many great projects and companies emerging. These projects provide diversity and future development opportunities for the blockchain industry. I believe that casino properties will only be a part of the entire industry, rather than the only direction that dominates the entire industry.
US Regulatory Environment and DePIN Opportunities
Colin: We all hope to see this industry become more diversified, rather than concentrated in a single direction. Although the current situation is not entirely ideal, we still hope that it will change in the future. What do you think of the current entrepreneurial atmosphere in the United States that combines AI and Crypto? Especially with the possibility of Trump's re-election, will this bring huge support space?
EO: I think this is actually quite clear. The regulatory thinking in the United States has gradually become clear after years of development. They will not take a "one-size-fits-all" approach, but prefer to set up a framework. As long as you pay taxes and follow legal procedures within this framework, you can operate. For example, Binance, although they paid a lot of fines, they have gained a relatively firm foothold in the United States by adjusting their shareholder structure and other means.
Under this framework, and with the need to further consolidate the status of the US dollar through Bitcoin and other means, the US regulatory system is becoming clearer and more stable. I think the key areas in the future will include AI, Crypto and DePIN. There are great opportunities in these areas.
Interestingly, the people engaged in DePIN in the United States are very different from the traditional Crypto portrait. Most of them are men between 30 and 40 years old, wearing plaid shirts and trucker hats, with a slightly right-wing style. This is in stark contrast to the white left culture of the Ethereum community. At the Ethereum conference, you will see many young people wearing rainbow clothes and dreadlocks. But in the DePIN and Solana ecosystems, the participants are more from right-wing cultural backgrounds.
These new players will have a great impact on the future of Crypto. The value propositions they bring are more practical, focusing on whether the industry can benefit, whether the public can easily participate, and whether the project is beneficial to the United States. This pragmatic value is pushing Crypto from the "extreme left" to the "middle" or even "right".
Especially under the influence of the new US government, this shift is more obvious. For example, David Sacks' Craft Ventures has invested in many Crypto projects, including DePIN projects such as Solana and Hive Mapper. JD Vance also mentioned some Crypto applications in his speech, especially the potential in the field of communications, such as real-world applications such as Helium.
This government and this wave of new players clearly have different preferences and focuses. They are more inclined to support projects that can be integrated with the real world rather than simply pursuing decentralization. This is a trend worthy of further study and also reflects the direction that the US government may pursue in the future.
Colin: I see, very interesting observation. Let's stop here today, and we will have the opportunity to discuss some related hot topics or interesting topics in depth later.