10 July 2024

DePIN and Japanese Law
So Saito
Yu Mizushima
So & Sato Law OfficesIDePIN

DePIN (pronounced 'dee-pin') stands for Decentralized Physical Infrastructure Network. While
there is no definitive conclusion on what DePIN exactly is, according to ChatGPT, it can be
described as follows:
DePIN, which stands for Decentralized Physical Infrastructure Networks, refers to networks
that leverage blockchain technology to develop, maintain, and operate physical infrastructure
in a decentralized manner. These networks use crypto tokens to incentivize individuals andorganizations to contribute resources such as data storage, wireless connectivity, computingpower, and energy.
In recent years, DePIN has become a major topic in the Web3 industry, with globally renowned
projects such as Hivemapper, Helium, and Filecoin. In Japan, the number of Hivemapper users isincreasing, and the country's largest power company, Tokyo Electric Power Company, haslaunched a DePIN game called PicTrée, further highlighting the growing interest in DePIN. A
summary of this game is provided for reference in section III below.
Our firm is a law office well-versed in Web3 and has addressed various legal issues related toWeb3 under Japanese law in numerous articles written in Japanese. Although DePIN has recently
garnered attention in Japan, it seems that adequate legal scrutiny has not yet been conducted.
Therefore, to support the business development of DePIN in Japan, we have compiled theJapanese article1. While the Japanese article contains a more detailed analysis than this English
article, this English article is designed for overseas businesses considering offering DePIN inJapan. It summarizes the conclusions of the Japanese article to facilitate easy understanding ofthe discussion.

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https://innovationlaw.jp/depin/1

IILaws to Consider and Conclusions

There are various types of DePIN projects. Therefore, the laws potentially applicable whenintroducing DePIN to residents of Japan may vary depending on the project. Here, we considered
the introduction of the current major DePIN projects listed in section I for residents of Japan.
In conclusion, for these projects, it is necessary to consider the following regulations:
1. The crypto regulation part of the "Payment Services Act," which establishes regulations relatedto crypto exchange registration, (hereinafter referred to as the "Crypto Act").
2. The Act against Unjustifiable Premiums and Misleading Representations (hereinafter referredto as the "Premiums and Representations Act"), which regulates the provision of premiums
attached to the purchase of goods or services.
3. The Act on Specified Commercial Transactions, which regulates transactions that induce
consumers to purchase equipment by offering benefits such as business opportunities.
4. The Radio Act.
5. The Telecommunications Business Act.
6. Other laws related to the import and sale of equipment.
The summary of our current analysis is as follows:(1) Crypto Act
・ In Japan, when engaging in the "selling and buying," "exchanging," or "managing" ofcrypto as a business, regulations under the Crypto Act apply, and registration as a crypto
exchange business is required. These regulations apply not only to crypto exchanges but
also to ICOs and IEOs.
・ Regarding the relationship between DePIN and the "selling and buying" or "exchanging"of crypto, many projects have a mechanism where users receive tokens as a reward forcontributing to DePIN. Even if these tokens are considered crypto, the provision oftokens as a reward for contributions to the project does not constitute "selling andbuying" or "exchanging," and therefore, the Crypto Act does not apply.
・ Concerning the relationship between DePIN and the "managing" of crypto, if tokens aregranted to a user-owned address on the blockchain (where the user manages the privatekey), it is not considered that the DePIN operator is "managing" the crypto, and thus, theCrypto Act regulations do not apply. On the other hand, if the operator holds tokens
granted to the user (the operator manages the private key), registration as a crypto
exchange may be required. Therefore, to ensure that it is not considered as "managing"2the crypto, it is necessary to send rewards to the user each time they occur. It is desirable
to use a blockchain where even small rewards can be sent with low gas fees.
・ If usage fees are paid by credit card, resulting in tokens being burned and mined, thisdoes not constitute the "selling and buying" of crypto.
・ In DePIN, it is common to list tokens granted as rewards to users to provide trading
opportunities. In this case, for the exchange listing these tokens to sell crypto to Japanese
residents, registration as a crypto exchange is required. On the other hand, there are noregulations that apply merely to users of the crypto exchange.
(2) Premiums and Representations Act
・ In Japan, attaching high-value premiums to the purchase of goods or services is regulatedby the Premiums and Representations Act. For example, if premiums are uniformlyprovided to all purchasers, they are limited to 20% of the purchase price. If provided
through a lottery, they are limited to the lesser of 20 times the purchase price or 100,000
yen, and also must not exceed 2% of total sales.
・ When users receive tokens as a reward for contributing to DePIN, these tokens are
considered compensation for contributions and are not subject to the premium
regulations under the Premiums and Representations Act.
(3) Act on Specified Commercial Transactions
・ Some DePIN projects require users to purchase specific equipment to participate in theproject.
・ For businesses that involve (i) the sale of goods or the provision of services (including
brokerage thereof), (ii) the inducement of users by presenting a business opportunity thatprovides rewards, and (iii) the imposition of the burden of purchasing necessary
equipment for users to carry out the business, regulations such as the obligation toprovide written documentation are imposed.
(4) Radio Act
・ Many of the devices used in DePIN are likely to emit radio waves for wirelesscommunication.
・ To use these devices, a license under the Radio Act is required unless they bear a
Technical Conformity Mark (GITEKI mark). It is effectively necessary to use generalpurpose equipment that already has a GITEKI mark or to obtain the GITEKI mark forspecific equipment.

3(5) Telecommunications Business Act
・ For projects like Helium that involve setting up hotspots to connect to the internet andearn rewards, users may need to submit a notification under the Telecommunications
Business Act. This requirement makes it difficult to carry out such DePIN in Japan.
(6) Other Laws Related to the Import and Sale of Equipment
・ When importing or selling specific equipment, laws such as the Electrical Appliancesand Materials Safety Act, the Consumer Product Safety Act, the Household Goods
Quality Labeling Act, and the Product Liability Act must be considered.
III

PicTrée (Demonstration Experiment by DEA and TEPCO Group)

In April 2024, "PicTrée," a GameFi demonstration experiment by the Singapore-based GameFi
company Digital Entertainment Asset (DEA) and Tokyo Electric Power Company Power Grid
Inc., was launched.
"PicTrée" is a GameFi project where game users receive rewards for taking photos of utility polesand manholes. Utility poles and manholes require continuous maintenance and inspections, which
incur significant costs. In this experiment, game players take photos of the current state of utility
poles and manholes. Based on these images, the power company determines whether inspections
or repairs are necessary, aiming to reduce costs while maintaining safety.
Similar to Hivemapper, this DePIN project allows participants to contribute to society by taking
photos and receiving rewards. It is a more accessible DePIN project, as it can be participated inusing one's smartphone and a free app.
Overview of the PicTrée Mechanism
1. Team Division: Users are divided into three teams: "Ampere," "Volt," and "Watt."
2. Points: Users take photos of utility poles and manholes. Each time a user take photo of utility
poles or manholes, the ownership of that utility poles or manholes can change to a different
team. Additionally, by using game items to connect the utility pole or manhole to other utility
poles or manholes of the same team, the team earns points.
3. Rewards: Users receive rewards based on their performance within the team, which can bein the form of Amazon gift cards or tokens. The winning team also receives team rewards.
4. TEPCO's Benefit: Through these photos, Tokyo Electric Power Company can determine if
maintenance or inspections are needed for the utility poles, thereby reducing maintenancecosts.

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Divide into three teams to Find utility poles! Capture! Connect!
Take photos of utility poles and compete based on the length ofconnected power lines and other criteria!

Find!

Earn Rewards!

Connect!

Capture!

Earn Rewards

First, let’s find utility poles

Approach an actual utility
pole and tap the utility poleicon on the map in the app!

Connect the utility poles!

Take a Photo!

Take a photo of theutility pole from theUse power line items to connect yourspecified angle!
team's utility poles! The length of theconnections will earn you points!

Game Description and Source of Diagram: Digital Entertainment Asset Pte. Ltd. Press Release, March 4,20242 (Translated by So & Sato Law Offices)

Disclaimer
The content of this article has not been confirmed by the relevant authorities or organizations
mentioned in the article but merely reflects a reasonable interpretation of their statements. Theinterpretation of the laws and regulations reflects our current understanding and may, therefore,change in the future. This article does not recommend the use of DePIN or the purchase of DePIN
equipment. This article provides merely a summary for discussion purposes. If you need legal
advice on a specific topic, please feel free to contact us.

2

https://prtimes.jp/main/html/rd/p/000000200.000047612.html

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