Decentralization has been the core ethos of the crypto industry since the introduction of Bitcoin. Certain legacy industries have proven ripe for disruption from decentralized competitors — most obviously finance, reflected in the emergence and rapid growth of DeFi.

This is just the start. Other major industries will not just benefit from decentralization; they will require it. And amongst those, Energy is just about the largest.

DeGEN, or Decentralized Generative Energy Networks, are onchain networks that use novel economic models to fund and coordinate distributed energy systems. They represent a critical new subsector of the cryptoeconomy and a massive opportunity to connect crypto to the real world.

This blog post will break down the decentralized power space, explore why decentralizing the power grid is not just possible but necessary, and highlight how Daylight Energy is leading the charge to bring the energy industry onchain, making power better, cheaper, and more accessible for everyone.

Guy Wuollet

@guywuolletjr

get in loser, we’re rebranding degen

DeGen

Decentralized Generative Energy Networks

42

10:25 PM • Apr 18, 2024

Daylight investor Guy Wuollet, Jr. of a16z helped to coin DeGEN earlier this year.

Why Decentralizing the Power Grid is Inevitable

Energy is society's most fundamental industry. Every human civilization has been powered from some form of energy - from fire, to coal, to whale oil, to petroleum, and now to electricity.

We are moving from a fuel-driven world to an electricity-driven world, and the electron is becoming the world's most important commodity. But our power grids are increasingly strained due to an explosion in power demand. Skyrocketing needs for compute from artificial intelligence and cloud resources are leading to a boom in power demand from data centers. Reshoring our industrial base is creating new large sources of power demand. Electrification of massive industries like transportation, heating, and industrial manufacturing also amplify the boom in power demand.

The result is power grids facing increasing volatility, intermittency, and reliability issues. Without a change in how the system functions, increase energy prices and cascading grid failures will emerge as standard.

Decentralizing our grid is key to solving these issues and ensuring our power grids operate reliability to fuel the next generation of progress. Distributed energy resources - like solar, storage, and intelligent loads - push energy generation and management to the edges of the system.

Decentralizing our grid:

Increases Reliability

With the complexity of power grids increasing, we need to create massive new sources of energy flexibility to balance the grid in times of stress. If distributed energy resources are deployed intelligently and connected together via software, we can orchestrate them to perform the role of power plants.

Reduces Transmission Infrastructure Capex

To support all the coming electricity demand, we need to more than double the size of our transmission systems. This is expected to cost $600 billion in capital expenditures annually. Not only will these staggering costs increase power prices for consumers, but the likelihood of even being able to build new transmission infrastructure is questionable.

By generating, storing, and managing grid locally at the edge of the network, scaling distributed energy can avoid the cost of new transmission infrastructure. We no longer need to transport nearly the amount of electrons over long distance in a decentralized power grid.

Increases Sustainability

Decentralizing the grid reduces the reliance on fossil fuel power plants, eliminating carbon emissions. It also avoids the negative climate externalities inherent to large transmission expansion.

Increases Energy Security

At an individual level, distributed energy ensures that individuals can generate and store their own electricity even when the larger grid experiences a power outage. Additionally, less dependence on fossil fuels avoids energy dependence on imported fuels.

On last week's Token Warrant podcast, Daylight backer Meltem Demirors discussed the broader implications of decentralization across industries, noting that the energy sector is particularly ripe for disruption. 

"It's time for crypto to begin bending the arc of reality and radically reshaping systems and our physical world. In my view, the most obvious public blockchains over the next decade will be to be the coordination layer for electrons and atoms — thermo-economically scarce resources that make own planet earth possible." — Meltem Demirors

On the Proof of Coverage podcast, Daylight founder Jason Badeaux further elaborated on how Daylight Energy is leveraging blockchain to not only decentralize power but to bring it fully on-chain, offering transparent, verifiable, and immutable records of energy production and consumption.

Why DeGEN?

Despite the benefits inherent to scaling distributed energy resources to form a more decentralized energy system, the market fails to value them correctly. This is because of a classic coordination problem - distributed energy resources create significant societal value in aggregate, but the investment decision is an individual one.

This coordination problem results in higher prices for distributed energy resources with lower returns on investment. The market failure hampers the growth of decentralized energy at scale.

DeGEN solves this coordination problem using the most powerful tool available: onchain economies. By issuing a new currency to fund distributed energy upgrades, and anchoring the ability to read (data) and write (control) those devices to a single open-source protocol, we can overcome the coordination failure and subsidize growth in distributed energy resources.

Energy companies and app developers can interact with a protocol’s underlying energy capacity and proprietary energy data to balance power grids, hedge volatile power prices, or build novel applications on top of this unified energy data.

Tradable credit schemes have been integral to the energy sector for decades, providing market-based solutions to address inefficiencies and promote sustainable practices. These systems offer a way to correct market failures, such as the underpricing of carbon emissions and the underinvestment in renewable energy and energy efficiency. Many different tradable credit schemes exist or have existed throughout power markets, including:

• Renewable Energy Credits (RECs) & Tradable Green Certificates (TGCs)

• White Certificates (Energy Efficiency Credits)

• Carbon offsets

• Cap-and-Trade Credits

• Financial Transmission Rights (FTRs)

While most credit schemes have been pioneered by governments, DeGENs take an alternative approach - creating tradable credit programs for distributed energy capacity, pioneered by communities from the bottom up.

Daylight: Decentralizing the Grid Onchain

Daylight Energy is helping to make this shift possible by building the infrastructure needed to bring the energy industry onchain. Through a combination of onchain tooling (tokenized assets, smart contracts, and decentralized governance), and actual hardware, Daylight Energy is working to make power generation more transparent, programmable, and efficient. Our approach is not just about generating power but creating a decentralized economic system to fund a coordinate distributed energy at scale.

Here’s how Daylight Energy's stack will work to change the industry:

1. Bootstrapping an energy currency: the Daylight protocol will bootstrap a programmatic energy currency, collateralized by flexible energy capacity, that creates new market incentives for deploying and coordinating distributed energy and electrification resources. 

2. Proof of Capacity: Utilizing the novel Proof of Capacity mechanism, Daylight ensures that energy generation and consumption are accurately recorded, verified, and rewarded onchain.

3. Community Governance: Decentralized governance models enable communities to have a say in how their energy is produced and managed, ensuring that the benefits of decentralization are shared by all.

Visualizing the Future: Why Decentralized Power Matters

The future of energy isn’t just decentralized—it’s decentralized, onchain, and tokenized. By bringing the energy grid into the web3 era, Daylight Energy and others in this space are helping to create a more equitable, sustainable, and efficient energy system for everyone. Imagine a world where energy is as liquid and tradable as Bitcoin, where your home energy devices are an income-generating asset, and where power is truly in the hands of the people.

It's time for degens to embrace DeGEN.

The future is bright
And the DeGEN movement is just getting started.