The road to decentralization: Optimal coverage on Decentralized Physical Infrastructure Networks (DePIN)

Decentralized Physical Infrastructure Networks (DePIN) represent an emerging organizational form for operating physical infrastructure through blockchain-based coordination. DePIN through decentralized protocols and token-based payment mechanisms incentivize independent agents to deploy, maintain, and monetize real-world infrastructure, such as wireless networks, storage units, or sensors. This article presents a first formal economic analysis of DePIN architectures, modelling investment decisions under network effects in a blockchain-native Decentralized Autonomous Organization (DAO), with protocol-defined reward schemes. It establishes the equilibrium conditions that support decentralized provision, where token prices internalize participation, service reliability, and network coverage. Furthermore, it identifies a minimum viable coverage threshold determined by costs and network effects. Through a multi-agent machine learning simulation, we confirm that decentralized provision improves efficiency compared to centralized models. The results support the economic viability of DePIN and provide design guidelines for future decentralized infrastructure protocols. Finally, we propose an DAO incentive mechanism to implement First Best provision in Decentralized Physical Infrastructure Networks. • We develop a formal economic model of DePIN with decentralized entry, Cournot competition, and token-based payments, and derive the equilibrium conditions and minimum viable coverage threshold for the market. • Benchmarking against monopoly and a social planner, we show that DePIN mitigates monopoly under-provision yet remains below the social optimum. Moreover, we argue that enabling users to become providers has the potential to further narrow this welfare gap. • We simulate the theoretical model using reinforcement learning algorithms and show convergence of their results. A multi-agent Q-learning simulation validates the model: competitive DePIN achieves high coverage ∼ 74 % , low prices, and near-full adoption, while monopoly restricts output and keeps prices higher. • Finally, we propose an DAO incentive mechanism to implement First Best provision in Decentralized Physical Infrastructure Networks. • Our results have direct financial implications for designing DePIN structures. Policies that stabilize token value (e.g., pegging, staking/vesting) and encourage early entry raise long-run coverage. We map real-world DePIN sectors and capitalization as a possible guide to prioritize incipient applications.