Over the past decade, we've seen an explosion of various Web3 projects. Compound is building a Web3 version of Bank of America, Uniswap is like the New York Stock Exchange, Yearn Finance is a decentralized BlackRock (the largest listed investment management group in the United States), etc.
Compared with similar Web2 companies, how should we evaluate the performance and fundamentals of the above three subdivided track leaders, and further judge whether their tokens are within a reasonable price range?
In general, the success of a Web3 project is mainly judged by two indicators: price and market value. Below we've also compiled some more granular Web3-native metrics for three main categories: DeFi, Layer 1/Layer 2, and P2E games.
DeFi: Realize value growth through capital inflow and integration
DeFi applications include decentralized exchanges such as Uniswap and lending platforms such as Compound. Most DeFi projects are developed by a team of developers who then seek to assign management of their operations to a decentralized community of token holders. The key growth indicators are the following three points:
Total Value Locked (TVL) — TVL representing the total value of assets stored in DeFi protocols. While TVL is great for measuring lending protocols like Aave and Compound, it's less useful for decentralized exchanges like Uniswap, which measure growth primarily by transaction volume. The downside of using TVL to measure long-term growth is that users and traders often jump between different DeFi applications in search of higher yields, which allows some giant whales to generate the illusion of on-chain activity, which makes TVL not a Very sticky usage indicators. However, it is an important indicator of confidence.
Active wallets - the traditional market measures daily active users and monthly active users, while in DeFi, the simulated indicators of daily active users and monthly active users are daily active wallets and monthly active wallets.
Number of integrations - DeFi applications are composable and interoperable. Another indicator of growth is the number and quality of integrations the app uses with other wallets, exchanges, and DeFi products. Developer activity is key to the growth and market leadership of DeFi projects.
Layer 1 and Layer 2: Growth through developer activity
Layer 1, such as Ethereum , Solana, Near, Avalanche, and Flow , etc.; Layer 2, such as Polygon , is located on top of the existing Layer 1 and has extended functions.
Growth at L1 and L2 comes primarily from applications built on top of these protocols. The key indicators are the following three points:
Number of developers and applications - L1 and L2 projects are open source, buildable and integrated. The number of developers and the number of applications built on a given protocol are probably the most important growth indicators for L1/L2 projects. A good way to quantify the number of developers on a project is to look at the number of active users in developer environments and repositories such as Github. The more traction a spin-off app gains from users and investors, the faster the growth of the underlying project. For example, Flow blockchain applications on its network increased from 50 in December 2020 to 650 by the end of 2021. Flow-based projects raised more than $700 million in funding last year, fueling transaction growth and user adoption of the Flow blockchain.
Number of active wallets — Most L1/L2 projects have their own crypto wallets and interact with infrastructure-based decentralized applications (Dapps). As is the case with DeFi, the number of daily active wallets and monthly active wallets is a key growth indicator. Third-party wallets like Metamask (Ethereum), Blocto (Flow), and Phantom (Solana) often serve as major hubs for user assets within the protocol’s ecosystem.
Total number of transactions and size - the number of transactions on a given protocol, the number of large transactions (over $100,000), and transaction value are good indicators of network transaction usage. The dollar share of total transaction value can also be used to measure market share relative to competitors.
P2E Gaming: Growth Through Partnerships, Player Incentives
In Play to Earn (P2E) games, players can earn rewards that have real value. Once a player owns an in-game asset NFT, it can be freely sold outside the platform on which the asset was created. Players also have a say in the governance of the game itself. Here are three key metrics for evaluating P2E projects:
Active Players - The number of daily (or monthly) active users is a key indicator of a game's growth and popularity. Rich game content is the key to success, and a game with rich content but few users is worthless. What matters is whether the project can retain the number of active players. For example, in Axie Infinity based on the Ronin chain, in the past 6 months, the average number of daily users has dropped from 120,000 to about 20,000, and the revenue of SLP, the internal currency of the game, has also declined.
User average transaction amount - this indicator refers to the average transfer amount of each player, which reflects the reliability of user participation and Token design. The increase in the average transaction volume of users is also the key to revenue growth. When evaluating projects, pay attention to the stability and growth of the average transaction volume per user.
Quantity and quality of Guild partners - In Web3 games, development and distribution are usually achieved through player referrals and partnerships with Guilds. A crypto gaming guild is a group of players who play games together, share data and in-game assets, and support other players. Guilds like Yield Guild Games, Ancient8, Good Games Guild, and Merit Circle allow new players to start playing games by renting game assets they couldn't afford. They also help P2E games get more daily active users through scholarships, online marketing, and direct investments. Guilds choose which games to support based on three factors: game quality, community strength, and the robustness of the game economy.
Summarize
As Web3 matures, so will the need to understand customers, revenue drivers, and real growth metrics. While the metrics mentioned in this article come with different caveats and limitations, they do provide a good indication of where Web3 projects are headed. Understanding them will help guide business and product decisions, as well as community incentives. I expect to see various new growth patterns emerge in Web3, and look forward to the advancement of projects and the metrics that accompany them.
This article comes fromDecrypt, the original author: Alex Topchishvili, compiled by Odaily Planet Daily translator Katie Ku.
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