This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.
Helium is a decentralized physical infrastructure network. It started as a collectively maintained low-power wide-area network designed to provide data transmissions for internet-connected devices, where anyone could invest in specific hardware devices to relay network data from their home and earn network tokens in exchange. Helium later expanded to embrace other network types, such as decentralized 5G networks or decentralized virtual private networks. This chapter focuses primarily on the original IoT network, as it is the only use case within Helium that has long-term data and sufficient documentation for analyzing the sustainability of its token design.
Helium was founded in 2013 by a company initially named Skynet Phase 1, later rebranded as Helium Inc., and more recently as Nova Labs. The name changes reflected shifts in the company’s business model, ownership, and management over the years. Initially, Helium had no Web3 connection at all, focusing solely on the production of industrial hardware. The company later pivoted to developing internet connected devices, anticipating a growing need for cost-effective alternatives to traditional cellular networks of that time. The network aimed to support the transmission of sensor data, addressing the anticipated growth of these devices.
To address this need, the founders created a relatively affordable, router-sized device that served as a telecommunication gateway for sensor data. Operating within a low-power wide-area network in the free ISM frequency spectrum, the device was optimized for low-bandwidth, energy-efficient communication. The network’s premise was to enable the transmission of sensor data, supporting the anticipated growth of internet-connected devices. Despite securing 50 million USD in venture capital, early product launches and business pivots failed to achieve market success, leaving the company struggling to sustain its operations.
By 2017, just as IoT devices were becoming more widely deployed across various industries, Helium Inc. faced financial difficulties and decided to transition to a Web3-based economic model. This shift leveraged blockchain infrastructure and tokenized incentives to create a community-operated low-power wide-area network. With venture capital for crypto projects readily available at that time, Helium resolved its funding challenges and launched the first version of this Web3-enabled network in 2019.
Branded as the People’s Network, this version integrated the power of Web3 protocols with telecommunication infrastructure. The protocol created a two-sided marketplace: (i) On one side, private hotspot operators invest in mini cell towers (Hotspots), which they install in their homes to provide network coverage in exchange for Helium Network Tokens (HNT). (i) On the other side, companies owning internet-connected devices, which need to transmit data, pay for data transmission using Data Credits (DC).
Helium gained significant attention as one of the first real-world applications of Web3. Early hotspot operators reported substantial earnings, sometimes reaching thousands of EUR per month, which drove high demand for hotspots. This led to production delays and waitlists of up to eight months. During the 2021 adoption surge, individuals purchased hotspots in bulk, further extending these waitlists. However, by the time they received the devices, network rewards had decreased due to market saturation and declining token prices. Many operators had paid for the hardware around or slightly after the peak of the crypto bull market but only received the hotspots as the price of HNT declined alongside the rest of the crypto market. HNT lost value—falling from 50 USD per token in 2021 to less than 3 USD per token a few months later. Operating a hotspot was no longer profitable.
A significant issue was that the initial token distributions and early hardware availability heavily favored early adopters, enabling them to capture most of the economic benefits. This concentrated market power in the hands of a few, and reports revealed that insiders amassed a significant share of early HNT rewards, further amplifying inequities. The rapid growth also exposed vulnerabilities in the network’s Proof-of-Coverage system, which proved susceptible to manipulation. These issues led to frequent updates to maintain network integrity.
In 2022, Helium announced a major reorganization, transitioning from a single-purpose network for internet-connected devices to a network-of-networks model. This structure aimed to govern multiple telecommunication networks: (i) A network for IoT (Internet of Things). (ii) A 5G network. (iii) A content delivery network (CDN). (iv) A decentralized virtual private network (VPN). The idea was that each network should operate as a separate sub-DAO with its own stakeholders, tokens, and governance mechanisms. During this transition, Helium Inc. rebranded as Nova Labs and raised another 200 million USD. The company also migrated its blockchain infrastructure to Solana, a third-party blockchain network, instead of maintaining proprietary blockchain operations. This reorganization faced significant backlash.
Around the same time, investigations revealed that many of Helium’s claimed partnerships with IoT service providers were fabricated or inactive, exposing a critical weakness: the demand side of the marketplace was nearly non-existent. Furthermore, it was disclosed that the founding team, early investors, and their associates disproportionately benefited from the initial token distribution, rendering the network unprofitable for later participants and undermining trust in the project.
Despite its setbacks, Helium's development underscores both the potential and challenges of building decentralized telecommunication infrastructure. While its vision of community-driven network maintenance was groundbreaking, the project's execution revealed critical flaws in governance, economic design, and scalability that seem to have hindered long term mass adoption.
Purpose & Political Principles
The founders envisioned a people-operated network, composed of millions of network nodes (Hotspots), to serve as a decentralized communication network for the internet connected devices.
Collective operations & maintenance: The aim was to decentralize infrastructure investment and maintenance so that anyone could become a fractional telecom operator by installing a Hotspot in their home or office and earning network tokens in exchange for relaying network data.
Inclusivity, low cost & fair rewards: The founders claimed Hotspots were easy to set up and operate, requiring only a small investment and a stable Internet connection. They also asserted that operating costs would be low and network rewards would be distributed fairly.
Functional Design
The challenge of Helium was to design, provision, and govern a permissionless telecommunication infrastructure for relaying data from Internet-connected devices, which could be maintained by a network of anonymous individuals who could opt in and out of the network with their mini-cell towers at any time. The question was how to reliably replace the functions of a centrally operated telecommunication provider that could maintain all network infrastructure under more controllable conditions.
- Low-power wide-area network (LPWAN): Since the typical bandwidth need of small Internet-connected devices such as sensors is less than that of mobile phones, the founders reasoned that creating a low-power wide-area network instead of a typical mobile telecommunication network would serve the purpose better. They decided to use “LoRa,” a noise-resistant radio modulation technology, in combination with the communication protocols and system architecture (LoRaWAN). Both are proprietary technologies developed to serve as a low-power wide-area network. Operating on unlicensed spectrum, this setup allowed anyone to provide and use network services without requiring a telecommunications license.
- Decentralizing physical infrastructure: The next challenge was how to make non-technical people operate “mini-cell towers” out of their bedrooms and guarantee a stable network connection at all times instead of having a centrally operated phone company invest in large and expensive cell towers, rent the space for building them, and maintain the network antennas. The founders had to find a way to effectively (a) produce and distribute the required hardware so that investment costs would not be prohibitively expensive and installation would be easy for laypeople while (b) guaranteeing network coverage and transmission reliability. Helium addressed the challenge of decentralizing telecom infrastructure by designing hardware that non-technical users could easily operate. The Helium app facilitated plug-and-play setup, integrating a Web3 wallet for key management, earnings monitoring, and network exploration. The goal was to produce affordable, simple-to-install mini-cell towers capable of maintaining stable network connections.
- Data transmission: Hotspots were designed as the backbone of Helium’s infrastructure, tasked with listening for signals from Internet-connected devices (such as a weather sensor), filtering relevant data, and transmitting it to Helium's backend for processing. To ensure reliable network coverage, Helium incentivized Hotspot operators with network tokens if they could prove that they relayed network data, using a coordination mechanism called Proof-of-Coverage.
- Proof-of-Coverage (PoC) was designed to encourage operators to deploy Hotspots in underserved areas by awarding higher rewards for coverage in locations with fewer Hotspots. Proof-of-Coverage also verified the location, configuration, and performance of each Hotspot. The amount of tokens one could earn was tied to factors such as signal quality, location, and Internet speed. The mechanism underwent several modifications.
- Blockchain infrastructure: Initially, Helium built its own blockchain infrastructure for managing token transactions and creating verifiable proofs of data transmission, as existing public networks in 2017 lacked the necessary scalability. However, maintaining a proprietary blockchain consumed internal resources and introduced significant complexities. The software was developed in the telecom-focused programming language “Erlang,” limiting Helium’s ability to attract enough developers and scale effectively. In 2023, Helium decided to outsource blockchain operations to Solana. Both Helium and Solana are backed by the same venture capital firms, which may have influenced the decision to choose Solana over another third-party blockchain network.
Stakeholders
The development, maintenance, and usage of Helium have involved various stakeholders whose roles have evolved over time:
- Helium Inc. & Nova Labs: Founded in 2013 in San Francisco as Helium Inc. (originally Skynet Phase 1), the company underwent multiple rebrands and pivots before adopting a Web3 approach. Between 2014 and 2022, it raised USD 365 million from investors, including Deutsche Telekom and Google Ventures. In 2022, it rebranded as Nova Labs, which has remained responsible for the Helium protocol's development. However, revenue streams for Nova Labs have been opaque; indications suggest most income generated came from original Hotspot sales and initial token distributions rather than actual protocol usage.
- The Helium Foundation emerged as a nonprofit and governs the network's intellectual property, branding, educational resources, and community channels. The foundation assumed these responsibilities from Helium Inc. as part of the 2022 restructuring.
- Protocol developers: In theory, any community member can contribute code and participate in governance via Helium Improvement Proposals (HIPs). However, the exact proportion of paid developers (via Nova Labs or other stakeholders) versus volunteers is unclear.
- Hotspot operators are the co-operators of the currently existing IoT and 5G network—and potentially other telecom networks in the future. They provide the network’s infrastructure by investing in and operating Hotspots in their homes or offices. Operators relay data, participate in Proof-of-Coverage, and earn tokens in return. Each telecommunications network has its own distinct hardware (Hotspot type), which comes at a different cost and has its own data-relaying protocol. Because of technical requirements, Mobile network Hotspots are larger and more expensive than IoT Hotspots.
- Data service users are the companies and individuals who use the telecommunications services to send data over the network and must pay for these services with Data Credits (DC).
- Hardware providers: Initially, Helium Inc. exclusively manufactured and sold Hotspots, but demand far outpaced supply by 2021, with waitlists exceeding 200,000 units. Eventually, the protocol was changed, allowing third-party manufacturers to produce and sell certified Hotspot hardware. Third-party manufacturers and vendors could apply to become certified Hotspot producers and had to be approved by the community of HNT token holders, who also had the power to revoke a manufacturer’s license.
- Oracle services: Following the migration to Solana in 2023, Proof-of-Coverage activities transitioned off-chain and are now managed by Oracle services. This shift simplified scalability but introduced Oracle providers as a new intermediary service responsible for validating Proof-of-Coverage events from devices, re-centralizing network functions.
- Other ecosystem service providers: During the network's growth, third-party services emerged to assist Hotspot operators with setting up their Hotspots and onboarding them to the network. Many of these companies ceased operations after the HNT price crash made the IoT network unprofitable for operators.
- Solana ecosystem: The 2023 migration to Solana's infrastructure reduced Helium’s operational complexity by outsourcing blockchain maintenance. However, this dependency means that any event in the Solana ecosystem can impact Helium's network operations and network economics, introducing third-party risks to its economic and technical stability.
Token Types & Token Properties
The original token model had only two types of tokens: Helium Network Tokens (HNT) and Data Credits (DC). Since the transition to multi-purpose Helium and the migration to the Solana blockchain, Helium's token economics and token flow have become much more complex. Several types of network tokens exist today: HNT, sub-DAO tokens (IOT, MOBILE, etc.), and DC. Since all token transactions are settled over the Solana blockchain, SOL—the native network token of Solana infrastructure—has also become relevant to the economic dynamics of the Helium ecosystem.
- Helium network token (HNT) is the native protocol tokens of the original Helium network, designed to reward Hotspot operators for relaying data and participating in Proof-of-Coverage. The token was designed to be fungible and transferable and did not come with a stability mechanism. The total supply was capped at 223 million tokens, with an initial monthly issuance of 5 million HNT, halving every two years. All newly minted HNT were designed to flow into a rewards pool before they would be distributed to reward different beneficiaries: 30 percent to Hotspots relaying data, 35 percent to Proof-of-Coverage participants, and 35 percent to Helium Inc. and its investors (via tokenized shares). This distribution was intended to shift rewards toward Hotspot operators as the network grew. In 2022, with Helium's shift to a multi-purpose network, HNT's role was reduced, and sub-DAO tokens like IOT and MOBILE were introduced to reward Hotspot operators within their respective networks.
- IOT token is the protocol token for the Helium IoT Network (formerly Helium network). It replaced the HNT role for IoT network operations and is minted upon Proof-of-Data-Transfer as well as Proof-of-Coverage. IOT is also backed by HNT and is designed to convert to HNT based on a predefined mechanism.
- MOBILE token is the protocol token for the Helium Mobile Network. MOBILE tokens are minted by 5G Hotspots upon Proof-of-Data-Transfer as well as Proof-of-Coverage. MOBILE is also backed by HNT and is designed to convert to HNT based on a predefined mechanism.
- Data Credits (DC) serve as the unit of account and payment method for data transfers across Helium networks, priced in 24-byte increments for IoT networks and bulk data for cellular networks. Hotspot operators also need DCs to pay for their Hotspots to be onboarded to the network. Data Credits are designed to be fungible but non-transferable and to be a stable token against the U.S. dollar. They can only be produced by burning HNT (now IOT and MOBILE), according to the “Burn-and-Mint Equilibrium.”
- The “Burn-and-Mint Equilibrium” is a mechanism that determines how Data Credits are created and destroyed: burning HNT produces DCs at a fixed rate (1 USD = 100,000 DC). This mechanism removes HNT from circulation while generating DCs, ensuring stability for network users. As Helium evolved into a network of networks, this equilibrium extended to sub-DAO tokens (IOT/DC, MOBILE/DC).
- “Net Emissions” is a mechanism that ensures reduced supply while compensating for token burns. To maintain deflationary pressure, Helium monitored the number of HNT burned for DC and adjusted new HNT minting within capped limits during regular intervals.
SOL: As Helium transactions now occur on Solana, SOL is required for fees associated with token transfers, staking, payments, and other on-chain activities, which means that economic shifts in Solana directly affect Helium's ecosystem. With this transition, Helium's application tokens (HNT, IOT, MOBILE, DC) have also inherited Solana’s privacy features. To ease the 2023 migration to the new blockchain infrastructure, the Helium Foundation provided each existing Helium Wallet with 0.00139 SOL (which was expected to allow for 100 standard transactions over the IoT network).
Power Structures
- Policymaking power: In theory, Helium employed a community governance model through “Helium Improvement Proposals” (HIPs), where anyone could contribute to discussions and decisions on technological updates, token economics, and governance changes. In practice, most participating developers were employed by Helium Inc. or Nova Labs, centralizing protocol development around the founding companies. With the network's transition to a multi-purpose governance model, policymaking for each subnetwork moved down to the level of each subDAO (IoT & Mobile). While parts of the protocol are open-source and theoretically inclusive, the hardware and LoRaWAN network retain proprietary elements, making technology development more centralized.
- Voting power: At the time of writing, only HNT token holders have voting rights over suggested policy upgrades, while IOT and MOBILE token holders govern subDAO-specific protocol upgrades. Since the last reorganization, Nova Labs no longer has the exclusive power to make changes to the protocol, as had previously been the case. However, the skewed distribution of HNT to early investors and founders ensures they maintain significant influence. Similar disparities exist in subnetwork governance with IOT and MOBILE tokens.
- Market power: Hotspot operators, together with data consumers, form the supply and demand sides of Helium’s market. The absence of substantial demand in the original Helium network weakened the ecosystem. Despite initial promotional efforts highlighting diverse use cases that would consume network services (such as keychain tracking, micromobility devices, and environmental monitoring), demand never materialized or failed to scale. Even though many people operated hotspots and earned rewards in the early years, barely anybody used the network to transmit data. Without a critical mass of network users purchasing Data Credits and paying network fees, the foundations of Helium's token economy collapsed, and Hotspot operator rewards diminished, leaving them without a return on investment. Furthermore, due to the initial token distribution and the distribution of the first hotspots, early adopters had most of the market opportunities and money-making power in the old Helium network. Media coverage criticised Helium’s founders saying that “a review of hundreds of leaked internal documents, transaction data, and interviews with five former Helium employees suggests that as Helium insiders touted the democratized spirit of their People’s Network, they quietly amassed a majority of the tokens earned at the project’s start, hoarding much of the wealth generated in its earliest and most lucrative days.”
- Executive power: Hotspot operators have execution power to relay data and participate in Proof-of-Coverage activities essential for providing data transmission services. However, early adopters were the primary beneficiaries, while later operators struggled to recoup investments. Cheating also plagued the system, with operators manipulating hotspot locations to inflate rewards: “[...] its nascent system was rife with cheaters. To artificially inflate their rewards, some users bought multiple hotspots—sometimes dozens—and manipulated their locations so they appeared spread across a city or town, when in fact they were all within a single property. [...] ‘Closet clusters,’ as they were known by Helium employees, were widespread, with reports of them popping up in nature reserves in Poland and even Area 51.” To mitigate these serious challenges, the Proof-of-Coverage process was changed several times to avoid cheating and to balance out the power structures. By 2023, some Proof-of-Coverage functions were moved off-chain to Oracle services to improve scalability and reduce system manipulation. However, this shift effectively created new power structures around these third-party Oracle services, which were significantly less decentralized.
Purpose & Reality
While Helium demonstrates a compelling use case and general feasibility of a decentralized physical infrastructure network, its execution has highlighted critical design flaws:
- Easy usability: Helium originally marketed Hotspots as simple, plug-and-play devices, but many operators faced technical challenges, from network configurations to firmware updates. Many less tech-adept people had serious usability issues that prevented them from operating the Hotspots they had bought or forced them to rely on third-party service providers to install the Hotspots for them.
- Inclusiveness: From a revenue perspective, initial tokenomics heavily favored insiders and early adopters, leaving newcomers at a disadvantage, making participation unattractive in the long run. From an initial investment perspective, while the original IoT Hotspots were relatively affordable (300–400 USD), the much higher costs of 5G Hotspots (1,000–2,600 USD) have raised concerns about the inclusiveness of operating a node. The token economics were also criticized for skewing heavily in favor of insiders. It was exposed that “in the early stages of the project, Helium staff and their associates reportedly amassed more than a quarter of all HNT tokens mined, leaving them with a huge windfall, even as rewards declined for new users. The break-even period on hot spots, previously measured in weeks, is now measured in years.”
- Decentralization: Despite branding itself as a “People’s Network,” Helium initially concentrated decision-making and economic benefits among its founders and investors since they received most of the early HNT and the first hardware devices, which would, in turn, generate HNT. While the transition to Nova Labs improved stakeholder inclusion in the decision-making process to a certain extent, it did not eliminate HNT distribution inequalities. Nova Labs and early founders retained substantial influence through HNT holdings and, therefore, voting power over protocol upgrades.
- Lack of data usage & protocol income: Insufficient demand for data services meant that too few network users bought HNT to convert them into DC, which they would have needed to pay for network services. Network revenues were less than 100,000 USD per year, which means that the network operators (Helium Inc. and later Nova Labs) almost exclusively generated revenues from selling Hotspots and their licenses, not from actual network usage. The protocol had no income from network traffic, which collapsed the assumptions of its burn-and-mint equilibrium as well as general network economics.
- Unreliable ROI: Hotspot profitability proved unpredictable not only due to fluctuating HNT prices and insufficient network revenues but also due to operator saturation. The issue was that anyone could install or uninstall their own Hotspots at any point in time in the proximity of another Hotspot, influencing the other Hotspots’ profitability and making economic planning even more unpredictable. Latecomers, particularly those who joined after the 2021 crypto market peak, struggled to break even when HNT prices dropped from 50 USD to below 3 USD. Unfortunately, Hotspot operators were only getting paid from a fixed pool of newly issued HNT, which they had to split with more and more Hotspot operators, even when the price of HNT went down. Many operators abandoned their Hotspots, finding them unprofitable even with minimal operating costs.
Helium's challenges stemmed from a combination of factors, including the initial token design which did not adequately account for long-term power structures, and insufficient demand-side development. While the initial token and hardware distribution disproportionately benefited early participants, it is unclear whether this was intentional scam. Recent governance changes, such as the introduction of sub-DAO structures in 2023, may address some of these issues, but their long-term impact remains uncertain. The substantial venture capital investment in Helium may lead to a sunk-cost fallacy for investors, potentially driving further investment in an attempt to achieve success despite the existing challenges.
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Footnotes
[1] “The ISM radio bands are portions of the radio spectrum reserved internationally for industrial, scientific, and medical (ISM) purposes, excluding applications in telecommunications.” Source: https://en.wikipedia.org/wiki/ISM_radio_band
[2] https://app.dealroom.co/companies/helium_com
[3] https://multicoin.capital/2018/02/13/new-models-utility-tokens/
[4] [7] https://www.wired.co.uk/article/heliums-iot-crypto-network-is-barely-hanging-on-in-lebanon
[5] [6] [9] https://www.forbes.com/sites/sarahemerson/2022/09/23/helium-crypto-tokens-peoples-network/?sh=50cce6647316
[8] https://dailyprofitcycle.com/market-commentary/helium-joins-solana/