Perspective by: Kai Wawrzinek, co-founder of Impossible Cloud Network
It appeared as if the era of punitive enforcement by the US Securities Exchange Commission against crypto was at an end, yet former Chair Gary Gensler left behind some valuable insights to discover. Even after his tenure, Gensler’s “regulation through enforcement” strategy keeps echoing.
We might currently be experiencing the first crypto-friendly administration in United States history, but a significant amount of effort remains necessary in untangling the chaos caused by unclear, contradictory, or nonexistent regulations. A particular sector within crypto requires clear guidance on how to function without provoking the ire of regulators: decentralized physical infrastructure networks (DePIN).
DePIN initiatives, ranging from decentralized cloud solutions to telecommunications and collective sensor networks, depend on tangible implementations and strong tokenomics. When regulators do not clarify how these tokens and their governance frameworks ought to be classified, projects are left uncertain — and sometimes, find themselves in litigation.
Allow DePIN to function
While the majority of crypto sectors are entirely digital and seldom intersect with the tangible world, DePIN stands apart. The hint lies in the word “physical” within DePIN. One of the most recognized DePIN projects motivates users to establish wireless hotspots that form a decentralized Internet of Things network. Other DePIN initiatives comprise the creation of decentralized cloud services, crowdsourcing environmental data, decentralized energy infrastructures, and more.
This convergence of blockchain technology, hardware, and real-world services poses a distinctive set of regulatory obstacles that necessitate customized solutions — solutions that are currently absent in the SEC’s existing strategy. The exceptional interaction between the physical and digital domains demands a regulatory system that is both explicit and future-oriented. Businesses are left in the dark regarding what defines compliance in the absence of clear regulations about token issuance, data privacy, and infrastructure deployment.
This regulatory uncertainty curtails investment and poses a risk of impeding the technological advancement that DePIN holds. Regulatory bodies must give precedence to establishing clear and candid guidelines for crypto — with genuine attention to DePIN. If explicit regulations are instituted, DePIN startups will be liberated to develop innovative infrastructures that address essential, real-world challenges, rather than squandering resources on legal fees and disputes.
Recent: Crypto VCs are ‘increasingly optimistic’ about DePIN, RWAs
Some may contend that functioning in an industry with minimal regulations is preferable to one encumbered by excessive rules. Nevertheless, history illustrates that well-designed regulations frequently create pathways for sustainable growth, just as construction codes enable skyscrapers to achieve remarkable heights while respecting the heritage and origin of the cities they inhabit. Thoughtful regulations do not stifle innovation; rather, they anchor it and create a dependable foundation upon which creative ideas can thrive.
Where DePIN requires clarity
Regarding the regulation of a rapidly evolving crypto sector that spans numerous fields, from AI to telecommunications, there are three key areas where enhanced clarity would serve all stakeholders.
Securities vs. utility: Explicit regulations concerning the issuance, distribution, and use of DePIN tokens are crucial. This clarity will safeguard investors and facilitate reliable planning and expansion. Without it, initiatives are compelled to navigate ambiguous guidelines, diverting their resources toward legal compliance instead of innovation.
Data privacy: DePIN platforms collect and manage real-world data, ranging from location signals to environmental metrics. Neglecting to address privacy issues through clearly defined regulations could provoke a regulatory backlash and erode consumer trust. A forward-thinking regulatory framework should outline how data can be acquired, retained, and monetized while balancing user privacy with the operational demands of these networks.
Global infrastructure deployment: Numerous DePIN solutions deploy devices or networks physically that traverse national boundaries and compliance frameworks. An inconsistent mosaic of state, federal, and international regulations can hinder the very essence of DePIN’s global potential. Policymakers must harmonize these frameworks to ensure that hardware deployment, spectrum allocation, and other logistical aspects do not morph into overwhelmingly intricate legal mazes.
A favorable arrangement for all
While the direct beneficiaries of more precise regulations will be DePIN projects, it will also benefit regulators — at least in terms of public perception. The data are clear regarding how much the SEC has profited from fines imposed on crypto projects retroactively. This has, however, resulted in a significant migration of the industry out of the US. The newly appointed SEC leadership has a distinctive chance to establish a benchmark through prudent crypto regulations that emphasize guidance over punitive measures.
A lengthy list of tasks awaits the SEC chair, covering both crypto and the broader financial markets. Realistically, DePIN may not top that list. Yet, this remains an opportune moment for the SEC to showcase its intended approach to innovative sectors like DePIN. This crypto domain has clearly delineated user groups, specific work being executed, and easily assessable outcomes.
If the new SEC administration wishes to indicate to the crypto sector the treatment it can anticipate over the next four years, it would be wise to commence engagement with DePIN.
DePIN transcends merely being another crypto fad. It serves as a portal to connect our digital and physical realms in manners we are only beginning to imagine. With thoughtful and proactive regulations, DePIN can achieve its vast potential: addressing essential, real-world infrastructural challenges that, with proper regulation, adhere to no violations and enhance our daily lives.
Perspective by: Kai Wawrzinek, co-founder of Impossible Cloud Network.
This article is for general informational purposes and is not intended to be and should not be regarded as legal or investment advice. The views, opinions, and thoughts expressed herein are solely those of the author and do not necessarily mirror or represent the views and opinions of Cointelegraph.
