DePIN in China: From "Policy Dilemma" to "Compliance Breakthrough" Possibility

DePIN this concept has suddenly become a new favorite in Web3, but in China, it faces a seemingly unsolvable paradox: it must incentivize participants to build infrastructure while surviving under strict virtual currency regulations.

What exactly is DePIN? Why is it gaining attention?

The formal name “Decentralized Physical Infrastructure Network (DePIN)” originated at the end of 2022. At that time, research firm Messari solicited names for “Web3 physical infrastructure,” and DePIN stood out among several candidates, including proof-of-work, token-incentivized infrastructure, and others.

Messari predicted that “the adoption of DePIN will surpass early financial transaction use cases in the crypto space,” ultimately driving the development of Web3 value networks. This judgment is not unfounded.

The core logic of DePIN is simple: use virtual assets to incentivize ordinary users to deploy and maintain hardware, building a decentralized infrastructure network. Users earn tokens by contributing computing power, storage space, or bandwidth, and these tokens can be used for trading or accessing services.

FIL project is the most typical example. Launched in 2020, it connects users needing cloud storage with those who have idle hard drive space, incentivizing storage providers with Filecoin tokens, and creating a decentralized storage network similar to Google Cloud and Amazon AWS. The beauty of this model is that costs are distributed among participants, who actively maintain the infrastructure due to token incentives, ultimately forming an efficient, low-cost service ecosystem.

Compared to traditional centralized infrastructure, DePIN greatly reduces the cost burden on individual participants through virtual asset incentives and stimulates the motivation for the entire network to co-build. This is why it is viewed as a track with more development potential than purely consumer applications like GameFi.

China’s policy “tightening”—how can DePIN projects break through?

However, in China, all these promising ideas have run into the policy walls erected since 2021.

In September 2021, two important notices changed the fate of virtual currencies in China: the “Notice on Further Preventing and Disposing of Risks of Virtual Currency Trading and Speculation” and the “Notice on Rectifying Virtual Currency ‘Mining’ Activities.” Since then, domestic virtual currency-related activities have largely stalled.

The question then arises: Will behaviors like “participation and contribution” in DePIN projects be deemed illegal virtual currency mining activities?

Here, a key legal distinction needs clarification.

The policy notices define virtual currency “mining” activities specifically as “the process of producing virtual currencies through dedicated mining machines.” The core issue with such mining is enormous energy consumption. For example, a case in Chaoyang District Court involved the “XinDong T2T” miner, with a single device consuming 2200 watts, and thousands of units deployed. Such large-scale deployment of high-power devices inevitably leads to energy waste, increased carbon emissions, and negative impacts on high-quality economic and social development.

In contrast, the “participation and contribution” mode in FIL is entirely different. Storage participants do not need high-power mining machines but ordinary storage devices (like hard drives). The key data point is: these devices only consume a few dozen watts—comparable to a regular light bulb. Since there is no significant energy consumption issue, the virtual currency rewards earned by DePIN participants cannot be classified as traditional “mining” outputs.

More importantly, the storage space provided by FIL has real practical value—adding legitimacy to its legal standing.

Is DePIN considered “illegal financial activity”?

Another core question is: Does the DePIN project itself belong to virtual currency-related business activities, thus being classified as illegal financial activity?

This requires distinguishing two levels:

First level: definition of business activities

The policy documents’ definition of “virtual currency-related business activities” includes: exchange between fiat and virtual currencies, exchange among virtual currencies, buying and selling virtual currencies as a central counterparty, providing information services for virtual currency trading, token financing, and derivatives trading.

The key point is—regulatory authorities mainly restrict exchange and trading services involving virtual currencies, not all activities related to virtual currencies. Therefore, as long as a DePIN project does not involve exchange or trading services, it still has room to operate legally.

Second level: investment attribute judgment

Even if DePIN involves virtual currencies, the critical question is: Does it violate public order and good morals?

This is a flexible legal standard. If the project has substantial practical application and its virtual currency incentives are strictly limited (or supplemented with other incentive mechanisms), then such a project is unlikely to be deemed as disrupting financial order. FIL is a case in point: it provides real storage infrastructure, and the virtual currency is merely an incentive mechanism, not an investment product.

How can DePIN survive in China?

Based on the above analysis, DePIN projects are not necessarily classified as prohibited virtual currency activities, but implementing them in China requires compliance modifications:

1. Avoid reliance on high-energy-consuming hardware—prefer ordinary consumer devices over dedicated mining rigs.
2. Enhance actual application value—ensure the infrastructure provided has genuine utility.
3. Limit virtual currency use cases—reduce token liquidity and emphasize its role as an incentive.
4. Consider hybrid incentive mechanisms—use other supplementary incentives to reduce reliance on virtual currency.

Currently, domestic regulation of virtual assets is tightening, but this does not mean Web3 innovation cannot grow in China. There is still potential for compliance breakthroughs in the DePIN track. The key lies in whether entrepreneurial teams are willing to make necessary local adaptations and explore innovative space within a compliant framework. Projects that can achieve localization and adaptation in China may instead become new breakthroughs in integrating Web3 with traditional industries.