Blockchain infrastructure is inherently circular. The core value proposition of protocols like Ethereum and Solana is a shared, verifiable state machine that eliminates redundant trust and computation. This creates a public good that applications rent, forming a closed-loop economy where usage fees sustain the network's security and development.
depin-building-physical-infra-on-chain
Blog
Can Blockchain Truly Enable a Circular Economy for Infrastructure?
DePIN presents the first real-world test of using transparent ledgers and programmable incentives to coordinate the reuse, refurbishment, and recycling of physical assets at a global scale. This analysis dissects the technical feasibility and economic viability.
introduction
THE PARADOX
Introduction
Blockchain's promise of decentralized, shared infrastructure is undermined by its own fragmented and capital-inefficient reality.
Current execution is deeply inefficient. The proliferation of monolithic L1s and isolated L2 rollups like Arbitrum and Optimism has fractured liquidity and security, forcing protocols to re-bootstrap capital and users on each new chain. This is the antithesis of a circular model.
The solution is modular specialization. Projects like Celestia (data availability), EigenLayer (restaking), and AltLayer (rollup-as-a-service) are decomposing the stack. This enables resource reusability—security and data become composable commodities, not siloed assets, which is the prerequisite for a true circular economy.
thesis-statement
THE INCENTIVE MISMATCH
The Core Argument
Blockchain's current infrastructure model is extractive, but programmable incentives and shared sequencing create a path to a self-sustaining circular economy.
The current model is extractive. Infrastructure like RPC endpoints, indexers, and sequencers capture value from applications without returning it to the network's security or its users, creating a fundamental incentive misalignment.
Programmable incentives enable circularity. Protocols like EigenLayer for restaking and Espresso for shared sequencing demonstrate that infrastructure can be funded by and secured by the same capital that uses it, turning a cost center into a yield-generating asset.
Shared sequencing is the catalyst. A marketplace for block space, as pioneered by Espresso Systems and Astria, commoditizes execution and allows rollups to redirect sequencer profits to decentralized validator sets or direct user rebates.
Evidence: EigenLayer has over $15B in restaked ETH, proving validators will allocate security to new services for yield, creating a flywheel where infrastructure demand funds its own supply.
key-trends
THE WASTE MACHINE
The Linear Economy's Fatal Flaws
Traditional infrastructure is a one-way street of capital expenditure, vendor lock-in, and stranded assets. Blockchain's verifiable compute and programmable ownership offers an escape hatch.
01
The Capital Sinkhole
Infrastructure is a capex black hole. You over-provision for peak demand, then watch >70% of capacity sit idle while depreciating. The financial model is broken.\n- Sunk Cost Fallacy: Hardware is a liability, not an asset.\n- Illiquid Investment: Billions in servers and data centers are financially stranded.
>70%
Idle Capacity
$100B+
Stranded Capex
02
Vendor Lock-In as a Service
AWS, Google Cloud, and Azure are the new landlords. You don't own your stack; you rent it at their price, on their terms, with proprietary APIs that make migration a multi-year rewrite.\n- Architectural Debt: Your app's logic is hostage to a single provider's roadmap.\n- Cost Opacity: Egress fees and complex billing create unpredictable, inescapable costs.
30-50%
Premiums Paid
Vendor Risk
Single Point
03
The Utilization Paradox
Global compute is massively fragmented and inefficient. One company's idle GPU is another's critical bottleneck, but there's no efficient, trustless market to connect them.\n- Wasted Cycles: Petaflops of potential compute are powered on but doing nothing.\n- Fragmented Silos: Supply and demand are trapped in corporate walled gardens.
Petaflops
Wasted
0%
Market Efficiency
04
Solution: Verifiable Compute Markets (Akash, Render)
Blockchain creates a liquid, spot market for raw compute. Provenance and payment are settled on-chain, turning infrastructure into a fungible commodity.\n- Dynamic Pricing: Supply and demand set real-time prices, not annual enterprise contracts.\n- Proof-of-Work (Useful): Cryptographic proofs (like zk proofs) verify work was done correctly, enabling trust between strangers.
-90%
vs. Cloud Cost
Global Pool
Of Supply
05
Solution: Programmable Ownership (Helium, Hivemapper)
Tokenize the physical asset. A cell tower or a dashcam becomes a revenue-generating node in a decentralized network, owned by its operators. Capex is crowdsourced and aligned via protocol rewards.\n- Aligned Incentives: Operators earn tokens for providing coverage or data, not selling hardware.\n- Composable Infrastructure: Networks can be built by assembling independent, owned nodes.
Crowdsourced
Capex
Token-Aligned
Growth
06
Solution: The DePIN Flywheel
This is the endgame: a self-reinforcing economic loop. Useful work earns tokens, token value attracts more operators, which improves network service, which drives more usage and demand. The linear model is inverted.\n- Circular Capital: Revenue is reinvested into the network via tokenomics, not extracted as profit.\n- Anti-Fragile: Decentralized ownership makes the network stronger with more participants, not more dependent on a single entity.
Network Effects
Compounding
Linear → Circular
Economy
CAN BLOCKCHAIN ENABLE A CIRCULAR ECONOMY?
DePIN vs. Traditional Infrastructure: A Lifecycle Comparison
A first-principles breakdown of how decentralized physical infrastructure networks (DePIN) fundamentally alter the capital, operational, and incentive models of infrastructure from buildout to end-of-life.
| Lifecycle Phase | Traditional Infrastructure (Centralized) | DePIN (Decentralized) | Circular Economy Impact |
|---|---|---|---|
Capital Formation | VC/PE rounds, corporate debt, >18-month lead time | Token incentives, permissionless staking, <6-month network bootstrapping | Democratizes access to infrastructure capital via global liquidity pools |
Resource Procurement | Centralized RFPs, long-term vendor lock-in, 20-30% procurement overhead | Open market for hardware (Helium, Hivemapper), composable supply chains, <5% overhead via smart contracts | Creates secondary markets for hardware, reducing e-waste through tokenized asset ownership |
Operational Governance | Hierarchical corporate structure, quarterly board reviews, stakeholder primacy | On-chain DAO voting, real-time protocol parameter updates, user & operator primacy | Aligns operator rewards with network health, enabling adaptive, community-driven upgrades |
Revenue & Value Capture | Centralized entity captures >90% of profits, value accrues to equity holders |
| Recirculates economic value to participants, creating a closed-loop incentive flywheel |
Maintenance & Upgrades | Scheduled downtimes, monolithic upgrades, high coordination cost | Incremental, forkless upgrades via governance, near-zero network downtime | Incentivizes continuous, granular improvements by rewarding operators for uptime & performance |
End-of-Life / Decommissioning | Asset write-downs, stranded capital, landfill e-waste | Token-burning mechanisms, hardware resale markets, asset re-staking into new networks | Enables graceful decay & capital recycling; hardware tokens can be migrated to new protocols |
deep-dive
THE VERIFIABLE FLOW
The Technical Blueprint for Circular DePIN
Blockchain enables a circular economy for infrastructure by creating a verifiable, on-chain record of resource production, consumption, and compensation.
The core mechanism is tokenization. Every physical resource unit—a megabyte of bandwidth from Helium, a compute-hour from Render, or a watt-hour from a solar panel—is minted as a verifiable, on-chain asset. This creates a native financial layer for infrastructure, turning usage into a tradable commodity.
Automated settlement via smart contracts eliminates rent-seeking intermediaries. Protocols like IoTeX and peaq use on-chain oracles to attest to real-world data, triggering immediate, trustless payments to hardware operators. This reduces friction costs from ~30% in traditional models to near-zero.
The counter-intuitive insight is that decentralization creates efficiency. Centralized platforms like AWS optimize for their own margins. A circular DePIN, governed by protocols like The Graph for data indexing or Pocket Network for RPC, aligns incentives so that value flows directly between producers and consumers.
Evidence: Helium’s migration to the Solana blockchain demonstrates the scaling requirement. Its original L1 choked under the load of millions of daily device transactions. A functional circular economy needs the throughput of Solana or a dedicated app-chain to settle micro-transactions at global scale.
protocol-spotlight
PROTOCOL-DRIVEN RECYCLING
Early Experiments in Circular Coordination
Blockchain's native incentive layer is being tested to create self-sustaining loops for infrastructure costs and rewards.
01
The MEV-Burn & EIP-1559 Flywheel
Ethereum's fee market burns base fees, creating a deflationary pressure that rewards all ETH holders proportionally. This turns network congestion (a cost) into a collective asset.
- Key Benefit: ~$10B+ in ETH permanently burned, directly linking usage to token value.
- Key Benefit: Aligns validator rewards with long-term network health over short-term extractive MEV.
$10B+
Value Burned
Deflationary
Net Supply
02
Lido's stETH & Protocol-Controlled Value
The dominant liquid staking protocol captures and redeploys stake to secure other chains (e.g., EigenLayer, Babylon). Fees from these services flow back to the Lido DAO treasury.
- Key Benefit: Creates a circular revenue stream where staking yields fund protocol R&D and security.
- Key Benefit: $30B+ TVL demonstrates market preference for economically-aligned, reusable capital.
$30B+
TVL
Multi-Chain
Yield Source
03
The Rollup Sequencer Fee Dilemma
Today, sequencer profits from L2s like Arbitrum and Optimism are extracted by centralized operators. The circular economy experiment is to capture and redistribute these fees back to the protocol or token holders.
- Key Benefit: Future models could fund public goods (e.g., developer grants) or token buybacks from sequencer revenue.
- Key Benefit: Transforms a centralized rent into a decentralized sustainability mechanism, closing the economic loop.
100%
Fee Capture
Public Goods
Redistribution
04
EigenLayer's Restaking Primitive
Allows ETH stakers to 'recycle' their security by opting their stake into new Actively Validated Services (AVSs). This reuses capital and security instead of bootstrapping new tokens.
- Key Benefit: Capital efficiency for AVSs; they inherit Ethereum's $80B+ security.
- Key Benefit: Creates a marketplace where stakers earn extra yield, and new protocols bootstrap trust cheaply.
$80B+
Security Pool
Multi-Yield
Staker Reward
05
Cosmos Hub & Interchain Security
The Hub's ATOM stakers can secure consumer chains, which pay fees back to the validators and the Hub's community pool. This turns a governance token into a productive security asset.
- Key Benefit: Monetizes sovereignty for new chains without launching a new token.
- Key Benefit: Fees flow to ATOM stakers and the DAO, creating a sustainable economic model for the core protocol.
Sovereign
Chain Security
DAO Funded
Revenue Share
06
The Failed Experiment: Olympus DAO (3,3)
An attempt at a circular treasury via protocol-owned liquidity and bond sales. It demonstrated that ponzinomic feedback loops are unsustainable without real external revenue.
- Key Benefit: Proof-of-Concept for protocol-controlled assets and treasury diversification.
- Key Benefit: A critical lesson: circularity requires exogenous value input; closed loops inevitably decay.
-99%
From ATH
Exogenous Input
Required
counter-argument
THE ORACLE PROBLEM
The Hardest Problems Remain Physical
Blockchain's circular economy for infrastructure is bottlenecked by the physical world's data and its verification costs.
The oracle problem is terminal. A circular economy requires real-world data (energy consumption, hardware uptime) to trigger on-chain rewards. This creates a single point of failure and trust in data providers like Chainlink or Pyth, negating decentralization.
Physical verification is impossibly expensive. Proving a server is running or a solar panel is generating power requires trusted hardware (like TEEs) or physical audits. These solutions are centralized choke points or economically unfeasible for micro-transactions.
Compare Helium to Lido. Helium's Proof-of-Coverage struggles with spoofing, requiring complex radio challenges. Lido's staking is purely digital, with slashing enforced by the Ethereum consensus layer. The physical/digital divide defines scalability.
Evidence: Projects like peaq network attempt this for physical machines, but their tokenized DePIN model still relies on oracles and trusted hardware, illustrating the unsolved trust transfer from atoms to bits.
takeaways
CIRCULAR INFRASTRUCTURE
Key Takeaways for Builders and Investors
The current model of fragmented, rent-seeking infrastructure is unsustainable; here's how blockchain enables a self-reinforcing economic loop.
01
The Problem: The MEV Tax on Every Transaction
Validators and searchers extract ~$1B+ annually from users, creating a fundamental inefficiency. This is a direct tax on the circular economy's velocity.
- Siphons Value: Revenue leaks out to passive capital, not protocol builders.
- Distorts Incentives: Builders optimize for extractable opportunities, not user experience.
- Solution Path: Encrypted mempools (e.g., SUAVE), MEV-Boost relays, and intent-based architectures.
$1B+
Annual Extract
>90%
Of Txs Impacted
02
The Solution: Token-Incentivized Physical Networks
Projects like Helium (HNT) and Render (RNDR) demonstrate a model: token rewards bootstrap and coordinate real-world hardware.
- Capital Efficiency: Avoids $100M+ upfront capex for network rollout.
- Aligned Ownership: Operators are also stakeholders, creating a positive feedback loop.
- Builder Focus: Design tokenomics where infrastructure usage directly fuels rewards and burns.
1M+
Hotspots Deployed
10-100x
Capex Efficiency
03
The Pivot: From Staking for Security to Staking for Utility
Pure Proof-of-Stake secures the ledger but creates idle, non-productive capital. The next wave ties stake to specific service provision.
- EigenLayer Restaking: Secures AVSs (Actively Validated Services) like oracles and bridges.
- Yield Source: Stakers earn fees from the services they secure, not just inflation.
- Investor Mandate: Back protocols where the native token is a productive asset, not just governance.
$15B+
TVL Restaked
New Yield
From Utility
04
The Architecture: Modularity Enables Specialization & Recycling
Monolithic chains force one-size-fits-all resource pricing. Celestia, EigenDA, Arbitrum Orbit enable specialized execution and data layers.
- Resource Markets: Unused block space on one rollup can be a cheap data layer for another.
- Composability: Shared security and liquidity layers (e.g., LayerZero, Axelar) become circular economy hubs.
- Builder Action: Develop for a specific resource niche (compute, data, liquidity) within a modular stack.
100x
Cost Variance
Modular
Stack Growth
05
The Flywheel: Protocol-Owned Liquidity & Revenue
Treasuries holding their own liquidity (e.g., Uniswap v3 positions) or other productive assets create a perpetual motion machine.
- Sustainable Funding: Protocol revenue funds development and security, not just token emissions.
- Reduces Dilution: Cuts reliance on constant token sales to pay validators/operators.
- VC Lens: Evaluate protocol-owned balance sheets and revenue retention mechanisms.
$3B+
UNI Treasury
>0%
Revenue Growth Target
06
The Reality Check: On-Chain Cost Must Trend to Zero
A circular economy cannot exist with high, volatile transaction fees. Scaling is not optional.
- Data Availability: Celestia, EigenDA, Avail target <$0.001 per KB.
- Execution: Parallel VMs (Solana, Monad, Fuel) and L3s target ~$0.01 per complex tx.
- Non-Negotiable: Infrastructure is only circular if the cost to participate is negligible.
<$0.001
Per KB Target
~100k TPS
Required Scale
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