June 2024

peaq: Bringing Digital Assets to the Real World

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Blockchain disruption is moving beyond the digital realm and into the physical. Today, physical infrastructure networks like mobile phone networks are capital intensive to build and as a result are highly centralized and run by oligopolies.

These oligopolies can over-price their services and are a single point of failure. While we all use these services, most of us have excess and unused resources in our homes, such as idle storage on our computers and unused Internet bandwidth. The challenge we have is that there has been no way for consumers to coordinate and pool our physical resources. This is exactly what peaq is looking to do using blockchains and the coordination mechanisms that they can facilitate. In March this year, our Digital Asset Funds invested in peaq and this month we will dive into what peaq is and the rapidly growing world of DePIN (decentralized physical infrastructure networks).

Building physical infrastructure today is highly capital intensive. For example, to build a 5G mobile network will cost somewhere between USD500k to USD1m per cell site, which may only provide 300 meters of coverage. The US mobile network infrastructure build spending (for both 4G LTE and 5G) is estimated to be around USD30bn annually from 2022 to 2027. As a result, there is limited competition in markets where physical infrastructure is capital intensive. For example:

  • Telecom: in the third quarter of 2023, AT&T, T-Mobile, and Verizon made up >99% of America’s wireless subscription market share.
  • Online mapping: in 2020, the Washington Post estimated that Google Maps single-handedly controlled 80% of the mobile map market share.
  • Cloud computing: a report by Synergy Research Group suggested that the Big Three (Amazon, Microsoft, Google) accounted for 65% of the entire cloud infrastructure services market. The following 20 companies combined only accounted for 26%.
  • File sharing: 6sense reports that G Suite (Google Workspace) accounted for 69% of the file sharing market in 2023. Google Drive accounts for 7%, giving Google a cumulative 76% share of the market.

At its core, the reason for this centralisation of control is resource coordination. An enormous company has the resources to build these physical networks and charge consumers fees. However, consumers today also have access to resources that when pooled together could be as effective, if not more so, than the current oligopolies. For example, Google Drive exists because consumers want access to data storage. At the same time, there are petabytes of available storage sitting idle on consumer computers around the world, but no way to rent this out. Similarly, there are a handful of mobile operators in any country offering wireless bandwidth to customers, and yet most people have unused bandwidth at home from their ISPs, but no way to sell it peer-to-peer to people in the vicinity of their wireless routers.

This is the promise of DePIN, short for Decentralized Physical Infrastructure Networks. DePIN represents a shift in how infrastructure and real-world utilities are deployed and managed using blockchain technology. It enables the operation of physical infrastructure through the efforts of individuals and businesses, leveraging token rewards to facilitate participation. DePIN encompasses various sectors, including wireless networks (where consumers share their Internet services to create an ad hoc network in return for tokens), energy services, health, data storage, and mobility. It promotes a more equitable, efficient, and decentralized model of infrastructure development compared to traditional, centralized approaches.

The opportunity here is significant. Messari estimates that the total addressable market for DePIN is over USD2.2tn, projected to reach USD3.5tn by 2028. Much of the modern world is dependent on physical networks that are not optimized for resource efficiency, accessibility or innovation. This is where blockchains come in, by providing a trustless coordination system. Whereas physical infrastructure is maintained by a small handful of large corporations today, DePIN introduces a new world where small individual operators can compete and be compensated for their contributions to a broader network.

peaq is a leading project looking to capture the huge DePIN opportunity. From a technical perspective it is a layer-1 parachain on Polkadot and is compatible with the EVM (Ethereum Virtual Machine). It allows Ethereum and Polkadot developers to build applications using the same tooling and environments that they are used to. Additionally, peaq natively supports ink! smart contracts, a Rust-based language for smart contracts compatible with blockchains built on Substrate.

There are five key features that make peaq specifically a DePIN layer-1 as opposed to a run-off-the-mill smart contract platform:

  1. peaqIDs – The fundamental building block of peaq is the peaqID. peaqIDs are a novel method used to generate Self-Sovereign Machine Identities (SSMIs) based on the Decentralized Identifier (DID) standard developed by the W3C. Using DIDs, users can create digital identities that are verifiable and persistent without dependence on a centralized registry. The concept is fairly new as the DID 1.0 specification was only released in July 2022, but its flexibility and compatibility with blockchains have helped DIDs gain significant traction as a solution to the challenges of onchain identity.
  2. peaq access – peaq access grants role-based access control logic for machines and dApps on the peaq network. This is useful because there are many situations where you would want to grant or deny access to your machine. As an example, if you are renting your car out on the peaq network, you would likely want to ensure that the person driving your car has a valid driver’s license. peaq access is implemented as a Substrate pallet.
  3. peaq pay – peaq pay acts as an escrow functionality that ensures that both the machine owner and user are satisfied when payment is required. Users do not want to pay for a service they do not receive in full. Similarly, machine owners want a guarantee that the user can pay for the service. peaq pay works by creating a multi-sig that the consumer must deposit into before the service is rendered which then transfers to the owner upon its successful completion.
  4. Machine NFTs – Machine NFTs allow machine owners to tokenize their devices. This means that machine owners can distribute the ownership of their machines, creating a DeFi ecosystem through the revenue they generate.
  5. Machine data verification – The last critical piece of the DePIN puzzle is finding a way to verify that the data provided by machines is accurate. Unlike the digital world where we can generate cryptographic proofs, it is much more difficult to prove that an event in the physical world took place. It is especially challenging to prove that the data has not been tampered with before being posted onchain.

peaq is not the first layer-1 to target DePIN and the “Internet of Things” economy. Projects like IOTA and IoTex launched years ago but technical limitations and lacklustre go-to-market strategies prevented them from taking off. More recently, general purpose layer-1s (and -2s) like Solana and Polygon have begun to attract DePIN projects and present more credible competition. Solana specifically has developed a DePIN ecosystem that includes the most well-known DePIN to date – Helium. However, Solana is also targeting DeFi, NFT, gaming and other use cases. It is this lack of focus on DePIN that presents an opportunity for peaq.

While Solana’s DePIN ecosystem demonstrates it is possible to do so on a general purpose layer-1, a tailored backend can provide a much richer environment for DePIN builders. Features like:

  • Multi-chain self-sovereign machine IDs (compatible with EU standards)
  • DePIN SDKs and UIs, improving the developer experience and user experience
  • Machine payments and machine data storage
  • AI micro-agents
  • Machine NFTs and machine DeFi

peaq’s singular focus on DePIN is already helping it attract a strong group of ecosystem projects, nicknamed the “peaqosystem”. peaq has over 500,000 machines attached to the network and over USD25m of tokenized machine real world assets. ELOOP is one initiative using peaq that has over 100 tokenized Teslas in Vienna. These Teslas have their own peaq IDs and crypto wallets and are used for car sharing on an Uber-style app. Another example is NATIX, which utilizes over 40,000 smartphone cameras to map the world in real time using peaq.

We are excited by the promise of peaq and its positioning as the clear DePIN incumbent layer-1. A Google search for “DePIN layer-1” returns a page of peaq dominated results. Its ecosystem is strong and growing and we foresee peaq becoming the de facto chain for DePIN projects to launch on. With an enormous projected market in the trillions of USD by the end of the decade, winners in this DePIN vertical could be huge. We were thrilled to invest in two rounds of peaq funding earlier this year through our digital asset funds, Fund 4 and Fund 3B. We look forward to supporting the team as they re-architect physical infrastructure for a more equitable, transparent and decentralised web3 future.