A case study on the Meta-DAO

The world is confronted by a multitude of escalating challenges, including deteriorating infrastructures, rising poverty, and a shifting climate, to mention just a few. These challenges are increasingly linked to ineffective governance in a globalized society. Frequently inspired by the Chinese model, discussions are emerging about totalitarian solutions, such as dictatorial top-down control or social credit systems, as replacements for what is perceived as the inefficient democracies of the West. Ultimately, this threatens to undermine the core Western values of freedom and autonomy.

Nevertheless, there are alternatives arising. Like Bitcoin, which emerged to fix a broken financial system, decentralized autonomous organizations (DAOs) have emerged in web3 to fix broken governance structures. They are a promising tool for managing complex systems, such as decentralized physical infrastructure networks (DePINs) or community-driven regenerative finance (ReFi) initiatives. Nevertheless, after the introduction of DAOs in 2015 and the hype that followed, it seems we have entered a period of disillusionment with respect to building DAOs: In addition to pressure from regulators and investors to limit their potential, many are beginning to believe that DAOs are an inefficient way to organize communities and, by extension, the world.

This blog motivates why DAOs still remain the most meaningful tool to manage complex systems and illustrates how a significant improvement, in the form of Futarchy, has elevated their effectiveness. We will assess the Meta-DAO, the first Futarchy in action, and suggest a way forward on this promising path.

Let us begin.

Background

Our world is complex

Our world is best understood as a highly interconnected graph where the links between nodes, rather than the nodes themselves, shape the system’s behavior. This interconnectedness results in unintuitive phenomena, like the butterfly effect, where small changes on the one side of the world can lead to significant impacts on the other. As each day passes, the complexity experiences combinatorial growth, outpacing both the growth in amount of data storage and processing power.

Researchers warn that understanding individual components in such systems doesn’t guarantee insight into their collective behavior, because interconnections can result in new, emergent properties. These properties add layers of complexity and challenge the effectiveness of hierarchical/ top-down or computational solutions in tackling normative problems like setting goals or managing trade-offs.

“In complex dynamical systems with many interacting components, even the perfect knowledge of all individual component properties does not necessarily allow one to predict what happens if components interact. In fact, interactions may cause new, “emergent” system properties.” — Dirk Helbing

Thus, in our complex world, no single entity, not even AI, can predict future states or outline steps for positive outcomes, which limits the effectiveness of our hierarchical institutions to address the emerging challenges in our world, as showcased in the introduction. In particular, this realization challenges traditional beliefs in centralized control and decision-making, pushing us to consider a broader range of tools to manage complexity.

Success mechanisms in complex systems

The bottom-up/ decentralized mechanisms of collective intelligence, digital democracy and self-organization can be utilized to manage complex systems effectively and were discussed in depth in a previous blog post.
The remainder of this section summarizes the most important concepts.

Collective intelligence is the emergent phenomenon which enables communities to sense the correct state of a system, i.e.,. the most likely future state; it enables them to discover what should be done within a system. It requires a) free access to information, b) privacy to reason, and c) freedom of expression, as illustrated in the image above.

In order to reach consensus on what should be done in a community/ organization/ society, collective intelligence is combined with digital democracy. This mechanism utilizes the various outputs from collective intelligence in a deliberation mechanism that distills proposals that are ultimately voted on. Various different deliberation and voting mechanisms exist having various properties (see for instance here). The three steps of digital democracy are: a) collective intelligence, b) deliberation, and c) voting.

Self-organization is the emergent phenomenon in complex systems which enables communities to implement the “what” in an efficient, scalable and resilient way. Thus it is the “how” a community can go about execution. It requires that actors be autonomous/ free to act whenever they see a need, and that those actors quickly receive feedback about their actions so that they may improve their behavior.

Managing complex systems with DAOs

Decentralized autonomous organizations can be defined as a) having no single source of authority [decentralized]; b) comprised of individuals not bound to a coercive, external force [autonomous]; and c) having a common vision towards which its members work in an organized way [organization]. In particular, DAOs are the organizational form that attempts to give structure to a diverse set of communities such that a common vision is reached.

Basically, a DAO is what happens when diverse actors start to collaborate and align towards a shared vision that satisfies their personal goals. In an ideal case, “a sense of community brings trust and wellbeing which enable better organisation. And effective organisation can enable value flows that sustain community.” [5]. In this way, communities and DAOs can form natural symbioses, resulting in powerful anti-fragile organizations capable of motivating individuals and communities to accomplish the extraordinary. An popular example of this in the current web3 zeitgeist is that of decentralized physical infrastructure networks (DePINs), which aim to achieve extraordinary feats of human coordination like setting up global and dense infrastructure networks. [6].

In a sentence, community and organization are the Yin and Yang of DAOs.

Mapping the definition of DAOs onto the three mechanisms illustrated in the previous section, the community is the decentralized aspect where the collective intelligence of a DAO emerges, and organization consists of the mechanisms with which DAOs reach community-wide consensus.

Self-organization is what happens at the intersection of the community with the organization when community members are empowered to self-organize by working autonomously towards the shared vision of the DAO.

Challenges in DAO design

Problems in DAOs arise when the DAO design does not clearly conceptualize, separate and consciously implement the three mechanisms of collective intelligence, digital democracy and self-organization.

Here we see an image popular on X (the original author could not be tracked, any hint is appreciated): A person identifies a hole in the boat, but instead of fixing it, the community in the boat attempts to find social consensus on what to do by arguing if the hole really is a problem.
The illustration has been taken as a prime example why DAOs are not working. However, although some DAOs are exhibiting such emergent behavior, the reason for its emergence is not a problem inherent to DAOs. Instead, it is due to a confusion/ mixture of the previously introduced mechanisms that, if implemented correctly, actually make DAOs into thriving and creative hubs where innovation and progress thrives (because it is the natural structure to facilitate all three mechanisms at the same time).

In particular, the problem in the above image arises, depending on the angle of the viewer, out of the following two reasons:

1. Digital democracy perspective: both the deliberative process and the decision-making process within the community of the boat take too long to act meaningfully, and the information that the hole in the boat is a significant problem is not adequately considered in the deliberative process (though strongly held by the man close to the hole).
2. Self-organization perspective: Collective intelligence (freedom of expression) and digital democracy (deliberation) are utilized in the image, but it is self-organization that should be applied: the man near the hole should be empowered to act autonomously, because he knows it is a problem for the overall community and is willing to fix it.

Let’s explore solutions for both perspectives and see how they can be integrated into a comprehensive tool by the concept of idea markets.

Futarchy: Decision-making with market principles improving digital democracy

Futarchy, a concept proposed by Robin Hanson in his 2007 paper “Shall We Vote on Values, But Bet on Beliefs?”, offers a unique approach to decision-making in organizations, especially in DAOs. It replaces traditional voting systems with prediction markets where participants bet on the outcomes of proposed actions. This is based on the assumption/ observation that markets are more efficient, when compared to traditional democratic processes, in taking into account all available information and weighting it proportionally. Complex systems theory provides a theoretical underpinning for this observation: futarchies link voting more directly to collective intelligence by incorporating the results of collective intelligence directly into the voting results, thus accelerating the deliberation phase in in democracies that implement them. Moreover, by letting people bet on beliefs, the available information is weighted according to perceived impact which improves collective intelligence in decision-making. [7,8]

The key ingredients of futarchy and its successful implementation according to Hanson can be summarized as follows:

• Futarchy should be used to determine how something should be implemented, but not necessarily what it is.
• A measure of welfare is required: Speculators in the prediction markets will bet on the impact of policies based on this measure of welfare.
• A futarchy should be introduced gradually and iteratively.

The Meta-DAO: A Futarchy in the making

The Meta-DAO is an experiment to create a functioning futarchy, following Robin Hanson’s suggestion to start small and gradually grow to an eventual legitimate companion to nation states.

The measure of welfare within the Meta-DAO is the Meta token.

Following the established process in DAOs to utilize improvement proposals to reach organization wide consensus, vote objects in the Meta-DAO are proposals.

Two Meta token markets are formed around a proposal to decide its passing or failing: A pass market representing the scenario where the proposal is accepted and a fail market representing the scenario where a proposal is rejected. Both markets are denominated in Meta/USDC (USDC can be considered equivalent to US dollars for the purposes of this article), so each of them has a theoretical dollar value of Meta.
The market which has a higher Meta token value at the end of the voting period is accepted and decides the passing or failing of the proposal. In order to participate in either of the two markets, speculators have to lock either Meta or USDC and receive two tokens in return: For instance, in case of locking Meta, a user receives a fMeta (fail Meta) and a pMeta (pass Meta). A fMeta may only be used in the fail market, and a pMeta may only be used in the pass market. At the end of the voting period, the losing markets’ tokens are destroyed and only the winning ones remain. In exchange for the winning tokens, the user receives the locked tokens back.

Some examples assuming the pass market wins (the proposal is accepted, as illustrated in the image above):

• Scenario 1: I lock 1 Meta token and receive 1 pMeta and 1 fMeta. I do nothing. At the end of the voting period, my fMeta token gets destroyed. I still own the pMeta token which I can use to receive the locked Meta back.
• Scenario 2: I lock 1 Meta token and receive 1 pMeta and 1 fMeta. I sell the pMeta on the pass market and receive 2 pUSDC. At the end of the voting period, my fMeta token gets destroyed (because the proposal passed according to theassumption above). I own 2 pUSDC from my trade which I can use to receive 2 USDC (which someone else had locked).

This is intended to create a perfect incentive alignment between market speculators and the DAO’s welfare measure (Meta token): Firstly, proposals are decided accordingly to their direct impact on the welfare measure — the token value — since the proposal will be accepted in the case that it increases the Meta token as compared to its value in the case that the proposal is rejected. Secondly, speculators are incentivized to correctly value the Meta token in both scenarios (pass/ fail) and to exploit arbitrage opportunities on both markets (according to their belief of the true Meta token value in each market). Thus complex scenarios can form, where one believes passing a proposal will increase token value more than rejecting the proposal, but still sells pMeta on the pass market (driving pMeta price down and thus the probability of accepting the proposal) because the current value of pMeta on that market is assessed to be too high, thereby gaining pUSDC due to the fact that Meta token price would eventually fall. In this way rational speculators are incentivized to determine the “true” Meta token value on both markets, independent of their wish to which proposal should be accepted, eventually creating an objective criteria if a proposal should be accepted or not.

Organizational mechanisms of the Meta-DAO

According to the above illustrated Yin and Yang model of DAOs, the Meta-DAO is utilizing different tools for its community and organizational sides.

• Discord for community management (collective intelligence, see Yin-Yang image)
• Futarchy-based proposal voting for the governance (digital democracy, see Yin-Yang image)
• Multisig wallets for governance of funds
• Twitter/ blog/ documentation for communication

Moreover, the Meta-DAO divides its members in three roles that can be self-selected: Entrepreneurs, Cyber-agents and Analysts, each fulfilling a role within the Meta-DAO: Entrepreneurs are the ones managing larger scale projects within the DAO, Cyber-agents support Entrepreneurs in implementation, and Analysts speculate in the decision-making of the DAO via the futarchy mechanism.

Four different types of proposals can be used by members for the futarchy mechanism. These are categorized by area (business and operations) and scope (projects and direct actions). Business projects transform financial capital into revenue-generating products, while business direct actions adjust these products for customer satisfaction and profitability. Operations proposals support these endeavors with necessary resources and personnel.

Initial Meta-DAO assessment

In order to increase the understanding of the Meta-DAO’s functioning, we analyze the organization based on the three complexity science mechanisms introduced earlier in this article.

By using discord without hidden channels and with the possibility of participating anonymously, the Meta-DAO is a prime example of a system where collective intelligence can be cultivated. Information flows are transparent, individuals have the necessary privacy and time to reason about issues and freely express their opinions. The barriers to entry into the core of the DAO are quite permeable. In particular it seems anyone can just join the discord and start participating in core activities. Nevertheless, the information on how to meaningfully contribute could be improved (e.g. by blog articles such as this one being better integrated in the tools).

When it comes to digital democracy, there is a differing accomplishment in both principles.
On the one hand, it is not quite clear if the Meta-DAO attempts to merge deliberation and decision-making (e.g. by removing deliberation and letting the market completely decide) or if social consensus or indication should first be reached in the associated proposal channels on Discord. An indication for the latter is the following post in the cyber-capitalist channel.

Nevertheless, if social consensus is desired, better deliberation tools than discussions in proposal channels could be utilized such as viewpoints.xyz or pol.is.
On the other end, decision making is where Meta-DAO shines due to its novel market-based decision-making that accounts for all available information and weights it according to one’s own beliefs. It can be argued whether this is the most effective decision-making tool for all vote contexts human society can think of (and hence maybe Robin Hanson saying: voting on values), but in the case of the Meta-DAO it most likely is: The goal of the DAO is to increase token value, those proposals are passed that increase the value and speculators are incentivized to find the exact token values by considering all available information. It is hard to think of a more efficient mechanism for increasing the national welfare measurement of the Meta-DAO that is measured with the Meta-token.

“We’re a philosopher-kingdom where the philosopher is the market. But the philosopher is not trying to increase our happiness, just our wealth” -Proph3t

As for digital democracy, in the self-organization of the Meta-DAO we notice a mismatch in accomplishment between its two principles. There are no explicit mechanisms in place that enable people to act besides the improvement proposals. This is most likely due to the general trend in DAOs that tend to migrate towards proposal mechanisms for all aspects of an organization’s governance. Nevertheless, it takes time until a proposal has a meaningful chance to pass, considering the previous image regarding social consensus, but also in general considering the voting period of five days. Urgent issues such as a hole in the boat might not be fixable in such a way. Also, in general, it is questionable if all actions need DAO-wide consensus or if this ultimately restricts the scalability, creativity and resilience of the DAO.
On the other hand, self-determined and autonomous actions by DAO members in the name of the Meta-DAO are possible, as everyone is considered part of the Meta-DAO if one desires. Feedback on those actions are quite imminent due to potential impacts on token price which, due to the nature of the DAO, have a higher chance of reflecting the true state of the organization (when compared to other DAOs or web2 organizations). Also, feedback is promptly and often given and exchanged over Discord.
Also, retroactive funding schemes are being actively discussed, which further act as valid feedback mechanisms for DAO contributors on which actions are meaningful for the DAO.

In summary, the Meta-DAO successfully implements most of the principles of the three mechanisms, but still offers room for improvement when it comes to deliberation and empowering members to act.

Outlook: Improving self-organization in DAOs with idea markets

Even in a Futarchy neither all actions within the DAO require consensus nor reaching consensus on a decision guarantees implementation of the decision. In particular, making actions dependent on DAO-wide consensus can ultimately inhibit the autonomy of the individual, making the self-organization and eventually the DAO fail (because of the limitations of hierarchical execution mechanisms in complex systems).

Taking the above image of the boat, an alternative approach to that of reaching consensus quickly and then collectively acting should exist. In particular, the DAO should have mechanisms in place that empower the individual to act in the very moment where a need for action arises.

A mechanism to facilitate this is the idea market: On traditional crowdfunding platforms, the idea proposer also has to be the one who must act and execute. This introduces significant friction, as the one with an idea in a particular situation is not necessarily the one who has the means to act on it. The core idea of idea markets is to create a split between idea proposers and idea executors (and potentially idea evaluators), letting everyone crowdsource ideas, donate to these ideas, and take up these ideas, rewarding all participants fairly.

This would create a transparent database of actions that can be performed in context of the DAO. The DAO could then, in order to accelerate a particular action, support an action financially by deciding on a proposal that funds that activity. An executor who picks up a task knows transparently how much funding is currently associated with a particular task and can thus plan accordingly.

The idea market is complementary to the Futarchy mechanism. Futarchy is a mechanism that makes decision-making in DAOs more efficient (see “organization”), whereas the idea market is a mechanism that makes self-organization in DAOs more efficient (see Yin-Yang in the image above). In particular, we see how both mechanisms may be integrated into one tool, e.g. decision making within the idea market is determined by the market mechanism of the futarchy. For instance, an idea is decided to have been successfully implemented if a particular threshold on the pass-conditional market is reached. Besides using futarchy as a decision-making tool on improvement proposals, this would be an additional application scenario of this efficient voting mechanism.
Mapped to the roles in the Meta-DAO, Entrepreneurs are most likely those entering ideas to the market (potentially to support the implementation of their projects/ ventures), cyber-agents pick them up (for immediate payments) and analysts use the market-based voting to decide on successful execution.

“We now use democracy both to decide what we want, and to decide how to get what we want. We might instead still have democracy say what we want, but let speculative markets say how to get what we want.” — Robin Hanson

Overall, this approach could bring the Meta-DAO closer to its roots, with the most capable individuals crowdsourcing the hows (‘entrepreneurs’) and executing them (‘cyber agents’), all crowdfunded by the community and successful implementation decided on by market dynamics (‘Futarchy’).

We are bullish on the future of the idea market, because where would it be easier to implement such a market then in a DAO that is governed by market principles?
This blog post has been written as part of the Meta-DAO track in the Solana Scribes Content Hackathon. In the spirit of putting one’s money where one’s mouth is, and of improving the Meta-DAO: to kickstart the illustrated idea market, 50% of the prize money this article receives shall be awarded directly to the idea executor (“cyber-agent”) who implements the idea market (the first “donation” to the execution pool) — payout decided by the Meta-DAO’s futarchy mechanism on a corresponding proposal.

Let the markets decide.

Conclusion

The Meta-DAO is an exciting experiment that utilizes Futarchy to a) apply the collective intelligence of its community as direct as possible into its decision making and b) to consider all available information in decision making, and thus showcases a way forward on how we can effectively go about deciding on the hows addressing our societal challenges. By aligning the incentives between its goal (token value) and the voting mechanism (higher valued conditional market), the DAO most likely utilizes the most efficient decision making for its purpose and it would be interesting to explore it in other contexts.

In order to further leverage on this efficient voting mechanism, this article proposes a market-based mechanism to crowdfund activities within the DAO that rewards both idea proposers (“entrepreneurs”) and idea executors (“cyber-agents”). This increases the efficiency in implementing actions by a) removing the need for social consensus in executing (minor) tasks, b) decoupling the need for the idea proposer to also be its executor, and c) enabling anyone to crowdfund ideas. This idea market mechanism should leverage the Meta-DAOs futarchy mechanism to decide which idea proposers and executors are rewarded.

Overall, the article embeds all three — the Meta-DAO, Futarchy and DAOs — into the larger field of complex system science and opens the door for further collaboration and cross-fertilization between these domains. In particular, it highlights why futarchies might be a better form of governance because they directly map the collective intelligence of their communities to decision making, as compared to previously utilized governance/ voting mechanisms. Investigating and experimenting in such novel forms to solve our global challenges is deeply meaningful and justifies the existence of the Meta-DAO.

A big thank you to Uroš for his comprehensive feedback and the Meta-DAO and WiHi communities where such ideas can be worked out and implemented.

Futarchy — Using humanity’s collective intelligence in decision-making was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.

This is a living document in which we share insightful and research-based information from the WiHi community on decentralized physical infrastructure networks, regenerative finance, web3, weather & climate modeling and participatory sensing — basically what WiHi is about.

Blog articles

• Futarchy — Using humanity’s collective intelligence in decision-making
• Why web3 matters: Harnessing DePIN and ReFi as a Force for Good
• DePIN and ReFi — Executive summaries on sustainable web3 projects with real world utility
• DePINs are three-sided markets — an evaluation guide for investors to access decentralized physical infrastructure networks
• Chain selection for a decentralized physical infrastructure network (DePIN)
• Valuing burn-and-mint
• WiHi: Advancing weather and climate intelligence in Africa

Podcasts/ Spaces:

• Deep dive into DePIN with Frederik Ahlgren from srcful
• DePin: Web3 solution to the climate crisis? (with Helium, Solana ReFi, Solana Foundation, Sunrise Stake, Proto, WiHi)

w3ather research

Here we share our academic research contributions.

web3

• Burn-and-Mint Tokenomics: Deflation and Strategic Incentives
• A Taxonomy for Blockchain-based Decentralized Physical Infrastructure Networks (DePIN)
• DePIN: A Framework for Token-Incentivized Participatory Sensing
• Are you a DePIN?A Decision Tree to ClassifyDecentralized Physical Infrastructure Networks
• Democracy by Design: Perspectives for Digitally Assisted, Participatory Upgrades of Society
• Constructing value-sensitive cryptoeconomic systems
• Impact of blockchain-based token incentives on human information sharing behavior

weather

• Distributed weather sensing incentivization
• An ensemble-based statistical methodology to detect differences in weather and climate model executables
• Model intercomparison of COSMO 5.0 and IFS 45r1 at kilometer-scale grid spacing

WiHi innovations

• Idea market mechanism: This tool brings back self-organization to decentralized communities by improving crowd-financing with the concept of separating idea proposer from executor.

Want to stay up to date?

Follow us on Twitter, Linkedin and Medium, join our discord, and check out our documentation.

Why WiHi — Research & useful information was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.

In the previous blog article we looked at how to create with web3 a global movement for the betterment of human society and nature by leveraging on the promising verticals of DePIN and ReFi. If you do not know what these are, make sure to read it!

Following the principles layed out in the previous article, this article provides executive summaries on some of those first movers that are bold enough to build DePIN and ReFi projects and are looking for first and second followers.

This article is envisioned to be a living document. Feel free to reach out to us in case you want your project to be listed below.

Projects included:

• DePIN/ ReFi projects:
  proto, sunrise stake, srcful, ReFi Hub, WiHi, onocoy

DePIN & ReFi projects

Here are summaries of DePIN and ReFi projects highlighting why they are needed and their solutions.

Why proto: Multi-faceted and hyper-local community-maps

Traditional mapping methods, with their high costs, geographical biases, and often outdated data, fall short in capturing the intricacies of local environments.

This is where proto steps in, it is an innovative mapping platform that re-imagines the world of cartography by involving the community in real-time mapping. Envisioning a world where every detail, from hidden cafes to traffic conditions, is mapped by individuals rather than just satellites or street-view vehicles, proto welcomes everyone to contribute. Proto, therefore, steps in to fill this gap by empowering local communities to map their surroundings, making maps more accurate, diverse, and up-to-date. By acknowledging and compensating the efforts of mappers, especially in regions that have been underrepresented or inaccurately mapped, proto aims to give control back to the creators of the content. It envisions mapping as a form of content creation, where the creator benefits the most, fostering a more inclusive and equitable mapping ecosystem.

Proto’s unique approach revolutionizes the concept of mapping by making it a community-driven activity. It offers a user-friendly app that not only gamifies the mapping process but also rewards contributors, placing them at the heart of the platform. This method enables the capture of rich, varied data that traditional mapping misses. Proto is not just about creating more detailed maps; it’s about changing the way geospatial data is collected, managed, and shared.

Why sunrise stake: Mitigating the climate crises with sustainable staking

Sunrise Stake is a Regenerative Finance (ReFi) staking protocol on the Solana blockchain, dedicated to directing staking yields towards climate-positive projects. As a non-custodial and permissionless protocol, it allows SOL holders to contribute to retiring carbon tokens and other environmental initiatives. By staking SOL with Sunrise Stake, users receive gSOL, a synthetic derivative with a 1:1 ratio to SOL, which they can trade or use like regular SOL. This process supports nature-based projects without any loss of funds for the stakers. Additionally, Sunrise Stake offers feeless liquid unstaking, allowing users to withdraw their SOL instantly with minimal fees, and maximizes the yield sent to climate-positive projects.

Sunrise Stake also plays a crucial role in securing and decentralizing the Solana blockchain. By distributing staked SOL across a wide network of validators, it enhances blockchain security. Staking for longer periods with Sunrise not only increases the security of the Solana blockchain but also maximizes the climate-positive impact, as the longer the SOL is staked, the more yield is generated for environmental causes. Sunrise uses the Toucan NCT Carbon Token for carbon offsetting, with each token representing one tonne of CO2 equivalent. Future plans include supporting a broader range of environmental projects, such as reforestation, furthering their commitment to positive climate impact.

Why srcful: co-owned, resilient and efficient energy grids for everyone

Srcful.io stands at the forefront of sustainable energy, embracing the principles of ReFi to prioritize ecosystem health and sustainability by building an energy-production DePIN. The platform marks a significant shift from fossil fuels to renewable sources like solar and wind power, offering a unique opportunity for individuals to engage directly in a decentralized energy grid. Users can connect to this network via the Srcful Energy Gateway, validate their green energy production, and earn SRC tokens, a cryptocurrency that fluctuates in value based on supply and demand. These tokens can be used in the energy marketplace or exchanged for other currencies, fostering a dynamic participation in the energy sector.

Beyond being a mere energy trading platform, Srcful.io embodies a comprehensive system that rewards green energy production and contributes to a more sustainable energy ecosystem. Key features include Proof-of-Source, which authenticates green energy production, and Proof-of-Control, aimed at stabilizing the power grid by allowing brief control over renewable energy sources.

Why ReFi Hub: Paving the way for a new future

For many individuals keen on sustainable investing, the challenge lies in the high entry costs and lack of clear impact visibility associated with traditional investment options. This creates a disconnect for those wanting to actively support environmental and social causes through their investments. Hindered by these barriers, these individuals often find themselves unable to participate effectively in initiatives that align with their values, leading to a sense of frustration and missed opportunities in contributing to global sustainability goals.

Here is where ReFi Hub comes in. It is an innovative investment platform that combines blockchain technology with impact investing. It offers users the opportunity to invest in vetted, impact-driven businesses with as little as $1, ensuring transparency and security in investments. By tracking the real-world impact of each investment, ReFi Hub not only democratizes access to sustainable investing but also provides tangible proof of the positive change generated by these investments.

Why WiHi: Weather and climate intelligence everywhere, anytime

Weather and climate impacts are intensifying, affecting society, businesses, and individuals. There’s a growing need for accurate predictions of extreme weather events, understanding the effects of climate mitigation, and microclimate knowledge. Novel and improved models calibrated with high-quality, dense data from weather stations are crucial for this, which would benefit various fields, ranging from business including insurance and trading over science to even hobbyists like drone pilots and farmers, spanning a $17 Billion industry improving weather forecasting. We observe that countless individuals worldwide are motivated intrinsically to contribute to this endeavor by either researching/ improving those models or by installing weather stations, creating vast pools of untapped data and weather models.

This is where WiHi steps in. It is uniting these different actors on a community-owned platform for weather and climate intelligence, forming a three-sided marketplace that connects data from weather stations with an expert community of researchers and data scientists delivering advanced intelligence services for B2B and B2C customers. WiHi not only directly contributes to ReFi, such as climate impact assessment via enhanced modeling capabilities, but also serves as a DePIN for other ReFi projects requiring its models and data (e.g. carbon markets) while providing valuable insights to businesses such as extreme weather events. WiHi is the meeting point of the w3ather movement, bringing together enthusiastic researchers, hobbyists, and weather station maintainers who are committed to positively impacting the weather, climate, and the planet.

Why onocoy: High-position positioning everywhere, anytime

Satellite navigation systems like GPS currently offer accuracy up to ~10 centimeters. However, for technologies such as self-driving cars, accuracy needs to be even finer — to the sub-centimeter level. To achieve this, a widespread network of real time kinematic (RTK) reference stations is essential. This infrastructure is well-established in developed nations, but it’s largely missing in Africa and is inconsistent in many other developing regions. And even in developed nations, the access is limited due to high price endpoints.

This is where onocoy comes in. The company motivates individuals, governments, and small to medium enterprises (SMEs) to set up GNSS stations across the earth in a fine grid. These stations gather atmospheric data, which is crucial for enhancing the positional accuracy needed for robotic applications and autonomous vehicles. onocoy’s service is cloud-based and fully automated, leveraging the Solana blockchain to operate an efficient burn&mint tokenomics model. This strategy allows onocoy to offer high-precision positioning to a broader market, beyond the limited high-value sectors currently served by the industry. Thanks to its blockchain-based automation, onocoy’s service is more affordable, has wider coverage, and is accessible worldwide.

Conclusion: web3 is solving real-world challenges

We showed how multi-faceted challenges are solved by leveraging on web3 success mechanisms of token incentives and DAOs — thus providing an answer to the why web3 is needed and hopefully rectifying its public image.

Let’s start spreading this message to the rest of web3, and then to web2 and beyond.
Let’s start moving ❤

Here are some resources in case you like to dig deeper:

• DePIN research: https://discord.gg/dzxQBHJw44
• DePIN project overview: www.wholovesburrito.com, https://depinscan.io/ , https://depinhub.io/
• ReFi database: https://positiveblockchain.io/database

DePIN and ReFi — Executive summaries on sustainable web3 projects with real world utility was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.

web3 has an image problem. It is frequently perceived by the external world as an unproductive endeavor, steeped in unproven concepts and devoid of tangible, real-world advantages. This skepticism is multi-faceted: Investors question whether web3 projects can achieve product-market fit, regulators express concerns over the sustainability and utility of these systems, such as energy consumption, and their safety, including scam risks. And, the public, despite evidence suggesting effectiveness, increasingly doubts whether web3’s foundational values — decentralization, autonomy, and ownership — are truly efficacious in tackling humanity’s challenges, or if they simply contribute to greater disorder.

However, the rise of new web3 sectors like Decentralized Physical Infrastructure Networks (DePIN) and Regenerative Finance (ReFi) are providing the crypto space for the first time with compelling narratives and products for the public. These innovations not only make revolutionary ideas such as co-ownership more accessible to a wider audience but also offer persuasive reasons to dispel prevailing doubts on cryptos positive impact. By leveraging web3 tools such as smart contracts, DAOs, NFTs, and token incentives, these verticals are at the forefront of a global movement for the betterment of human society and nature. They tackle critical issues like sustainability and enhance quality of life for everyone, demonstrating the potential of blockchain technology and its concepts for a positive, lasting real-world impact.

This article explores this emerging potential of web3 as a powerful force for positive change and illustrates how it can establish a significant mainstream presence. It suggests initiating a cohesive, global movement by emphasizing the importance of leadership, the art of being a first follower, and collective action in driving transformative trends. Happy reading.

DePIN & ReFi — Two promising web3 verticals

Decentralized Physical Infrastructure Networks (DePIN)

Decentralized physical infrastructure networks (DePINs) build different types of infrastructure serving markets ranging from energy over mobility to weather. They are a new vertical in the web3 that drive real-world demand by entering and extending established markets, hence solving one of the web3’s main problems and in this way enabling a new wave of crypto adoption.

In particular, DePINs are three sided markets which enable them to construct customer-facing products (e.g. mobile plans (Helium), GPS positioning improvements (onocoy), or weather & climate intelligence (WiHi)) using methodologies and approaches from traditional business modeling (e.g. problem-solution fit, product-market fit, etc.) and thus enabling web3 projects to demonstrate investors that they have utility (resp. enable investors to access their market/ make a valuation).
Also, regulators and governments are immediately getting the usefulness of having functioning and well-maintained public infrastructures such as in energy, GPS positioning, or mapping (proto) and explains their recent strategic investments in projects such as srcful or onocoy. In addition, what increasingly convinces the general public of web3’s potential is seeing that its values such as co-ownership and decentralization can construct global infrastructures (see Helium). Finally, this realization is supported by research results that are slowly spreading in the public that such systems are actually the more resilient and efficient way to build global infrastructures compared to hierarchical top-down management..

DePIN uses web3 concepts such as tokens to crowdsource investment cost in infrastructures and align diverse stakeholder behind a collective identity, and DAOs to coordinate the emerging complex and interdependent networks of action. This drives their capital and operational expenditures down when compared with traditional and hierarchical approaches (e.g. by governments or large corporations) and facilitates a much quicker infrastructure build out, and thus ultimately a better, cheaper and more resilient service to end-customers.

Regenerative Finance (ReFi)

Regenerative finance is an umbrella term for web3 projects that have a positive impact on the environment and nature. In particular, they are addressing the sustainability crisis we are in.

For instance, ReFi projects such as sunrise stake or coral tribe use web3 to solve the Climate Action Trilemma of low-income areas: In the past, using traditional non-web3 mechanisms, only two of the following three conditions could be fulfilled at the same time: i) Financing of a project, ii) Speed of (climate) Action, and iii) Socio-economic development of a region. Now with web3 we can provide the financing of e.g. climate-positive projects (via tokens), facilitate speed of action (via self-organization and collective intelligence, e.g. DAOs) and improve the socio-economic status of participating actors (via co-ownership). Moreover, by relying on the autonomy of its actors and the permissionless nature of these systems, web3 allows everyone to co-create and shape those systems, hence the approach is using local knowledge of environments and context to have a sustainable, lasting and efficient impact in a particular region, which is orchestrated on a global scale, ultimately resulting in a global movement towards a more holistic and sustainable life. This gives not only empowerment, autonomy and thus a sense of meaning and agency to people on the ground (e.g. web1 and non-digitals), but is also increasingly recognized by governments and regulators as the way forward to address humanity’s global challenges.

Building a movement with DePIN and ReFi

So, DePIN and ReFi leverage web3 technologies (like token incentives and DAOs) to address real-world challenges, offering a ‘triple win’ for web3, individuals, and society by enhancing global living standards and aligning with sustainability goals.

The task remaining is to educate the public about this beauty and improve web3’s image.

For this, we think that we, web3, need to unite (again) under a single banner, focusing on real-world impacts and products, to transition from digital to real-world relevance. Historically, web3 has periodically converged into movements such as DAOs, DeFi, and NFTs, amplifying their mainstream appeal and diversifying participation. Each convergence sparking wider adoption and enriching the ecosystem.

We think that DePIN and ReFi are poised to be the unifying themes for web3, promising to permeate all aspects of life, including non-digital communities, with sustainable solutions and robust infrastructures. This could lead to a significant and potentially final crypto bull run, fully integrating web3 into mainstream society, with future applications being more rational and problem-specific.

The challenge left is to initiate this final, transformative web3 movement.

Leadership Lessons from the shirtless dancing guy

There is a pivotal short video of the shirtless dancing guy (3 min) illustrating comprehensibly how to create a movement — please make sure to watch it (and re-watch it — its a classic! Kudos to Sarah Rietze for showing us).

Let’s summarize the creation of a movement.

The starting point: A leader

It needs a lone nut with a great idea/ vision who goes out and stands there for her or himself. In particular, the leader has to expose himself up to the extent that he or she can look ridiculous. The leader and the idea have to be public. Moreover, the leader has to perform simple and instructional things to manifest the idea, which is key— it has to be easy to follow. Finally, the leader has to nurture the first few followers as equals, encourage them to act! It is not about him, its about the idea.

Applied to crypto, Satoshi has been this lone nut. In the beginning it might have looked ridiculous (hence maybe the anonymity), but the idea was public — the whitepaper and software where released by Satoshi via SourceForge as open source. Bitcoin is now on GitHub..
Hence, it was easy to follow (for developers) — and they all automatically became equal, because the only thing which defines membership in Bitcoin is hashing power of a miner which anyone can deploy.
Finally, Satoshi stepped back in 2010 and let the first followers take over, demonstrating that the whole thing is not about him.

The pivotal moment: The First Follower

If leader is the flint, the first follower is the spark that makes the fire

The first follower plays a crucial role — it transforms the leader from being a lone nut into being one. In particular, they show publicly how to follow. For this, like the leader, they need to have the guts to be ridiculed.
In order to make the movement successful, those followers need to be empowered to call their friends in to join from their own capacity.

First followers in Bitcoin where amongs others the guy who bought the pizza, or Gavin Andresen who was standing behind Bitcoin with his name.

The turning point: Second Follower(s)

The second follower(s) are the turning point — They prove that the first have done well, or in the words of the video “Its not a lone nut, and not two nuts, there is a crowd and a crowd is news”.

This is the point where the movement needs to get public (in contrast to the idea getting public). In general, a movement must be public. It also has to be clear that the public sees more than just the leader. In particular, everyone needs to see the followers, because followers create new followers, not the leader.

In terms of Bitcoin, there were many second followers, but the most important one probably is Ethereum. They brought blockchain into the public awareness with THE DAO.

Tipping point: The crowd is following

When everything has been put in place, there comes the moment, where it is no longer risky to jump in — new joiners won’t stand out, they won’t be ridiculed and if they hurry, they might even be part of the in-crowed.
Eventually, the remaining people will need to join because otherwise they will start being ridiculed for not joining. This is the point where the movement turns into a collective action.

The tipping point for web3 will be reached when non-crypto people join the space not because they want to speculate, but when they want to contribute to a better world, respectively they are simply receiving a better service and do not want to miss out.

Don’t forget: The environment

The most important thing that has not been mentioned in the previous video is that a movement actually requires the right milieu. The video takes clearly place in a festival, so people already have the basic prerequisites to join a dancing movement — namely the intrinsic motivation to dance.

In terms of Bitcoin, the right milieu has been the financial crisis and the previous work and discussion on creating digital money which created a group of IT-affine people among which the idea could spread in the early days.

Collective action is now

Our engagement in Decentralized Physical Infrastructure Networks (DePIN) and Regenerative Finance (ReFi) has proven us that crypto ideas and values are well-received by non-web3 audiences. From hardware enthusiasts maintaining stations over academics working on weather forecasting or AI research to governmental agencies and small and medium-sized companies — all of them are looking forward to greater co-operation, co-ownership and co-creation.

This signals us that the time for real-world crypto utility and adoption is now. In particular,

The environment is ready to be pollinated by web3.

Nevertheless, we need a strategic approach:

1. The web3 community has to unite around DePIN and ReFi, either by adopting existing projects or initiating new ones.
2. Then, web2 individuals have to be involved in these projects, particularly those interested in DePIN and ReFi-related fields like hardware or sustainable finance, is crucial. Their feedback so far as ‘second followers’ has been very positive and encouraging.
3. Finally, the movement needs to become public for bridging the gap between web2 and web3, enhancing mainstream awareness and adoption.

These steps will help transition web3 from a niche to a significant influence in addressing global challenges.

“The best way to make a movement, if you really care, is to courageously follow and show others how to follow”

Be a first follower and join this movement as a force for good!

No clue where to start? Check out this list of awesome projects bringing web3 to the real world:

DePIN and ReFi — Executive summaries on sustainable web3 projects with real world utility

Why web3 matters: Harnessing DePIN and ReFi as a Force for Good was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.

Decentralized physical infrastructure networks (DePINs) build different types of infrastructure serving markets ranging from energy over mobility to weather. They are a new vertical in the web3 that holds the promise of driving real-world demand by entering and extending established markets, hence solving one of the web3’s main problems and enabling in this way a new wave of crypto adoption.

Recently I got asked how I would evaluate a DePIN project.

Given the potential of DePINs, I believe this question is quite relevant. In what follows, I will explain my answer, which at its core is based on the observation that DePINs are actually three-sided markets and that web3 offers novel tools for incentivizing and managing such large and complex systems that must be carefully used and implemented by system designers.

Introduction to 3-sided markets

The concept of a three-sided market to explain the special characteristics of web3 systems was introduced earlier and is independent of DePIN [1].

This three-sided market framework consists of a supply side, a demand side and a service side, as shown in the figure below.

In DePIN systems, the supply side provides the infrastructure that is used by users via a service provided by a platform.

Different players can sit on each side of this triangle: In the case of onocoy [2], for example, the supply side makes RTK data streams from an infrastructure network of so-called base stations available through a platform maintained by a validation community to customers who want to improve their positioning accuracy achieved with GNSS (e.g., GPS).

The special nature of DePIN can result in each of these three sides being very different.

Supply side

Pioneered by Helium that successfully demonstrated the possibility of building a global and dense infrastructure network [3] using success mechanisms from web3 (such as token incentives and decentralized governance, see below), the supply side is where most DePIN projects start from/ focus on.

The type of decentralized infrastructure that is build as a supply can vary greatly depending on the DePIN System. For a comprehensive overview, please consult who loves burrito?.

In general, a DePIN system can be defined as any system that incentivizes the placement of physical hardware devices as a decentralized infrastructure with blockchain-based cyrptoeconomic incentives in the form of tokens [4]. This fundamentally changes the way how infrastructure networks are created when compared to the past [4].

The main difference in which these physical hardware devices and their placement differ are the openness of the utilized hardware system, the placing rules of the hardware devices [4] and their cost [5] :

• Hardware ecosystem: Some projects use a closed/licensed hardware ecosystem (e.g. Helium or GEODNET), others an open hardware ecosystem (e.g. onocoy or WiHi). While the former approach offers more control over network deployment and thus simplifies platform construction, the latter promises faster scaling because it can rely on existing supply chains and an installed base of infrastructure devices. For example, for the RTK base stations needed for onocoy, it is estimated that 10–30 thousand stations are already out there ready to be connected.
• Placement of devices: The other attribute where the infrastructure networks can vary is if the single devices of the network are required to have a spacing in between them. For instance, an oversupply of devices in a particular region is not desired for systems such as Helium, onocoy, or WiHi, whereas systems such as Render Network which builds a GPU infrastructure do not require a spacing between the devices.
• Device affordability: The initial investment in major equipment or supplies to start operations. Lower prices usually simplify the process of bootstrapping. In particular, low barriers to entry facilitate better crowdsourcing.

Demand side

Following the classic web3 approach of building a large supply base first, the demand side is often neglected in DePIN systems at the beginning.

Nevertheless, by tapping into real world, real industries, and real needs, DePIN systems, unlike other Web3 verticals, promise to generate early revenue because they can serve the requirements of an existing market that they tap into and potentially expand.

In my opinion, this possibility of (early) demand is the biggest advantage of DePIN systems compared to other web3 verticals.

Due to the diversity of infrastructures currently built and markets potentially served, there is no known general classification of the demand side for DePIN systems. In general, it can be said that existing markets are mostly web3 agnostic and therefore often risk averse when it comes to web3 solutions.

Service side

The service side consists of i) the platform that connects the supply and demand sides, and ii) those who build, maintain, and support the platform. There are various approaches to this, differing mainly in the degree of decentralization and the use of cryptoeconomic primitives.

Different layouts can be found here for the different components of the service side [4][7]:

• Distributed ledger: Some systems utilize an own distribute ledger as Helium did in the past. For instance, GEODNET is planning to utilize an own distributed ledger. Nevertheless, the majority of DePIN systems avoid the complexity of maintaining an own distributed ledger and use a L1 instead to which they usually deploy smart contracts. Solana and Polygon are two general-purpose L1 that are very suitable for DePIN [6]. IoTeX and peaq are two L1s that provide great value to DePIN systems by having a specific focus on them.
• Middleware: The middleware consists, amongst other, of the the access to the data, computation and routing of information in the system that is not happening on-chain. Various degree of openness and decentralization can exist here. From self-hosting these services on private servers over using cloud services of larger cooperations to applying decentralized solutions (e.g., routing: w3bstream, Streamr; storage: filecoin, siacoin)
• Token(omics) simple one token models to complex multi-token setups (see below) can be utilized. Token distribution and Token design vary greatly among the systems, e.g. a system can pre-mine tokens or condition their creation with performing actions in the system, as often observed in DePIN (e.g. incentivizing the placement of hardware).
• Governance: A great variety in the governance of the overall system, stakeholder-participation and the decentralization of its construction can be observed in DePIN [4], ranging from centralized core-teams to self-organized communities that implement and maintain a DePIN.

Inherent challenges of 3-sided markets

Three main challenges can be identified when instantiating a DePIN system:

• Chicken-egg: Before clients are onboarded in a DePIN system (demand side), a supply has to exist. But with no clients, in particular in times of a bear market, it is difficult to convince actors to invest into the placement of infrastructure (supply side), resp. investors to support a platform development (service side). Nevertheless, all in all, I think one still needs to start from the supply-side, but has the demand-side rigorously evaluated right from the start.
• Different nature of the three sides: The actors sitting on each side of the three sided market place might differ greatly. For instance, on the supply side one can have a veteran crypto whale who searches for another investment opportunity, whereas on the demand side one might find a conservative and large international cooperation or governmental organization that did not have had any exposure to crypto yet, whereas on the service side you might rely on expert groups from both worlds, the progressive web3 and the more risk-averse industry where a DePIN is trying to go in (e.g. for instance, in WiHi data stream validation has to be performed by weather and climate experts, whereas the incentive design for this to be facilitated is performed by people from cryptoeconomics such as using a proof-of-stake type consensus mechanism on data stream quality).
  In addition, there may be more than one community on each of the sides having different needs and requirements. It is therefore a challenge to coordinate the different sides and communities so that they work together harmoniously and synergies are used.
• Complexity: Due to its size (usually building large-scale networks) and its variety of involved actors on the three sides of its market, constructing a DePIN is hard due to the interdependencies among the various system components. In particular, DePINs are complex systems that can neither be controlled nor steered like a coffee machine [8], but require different governance and control mechanisms that facilitate mechanisms such as self-organization, collective intelligence or digital democracy [9].

Successful web3 mechanisms to instantiate 3-sided markets

Among other, DePIN system utilize two success mechanisms from web3 to instantiate decentralizes infrastructures. These are token incentives and community/ DAO mechanisms.

Token incentives

Blockchain-based tokens are a powerful tool for the self-organization of a complex system by co-ordinating human action (rational and non-rational actors) towards goals set by a community [10],[11] and thus can be utilized for improving systems performance or contribute to its establishment in the first place.
For instance, using tokens as incentives for humans to share data can improve the quality of collected information when compared to scenarios where no tokens are utilized [12]. Or, using tokens as an incentive to place physical infrastructure can result in the creation of a global and dense DePIN network as Helium demonstrated [3].

In general, token incentives in large, global, and interconnected systems are a potential feedback tool for facilitating self-organization that typically trumps top-down control in managing complex systems [9]. In particular, using more than one token as a tool, targeting different stakeholders/community members, has been shown to further improve the performance of a system [12]. In fact, such a multi-dimensional token system comes close to what we observe in natural systems: Multi-dimensional real-time feedback and coordination system are the success principles that steer and manage the human body, Forrest ecosystems or flocks of birds [13].

Providing value to the token is important to make such incentive systems work [14]. Several mechanisms exist to give a token value [7]. One of these mechanism which often is utilized in DePIN is burn-and-mint (BM) which is a supply-management mechanism that ensures that a native cryptocurrency has value [15]: The two-token model is very feasible for DePIN systems, because, following the multi-dimensional token model approach, it allows to crowdsource the construction of an infrastructure network with a tradable and value-appreciating token [15] (targeting the supply and service side of a network by motivating actors to contribute), while having in fiat terms a stable system-internal non-tradeable (hence not a stable coin!) token that targets the risk-averse/ traditional markets in which DePINs are positioned (demand side). Thus using two tokens addressing different stakeholders in the ecosystem.

In some DePIN systems, over time, token models are often extended with either further tokens targeting sub-markets (e.g. IOT or Mobile in Helium) or improving functionality/ increasing further value alignment (e.g. using NFTs or other type of tokens), hence naturally applying the efficient coordination mechanism of multi-dimensional token models.

Community & (DA)Organization

Tokenomics such as burn-and-mint are only one aspect of the cryptoeconomic design of a DePIN system. Another one is the governance/ organization of the system [16].

Since managing and regulating complex systems in a hierarchical, top-down manner is challenging and often leads to lower overall system sustainability and resilience [17], bottom-up and decentralized mechanisms such as collective intelligence, digital democracy, and self-organization have been shown to more effectively manage such complex systems [18]. They are currently explored by policy makers (e.g. city of Aarau [19]) and also in companies, ranging form self-organized teams within a hierarchy [20][21] to fully decentralized organizations in the form of TEAL organizations [22],[23] .

Decentralized autonomous organizations (DAOs) are blockchain-based organizations that accelerate this observed decentralization trend in society. DAOs combine collective intelligence, digital democracy and self-organization [24], facilitating the shift from hierarchical organizations to democratic and distributed systems [25].
Amongst other, they use bottom-up mechanisms such as Improvement Proposals, quadratic voting and idea markets.

Community is the driving force behind web3 in general and DePIN in particular. A community is made of individuals having relationships with each other and sharing a common identity. The individuals in these communities can have different goals for their participation, e.g., return on investment, salaries or product design.
Communities can sit on all the three sides of a DePIN market and will facilitate its success: On the supply side you could have a community maintaining the infrastructure, on the service side you could have a community facilitating the platform (e.g. a validator community that uses a proof-of-work or proof-of-stake algorithm to guarantee platform security) and on the demand side you could have a community being interested in the infrastructure (e.g., in the GNSS industry, there are different agricultural communities that can be involved, or when it comes to weather, different communities use weather data streams to make predictions (e.g., hobbyists, scientists, farmers)).
From my experience though, the community approach by default is more suitable for the supply, then service and than demand side. In particular, on the demand side, if going into an existing market, one is most likely to be confronted with rational market players that are willing to buy the product if it fulfills their needs, independent if they have a feeling of belonging to a community. This might be different in cases, where no market exists which could be attempted to be build by following a community approach. In order to meaningfully include communities in the overall DePIN system and not to make them reject the constructed technology it is important to consider the values of community members [26]. In particular, value conflicts need to be carefully resolved.

The DAO is what happens when these community members start to collaborate and organize themselves towards a shared vision that satisfies their personal goals. In an ideal scenario, “a sense of community brings trust and wellbeing which enable better organisation. And effective organisation can enable value flows that sustain community.” [27] In this way, communities and DAOs can form natural symbioses, which result in powerful anti-fragile organizations capable of motivating individuals and communities to accomplish the extraordinary [28], like setting up and managing complex systems such as global, dense and decentralized physical infrastructure networks [3].

Evaluation guide for DePIN marketplaces

So, now having some background on DePIN systems, their challenges and success mechanisms, how do we evaluate a concrete DePIN system?

My observation is that DePIN systems are a blend of web2/ traditional industries (e.g. business development, IT infrastructures) and novel web3 concepts (e.g. decentralized consensus, token incentives, communities).
Hence, (traditional) investors can start evaluating DePIN systems starting from their current knowledge of existing best practices and then move (slowly) into evaluating the aspects that are novel when it comes to DePIN/ web3 systems (and where best-practices may still need to emerge).

1. They can start from evaluating the core team (experience, domain knowledge, ability to execute, technical capabilities, understanding of the three sides of the market),
2. Then analyze the demand side of the three-sided market (Business model, problem-solution fit, product-market fit, early adopters, etc.)
3. And then slowly move into the novel parts of DePIN systems. In the service/ platform side traditional evaluation criteria (e.g. technical feasibility) are mixed with DePIN-specific ones (e.g. viability of incentive Design, feasibility of a blockchain-solution, utility of consensus).
4. On the supply side, one can check the scalability of the miner build-up, viability of incentive design (e.g., crowding-out of intrinsic motivation or interaction effects [12]), the hardware ecosystem [4], supply chains, return on investment [5], etc.
5. Finally, investors need to evaluate if the right values are incorporated in the DePIN system in order to attract and motivate contributors to join the community and facilitate the network effects.
   A stakeholder-oriented value-sensitive design analysis as introduced in one of our contributions [29] has shown to be feasible to analyze this value-orientation, e.g. as performed in finance4 [13], onocoy [2] or WiHi. In this context, audience reachability is of particular importance [5].
   Also the community (including the core team) and the three sided market need to be organized effectively, such that the system gets functional. Here, investors have to evaluate if a project is able to use the network effects/ collective intelligence of a large and diverse community and facilitate their effectiveness via, for instance, self-organization. Some governance criteria have been introduced in our recent work on a taxonomy for DePIN systems [4] and our democracy-by-design paper [18].

Outlook

I have provided some general background and considerations for evaluating a DePIN system that take into account the special nature of these systems as complex three-sided markets.
I hope you found this elaboration useful. Please let me know! ❤

In following blog posts I will go into some of these aspects in greater detail. Let me know if something is of particular interest to you and I will try to cover it!

Also ping me if you have a question, feedback or want to collaborate :)

DePINs are three-sided markets — an evaluation guide for investors to access decentralized… was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.

In Part 1 we saw the shortcomings of hierarchical decision-making and control in complex systems. In this second part of the mini-series, we look at three solutions that have been proven to effectively manage such systems. They result from a very radical shift in thinking: Namely, from top-down control and decision-making to bottom-up co-ordination and co-operation, which ultimately need a very important component to be successful:

You.

Do you want to learn about these powers to change the world to the better? Then let’s start.

Solution 1: Collective Intelligence for decision making

The first solution caught the eye of the mathematician Galton in 1906 at a fair where participants had to guess the weight of an ox. He found that although no one had guessed the exact weight, the average of all the guesses gave almost exactly the weight of the ox. This phenomenon is repeatable and is called the wisdom of crowds (when there are no interactions) or collective intelligence (when there are interactions between actors).

It states that no individual within a group needs to know the truth, but that it can emerge through the collective interactions between those individuals. In other words, the knowledge of truth lies in the connections between the nodes of a complex network (see Part 1).

Collective intelligence can be used for more complex challenges then the identification of an ox weight.

“A group of 3,000 ordinary citizens, armed with nothing more than an Internet connection, is often making better forecasts of global events than CIA analysts.” — Alix Spiegel

For example, in the Good Judgement Project, ordinary citizens were asked about future world events, e.g. “When will North Korea launch the next missile”, “How will refugee movements in Europe develop”, etc. It turned out that these citizens often predict future world conditions better than CIA analysts who had access to classified information.

This result is significant.

Some argue that this is why democracies work: By considering large parts of their population in the decision making, they are better equipped to sense the future than dictatorial systems and thus are better positioned to ignite the necessary changes to adopt to a changing environment.

An interesting branch of research in this direction are prediction markets.

So how does collective intelligence work? It can actually emerge in a complex system if the following three steps are guaranteed:

1. Free access to a transparent and unbiased information source is essential as a starting point.
2. Then, independent opinion formation/ solution exploration is required In particular, innovation needs a cultural setting that allows to experiment and to make mistakes in a protected environment, traditionally/ often called “private sphere”.
3. Free information exchange that feeds back into the information source.

Interestingly, it seems that democracies over the world emphasis different aspect of this collective intelligence. For example, the U.S. emphasizes the freedom of speech aspect, while the German-speaking countries favor privacy (which is also enshrined in their “constitution”) and the Scandinavian countries emphasize transparent access to information (e.g., to the point of disclosing everyone else’s tax payments (which can actually make Germans cringe :) )).
New benefits can result from combining these three elements.

Solution 2: Digital democracy for decision making

Digital democracy is currently discussed as an upgrade to democratic systems to better cope with the challenges arising from a complex world.

If implemented well, it uses society’s collective intelligence and combines it with digital tools such that the best ideas are distilled, combined and implemented. Introductions to the concept can be found here, here and here. Concepts utilized are for instance citizen councils (e.g. citizens’ assembly), consul platforms (e.g. vTaiwan or pol.is), and participatory budgeting.

In general, in order to make democracy work in a digital world, two further steps are introduced to the previous three of the collective intelligence:

1. Collective Intelligence: People share information, ideas and solutions (output of the three collective intelligence steps)
2. Deliberation: Various solutions are combined in an innovative way by the means of a deliberative process.
3. Voting: If the the deliberation process does not result in the convergence of a great majority, the people affected vote to determine the best solution. Here, majority votes are often sub-optimal as it can result in the “tyranny of the majority” which can lead to unpredictable reactions from various citizen groups (e.g. as seen with Brexit). This is most likely due to the fact that for complex and high-stake questions, a majority vote often is not perceived as legitimate by the voters.
   Hence alternative forms of voting are explored, such as quadratic voting or the modified Borda count.

In summary, collective intelligence utilized in a digital democracy can lead to the identification of appropriate ideas worthy of implementation, and in this way provide a solution to the normative challenge outlined in Part 1.

Nevertheless, the question remains how their successful implementation should be executed/ controlled for. In particular, we have seen that hierarchical control mechanisms often fail in a complex world, even if the desired state is clearly defined (e.g. CO2 reduction).

Solution 3: Self-organization for control

Complex systems in nature, such as a flock of birds or the human body, tend to self-organize, resulting in decentralized systems that are both efficient and resilient. A flock of birds, for example, efficiently supports both (i) protection from predators and (ii) localization of food resources, while at the same time being (iii) inherently voluntary (no bird is forced to join it) and also (iv) resilient: removing a single bird from the flock would have little negative impact, as no single bird has control over the entire flock.

The flock is rather controlled by local feedback mechanisms: If a bird is flying too close to another bird, then it flies away, if it is too far away, it flies back. By such simple mechanisms the flock moves through time and space and supports its members. Actually these simple mechanisms illustrate the core concept of self-organization: Feedback is required for a complex system to self-organize.

Self-organizing systems are everywhere, also our human body and its immune system are examples of such self-organizing systems.

The question arises: Can we take this success mechanism from nature and apply it to man-made infrastructure and society? The simple answer is “yes”, as has been shown, for example, in the context of traffic light control systems:

Traditionally, traffic light control systems in cities are controlled top-down: A central traffic authority plans how the traffic lights in a city are switched, e.g. by prioritizing different traffic flows depending on the time of day (morning/evening traffic) or special events (e.g. football matches). The result of this planning can be observed by people all over the world every day: Traffic jams. Although, of course, not all congestion can be attributed to centralized control, the following evidence suggests that there are at least some major challenges associated with this type of control:

Namely, In order to mitigate traffic jams, researchers developed a traffic light control system that does not rely on a centralized traffic control authority, but utilizes self-organization. In this simple setup which has been deployed amongst others in the city of Lucerne (Switzerland), each traffic light is allowed to optimize locally the traffic light, only considering information (feedback) from its neighboring traffic lights. In particular, no traffic light or operator had the full overview of the system state, resp. could interfere in a local action. The finding of this experiment was not only that the average waiting time decreased for all traffic participants, but that also specific stakeholders (e.g. public transport) could be prioritized in a flexible manner.

This example demonstrates that self-organization can be utilized effectively in our technology-driven society.

So how does self-organization work? Actually, it is pretty simple:

Actors have to be able to act (freely/ autonomously). These actions change the environment which provide a (real-time) feedback to the actors on which they can improve their action. Self-organization does not work if either actors are hindered to act or feedback is too much delayed.

Conclusion and outlook

We have seen that our world is a complex system and that in such a system established hierarchical control and decision-making mechanisms fail (Part 1). The three solutions presented in this part of the mini-series together form a path to manage the challenges of our complex world more effectively, and thus provide to us an encouraging glimmer of hope but also a serious obligation:
A glimmer of hope because we are all needed for the emergence of collective intelligence, digital democracy and self-organization: Random individuals, just like you and me, are the most important core component of these mechanisms, not despite but precisely because of our individual biases, abilities, and (unique) perspectives. In particular, we know from complex systems theory that every small action can have profound effects on the system as a whole — and thus each and every one of us has the ability to change the world for the better.
Precisely for this reason, however, the knowledge of the power of the individual also gives rise to a serious obligation for each and every one of us to become actively involved — or, in other words, it is the responsibility to bring Imannuel Kant’s insight into the 21st century, namely to free ourselves from our self-inflicted immaturity.

In this context, I think, web3/ blockchain gained such a popularity because it (at least implicitly) utilizes successfully these bottom-up solutions by empowering the individual and in this way unlocking their creative potential and motivation to act. E.g, decentralized autonomous organizations (DAO) are instantiations of digital democracies that utilize collective intelligence to identify desired system states (e.g. as performed successfully in the MakerDAO or BanklessDAO) and then use their community to control for its implementation, often via token incentives. In general, these blockchain-based cryptoeconomic incentives in the form of tokens can function as real-time feedback enabling self-organization, as for instance studied in finance 4.0 (e.g., it can enhance the calibration of a complex systems).

In further blog posts, I will explore these concepts of DAOs and token incentives in more detail and try to underpin them with the theoretical foundations outlaid in this mini-series on complex systems.

Stay tuned!

This blog post has been strongly inspired by the work performed at the Chair of Computational Social Science at ETH Zurich.

Subsequent blog posts that elaborate on the concepts of this article and/or illustrate the mechanisms in practice:

• Futarchy — Using humanity’s collective intelligence in decision-making

Complex Systems — Part 2: Managing complexity with bottom-up solutions was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rising sea levels, social unrest, banking crises, military conflicts — the world seems to be facing more and more interconnected challenges to which our globalized society is less and less efficiently responding:

The resilience of our world is declining.

In particular, we are no longer able to manage our world such that desired living conditions are reached (e.g., lower CO2 levels in the atmosphere). I think this is mainly due to the outdated ways of how we are taking decisions and control their implementation in our changing society. Let me explain.

The Control Challenge

Let’s start with an example: German society had made the normative decision to reduce CO2 emissions and has therefore introduced two top-down measures: First, by subsidizing bio-gas, and second, by pushing the use of bio-fuels through regulations.

However, this good intention to reduce CO2 emissions had led to side effects that were not anticipated at design time, such as the creation of large monocultures in Germany, which nowadays threaten the local environments biodiversity, soil fertility and groundwater quality.
This side effect was further exacerbated by a cascading effect: As it is now more economically lucrative to grow energy crops in Germany, feed production is outsourced to other regions of the world, leading to increased land consumption for agriculture in these areas. Among other things, this has led to the deforestation of the Amazon.
So we observe here a counterintuitive negative feedback loop: The initial desire to reduce CO2 led in the end to an increase of CO2 in the atmosphere (since the Amazon is traditionally one of the largest carbon sinks).

These and other observations suggest that the use of centralist control approaches to improving society has failed.

In response to this conclusion, a “new” idea for centralized control of desired system states through machine learning/AI is currently emerging. However, such ideas face several problems. Besides practical challenges (e.g., different algorithms often do not converge, contain biases, or are sensitive to the data sets/hardware used), there is also a philosophical challenge. Can the past (on which an AI/machine learning algorithm is trained) predict the future?

Furthermore, there is a normative challenge when one attempts to control for a desired goal, in particular when applying such machine learning/ AI algorithms:
How do we know what the right goal (function) is for which one optimizes/controls and for which an AI algorithm is then trained (e.g. reduced levels of CO2)? And how do we weight different goal functions such as reduction of CO2 vs. equal standards of living vs. (maximized) happiness or freedom — just to name a few.

The Normative Challenge

Lets assume for the moment, we would know how to implement a desired system state, the question remains what this desired state should actually be (e.g. less CO2 in the atmosphere), or what trade-off are we willing to accept (e.g. between security and freedom).
What is the goal (function) we want to optimize/control?

Traditionally, we left the determination of this goal function to more or less centralized entities in society:

1. In the past, the church determined the correct goal function through the interpretation of its holy book, the Bible via its priest cast. This resulted in social goal functions that are highly controversial today in hindsight, e.g. same-sex marriages were banned.
2. The church was then replaced over time by the state (more or less democratic depending on the place). It became the bearer of knowledge about right and wrong and summarized this knowledge in the law, which is interpreted by its jurists. The state, through its institutions, now has the knowledge to define the right goal function for society, e.g. what is legal consumption (e.g. alcohol) and what is illegal (e.g. cannabis).
3. Nowadays, it seems that the state is slowly being replaced by corporations, especially larger IT companies. These organizations now have the knowledge of the proper goal function, implemented via clever algorithms written and interpreted by a caste of programmers who know, for example, what hate speech, what censorship, and what free speech is.

These different approaches are derived from the common assumption that a centralized entity can know how the right goal functions (for you and the society) look like, and that you, the individual cannot figure these out. Nevertheless, as the previous examples illustrate, this centralized view in decision making often results in goal functions that cause sufferings, e.g. on an individual level when you are not allowed to be with the person you love, but also on a societal level when one considers for instance the increasing prison population due to the war on drugs.

One might now (again) argue that in the future IT companies will be in the position to determine and weight these goal functions with AI/ machine learning in a fair and unbiased way, e.g. via unsupervised learning. However, in addition to the practical and philosophical challenges mentioned in the previous section, there is another challenge that is combinatorial in nature. This challenge is related to those already mentioned and has actually a deeper cause that fundamentally undermines the belief in a central authority (such as an AI) that knows the correct goal function or controls its implementation.

The cause: Our world is complex

Our world is a complex system which can be represented as a highly interconnected graph, as shown in the figure above. It is actually a network of networks. And this network is characterized by the fact that it is no longer the nodes in the system that determine the overall behavior of the system, but the connections between these nodes. Or to put it another way: complex systems like our world are more than the sum of their parts.

This results in system behaviors that are often perceived as unintuitive: For instance, cause and effect does not seem to work as we were used in a less complex world. This is illustrated by the butterfly effect: A small local change in the system can results via cascading effects to large impacts on the overall system, e.g. the flapping of a butterfly’s wings can lead to a tornado or, as in our above example, the introduction of bio-fuels results in the cut-down of the rain forest. But, also the opposite is possible, large impacts on a system can happen and nothing is changing on the aggregated level.

Not only is our world complex, but its complexity is increasing with every day that is passing. Every day, links are added between the nodes resulting in a combinatorial growth in complexity. This is actually a stronger growth than exponential.

“In complex dynamical systems with many interacting components, even the perfect knowledge of all individual component properties does not necessarily allow one to predict what happens if components interact. In fact, interactions may cause new, “emergent” system properties.” — Dirk Helbing

Complicating matters further, the interactions between the individual parts of a complex system can lead to new, emergent system properties that have feedback effects on the individual parts and further increase complexity.

Because neither processing power nor data volumes are increasing in the same pace, a computational/ algorithmic/ AI solution will not solve the normative problem of identifying the right goal functions or their tradeoffs, as the systematic biases that may result in individual/ societal sufferings as illustrated before will persist in such solutions because one needs to take compromises on the utilized data sets and the approximated/ modeled complexity.

The takeaway from this is that due to emerging properties, combinatorial growth in complexity, and the mentioned practical and philosophical challenges, no individual node in our complex world, not even an AI intelligence can know how the things will be in the future or what a beneficial state in the future could look like (normative challenge) and due to effects such as the butterfly effect how the steps should look like to implement them (control challenge).

This might sound depressing if one is carrying the old belief of centralized control and decision-making as the only mechanisms to manage (complex) systems. But luckily, we have more tools available than these.

The Solution

The solution requires a radical shift in thinking, from top-down control and decision making to bottom-up co-ordination and co-operation, and consists of several tools. In my opinion, they are all based on one very important component:

You.

Hence, the question is: Are you willing to learn about your power to change the world to the better? If yes, then stay tuned for the next part of this Mini-Series:

Complex Systems — Part 2: Managing complexity with bottom-up solutions

Recently at onocoy, we had to make a chain selection for a decentralized physical infrastructure network (DePIN). onocoy is operating in the GNSS industry, that includes e.g. GPS. Since a) there are a lot of different chains to choose from, and b) DePIN is a novel use case for blockchain technology (alongside e.g. gaming, NFTs, and DeFi), we decided to share our methodology, final decision and lessons learned with the community so that others have an easier path ahead of them when it comes to chain selection.

The DePIN network

The purpose of this section is not to illustrate the DePIN network ‘onocoy’ in great details, but to give the reader enough information to understand decisions that have been made in the following sections (e.g., selection criteria).

Following the example of Helium, onocoy aims to build a dense network of RTK reference stations covering all land masses of the Earth (100,000 stations are required) to improve positioning obtained with GNSS (e.g. GPS) from meter-level accuracy to sub-centimeter accuracy. This would enhance existing applications (e.g., land surveying, autonomous vehicles, coastal navigation, etc.) to serve an established market (the medium-term goal is to have 2 million of these customers on board), but also enable new applications such as passive radars, identification of spoofing attacks, and advanced weather mapping.

onocoy is a collaborative project that solves a real tragedy of the commons in the GNSS industry: All the established players in the industry want a global and dense RTK reference station network, but the current incentives (e.g., cost, revenue, etc.) are set in such a way that this network is not being built. onocoy realigns these incentives by: Token-based rewards to cover investment costs in the infrastructure network through crowdsourcing, as well as transparent and inclusive governance to facilitate adoption and convergence of competing GNSS industry players on the onocoy platform. As these are the main use cases for blockchain technology, apart from the automation that is also required in this DePIN network, onocoy opted for building its system on top of an established smart contract platform. Notably, onocoy’s goal is to be fully decentralized in its final state, which means that all key interactions in the system will be enabled or secured via the blockchain.

The incumbent GNSS industry and its customers are not considered crypto-savvy and tend to be risk averse, so they expect the onocoy platform to provide a similar experience to what they are used to from web2. This is why a deflationary burn-mint model was chosen for onocoy, as it allows for stable fiat prices for end users that the GNSS industry is accustomed to, while allowing for strong token appreciation (as recently proved), which is important for the success of a blockchain project.

Chain selection methodology

We sampled by convenience a long list of potential chains which would facilitate the implementation of the envisioned DePIN system. We utilized a simple heuristic by starting from systems that were familiar to us and then extending this list whenever we identified a new system in our research. In total we considered 35 systems.

On this long list we applied a set of rejection criteria. As long as one of this criteria was applicable to a system it was removed from the list, leaving us with a short list of 8 systems. The rejection criteria and their reasoning are as follow:

• No smart contracts: To avoid being challenged by building its own blockchain network, onocoy opted for an established L1 blockchain on which systems can be implemented via smart contracts functionality. Hence, if a platform does not offer smart contracts, it was removed from the list.
• Multi-chain system: Out of complexity consideration, onocoy also decided against utilizing a multi-chain system which would still require from onocoy to maintain an own consensus/ dealing with additional cryptoeconomic complexity.
• Permissioned system: Trust and transparency are central to onocoy and therefore require a permission-free blockchain system. Therefore, permissioned systems were rejected.
• Small community: As community is everything in web3, systems with a small community have been removed.
• Small maturity: As onocoy is serving a risk-averse GNSS industry, systems with a small maturity/ age have been rejected.

The remaining 8 system were compared based on a set of selection criteria. These are

• Decentralization: Strong decentralization of the L1 is needed to fend off state-level attacks that could occur once onocoy is fully deployed due to the nature of the service it provides (accurate positioning).
• Scalability of the platform is necessary, as in the near future already 2 million users and 100k reference stations will regularly interact with onocoy and the underlying blockchain. A conservative estimate already results in 22 TPS (transactions per second) required by onocoy, more than many blockchains can handle.
• Low transaction fees are desired to make onocoy’s business model viable and not overly burdensome to customers who primarily initiate transactions in the chain.
• High market cap of a system as a proxy for its economic viability and thus likelihood of survival.
• On-chain governance: Possibility to participate in L1 configuration and development via voting as a further indicator of decentralization.
• Funding possibility in the ecosystem of the L1 — ideally commitments can be obtained before a chain is selected.
• Liquidity of the L1 token, which facilitates the tradability of the onocoy token.

Based on the previous comparison, 3 systems were collected that were than compared in detailed based on

• Technology (incl. TPS, blocktime, trx fees),
• Liquidity of native token in order for users of the platform to exchange onocoy tokens with third parties.
• Ecosystem including criteria such as amount of developers, existence of other DePIN networks on the chain, and the focus of the chain on DePIN networks. These are all important criteria for onocoy guaranteeing that it can benefit from network effects such as common/community tool development, shared marketing efforts/ conferences/ security audits, etc.
• Securing funding should be enabled/ made easy by choosing a chain (e.g. having a rich grant ecosystem, positive sentiment by investors, etc.).
• Risks of choosing a platform should be manageable (e.g., technology failures, ecosystem shrinkage, etc.).

Based on this detailed comparison, a chain is selected on which a detailed risk analysis is performed. If this risk analysis results in a chain rejection, another candidate of the top 3/8 should be chosen. In the case study illustrated in this article such iterations were not required.

Results from the case study

The following figure illustrates the 35 system and the selected systems after each refinement step of the utilized methodology.

Three system are identified to be well suited to implement the DePIN system under consideration: Algorand has a fair consensus and very secure/ stable network. Polygon is scalable and has access to the resources of the Ethereum ecosystem. Finally, Solana is scalable, has cheap transactions and a large ecosystem. These last reasons made onocoy select Solana as its L1 blockchain. In particular, for the following reasons Solana has been chosen:

1. High throughput: Solana theoretically facilitates 65k transactions per second (TPS). At the time of writing, 4k TPS are observed of which 200–500 TPS are related to user activity. An all time high with 8453 TPS has been recorded in the past making it the smart contract platform with the highest ever observed TPS. A high throughput is important for onocoy, because in the medium term it is expected that it will have 100k reference stations and 2 Million users which will will result in a large amount of transactions initiated to the chain (once onocoy is fully decentralized). Assuming a conservative estimation of one interaction per user/ miner per day this already results in 22 TPS, more than some chains are currently (able to) handle. Solana has the capacity to cater for an increasing TPS need of onocoy.
2. (Reliably) cheap transactions: At the time of writing the average cost per transaction is 0.00017 $ (0.0000079 SOL) on Solana. Assuming that for each miner and user (100k miners/ 2 million users) the blockchain has to be accessed once per day, this sums up to 364$ per day that is required to be paid by onocoy or its customers. For one of the other candidates the minimum requirement for transaction fees already results in 21609$ per day (59 times more) that would have to be paid. Also, other chains had spikes in transaction fees in the past that would have resulted in a cost at those days of >1 Million $ for the onocoy network paticipants. Such peaks in transaction fees have not been observed with Solana.
3. Fastest block time: Solana has a blocktime of 0.4 seconds. When a user experiences more than a second of latency in an app (the brain processes information it sees at <0.15 seconds), it can feel like an eternity. With Solana onocoy is able to build DApps that allow seamless interactions for (non-crytpo native) users from the GNSS industry.
4. Large developer base: Solana has the second largest developer base after Ethereum. A large developer base is important for onocoy because it can leverage the community to develop tools on top of its platform (e.g., as it has happened in Helium, e.g. transaction extractions tools, or novel types of dashboards).
5. Focus on DePIN projects: Solana has communicated the goal to be the to-go platform for DePIN (e.g., their head of communications on Twitter). Hivemapper is already on Solana and Helium voted to move to Solana. This emerging DePIN ecosystem is of importance for onocoy, because synergies with these projects can be utilized/ explored (e.g. a tool has already been implemented that allows (non crypto native) users to pay with FIAT for service access within a deflationary burn-mint token model, which onocoy is also utilizing.)
6. Clear roadmap to scalability, decentralization and resilience: Several initiatives and projects withing the Solana ecosystem work on further scaling and decentralizing it. E.g. a second validator client is currently in development which will improve the decentralization of Solana and potentially also scale the blockchain further. Moreover, programs are in place to decentralize validators. Also, updates such as QUIC and local fee markets were introduced to improve the resilience to DDOS attacks, also a decentralized indexer has been developed. A decentralized and resilient L1 blockchain is of importance for onocoy as it potentially can be under attack of colluding nation states.
7. Popular programming language: Programs (smart contracts on Solana) can be written in Rust and C which are amongst the most popular programming languages worldwide. This will make it easier for non-native crypto developers from the GNSS industry to onboard on the code stack of onocoy. In particular, Solana has perfected the webdev to web3 onboarding pipeline.

In order to have a complete overview of the possible consequences of the selection of Solana for onocoy, a detailed risk analysis for the next 24 months has been conducted. The three main risks related to the selection of Solana as L1 are:

1. Funding risk: Due to the FTX scandal, investors seem less likely to invest in Solana based projects. Nevertheless, despite all the negative reporting, VCs are still investing into Solana based projects (e.g. sec3), though we experienced concerns from some investors. Nevertheless, we also identified VCs that would invest in projects built on Solana.
   Not receiving funds would make it necessary for a DePIN system to pivot either on technology, business model, legal structure or financing strategy, thus the materialization of this risk would have a large impact on onocoy. However, it is important to remember that the underlying chain is only one factor in the overall rationale for or against investing in the minds of investors and is not the first priority; things like numbers, brand, and community matter more. Changing the chain alone does not make these other points go away.
   To mitigate the financing risk that might result from choosing Solana as the L1, a DePIN system should carefully elaborate their requirements for an ideal L1 and then illustrate how these can be met with Solana (see previous points 1–7).
2. Technology risk: Several outages were observed in Solana in the last years (e.g., due to DDoS attacks, bots, and bugs). The core technology of onocoy will be only slightly affected by such outages in the next two years. However, a decentralized system, as onocoy aims to be in the future, would be severely affected, preventing the issuance of rewards or user access to data streams.
   To mitigate the impact in the near future, onocoy is developing its system such that it can enter information to the blockchain once it comes back online. In addition, the system is designed so that downtime does not negatively impact miner rewards or user costs. In addition, data streams are accessible to users even when the blockchain is down.
   Furthermore, Solana mitigates this technology risk by introducing priority fees and identifying large transactions so that large token drops do not overload the network (local fee markets). In addition, the QUIC update to the data transfer protocol is expected to reduce Solana’s vulnerability to DDoS attacks, a major cause of previous network outages. In addition, a second validator client is currently being developed, which could reduce the risk of bugs, since the probability of them occurring simultaneously in two independently maintained code bases is low.
   However, if these outages continue for more than 2 years, onocoy might have to pivot its chain.
3. Centralization risk: Centralized validators & foundation influence on Solana could result in a resilience risk to onocoy, if either a) malicious actors take over the consensus or b) the association stops to function halting maintenance/ development of the network. In particular, in risk scenario a) an attacker might change important entries for onocoy retrospectively in the blockchain or inhibit entries from being entered (“censored”) if having a majority in the consensus. Such an attack would have a large impact on a DePIN system as its customers/ stakeholders might lose trust. Solana has currently a Nakamoto Coefficient (NC) of 32 in its validators making it to one of the most decentralized systems in this metric. Requiring a higher NC would probably result in choosing Bitcoin or Ethereum, which come with other tradeoffs such as transaction fee cost. Solana is actively mitigating this risk further by decentralizing its validators via a) a second validator client and b) incentive programs for validator setup. Also cost for hardware required to participate in Solana consensus is expected to go down over time potentially resulting in a further decentralization of the consensus. In order to mitigate this risk, a DePIN network can implement an own warning system to identify such types of attacks and than have mechanisms in place to resolve them off-chain. As this is a major security flaw in the underlying infrastructure, a DePIN system would be required to move to another chain if this happens. Solana is also actively mitigating risk scenario b) by having its code open-sourced and nurturing a large developer ecosystem that would be able and willing to maintain the chain even if the foundation stops functioning. Moreover, the likelihood of this to happen in the medium term future (~2 years) is low as the Solana foundation is well funded.

Conclusion and lessons learned

Based on the above analysis, we have concluded that the benefits of Solana outweigh the risks many times over, and that Solana is therefore the right choice for onocoy’s DePIN. In particular, Solana promises to become the infrastructure layer that will facilitate the mass adoption of high-precision positioning by onocoy in the future.

While executing the chain selection methodology, three takeaways were identified that are briefly illustrated in the following.

1. There exists (currently) no perfect chain that would check all desired requirements of a DePIN system (and probably never will). All come with some tradeoffs and have risks associated with certain components in their (eco)system (e.g., high security guarantees, such as those achieved with a proof-of-work consensus like Bitcoin uses, come for instance with a tradeoff in energy consumption). Researchers involved in the selection process have to be aware of this observation in their discussions. In particular, a leap of faith based on top of a rigorous analysis as illustrated in this article may be the right way forward when it comes to chain selection facilitating a right balance between rigorousness and efficiency.
2. Obtaining funding from a chain’s ecosystem before a clear commitment to that chain is from our experience unrealistic. In particular, an ecosystem of a chain would first like to see that you are already building on their chain. Thus this cannot be a viable selection criteria (e.g. in order to identify the top 3 chains).
3. Different modes of operandi in web3 and established industry require well-thought communication strategies. In particular, web3 people are often interested in a transparent and open process in which concerns are debated publicly, while established industry members often prefer a solid communication of results that provides security. Therefore, we recommend that other communities follow the method described above rigorously and transparently with those interested in or having an opinion on the chain selection, and share only the final selected chain with the broader community, along with the benefits and risks of that chain as presented in this article.

We are always happy to learn from and help others. So if you have any questions, comments, disagreements, etc., feel free to contact us (Mark, Uroš, Nathan, Samuel). Especially if you want to discuss details. Let’s make this DePIN thing work!

Chain selection for a decentralized physical infrastructure network (DePIN) was originally published in WiHi — Weather on Medium, where people are continuing the conversation by highlighting and responding to this story.