The old-fashioned financial media Wall Street Journal recently published an article that poured a large bucket of cold water into the decentralized application. The Wall Street Journal article said that investors in the blockchain sector have invested billions of dollars, but the current decentralized applications are still less of a concern, and for decentralized applications, these decentralized applications are not attractive. The report quoted data from the State of the Dapps, saying that developers have now developed more than 2,700 decentralized applications, but only three of the average daily active users exceed 10,000, and the largest number of daily DApps are 50 DApps. 30 are all betting games .
This article is worthy of alerting practitioners in the blockchain industry, but it has also caused a lot of controversy. One of the biggest controversies is: Is it a good indicator to measure the usage of decentralized applications by the number of daily users?
In fact, the daily user index of the Internet era is currently a relatively common indicator of decentralized application user activity. Even the president of the Taifang incubator ConsenSys, Joe Lubin, and the bitcoin core developer Jimmy Song, who bet the future of Ethereum, chose this indicator.
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Alex Wearn, co-founder and CEO of Decentralized Exchange IDEX, apparently disagreed with the use of this data to measure the value of decentralized applications. He pointed out that the current DApp daily activity statistics are not comprehensive enough and ignore the second layer protocol. The activities have no guiding significance for the application status of DeFi . Alex Wearn These views are worth thinking about.
Let's start with a bet on the Ethereum incubator ConsenSys founder Joe Lubin and Bitcoin core developer Jimmy Song .
A few weeks ago, Joe Lubin and Jimmy Song made a bet on the future of Ethereum's decentralized applications. Jimmy Song believes that even in 2023 (that is, five years later) , the number of decentralized applications with more than 10,000 active users per day can be no more than five, and Joe Lubin can't agree with this.
We have some opinions on how to assess the popularity of decentralized applications. Some people may not know, no matter which indicator, my IDEX can be regarded as the most successful decentralized application, we captured 60% of all decentralized exchange traffic. In fact, decentralized trading platform IDEX handles five times the volume of all 0x repeaters, and IDEX contracts receive twice as many transactions as the well-known encryption game Cryptokitties. IDEX also played an important orange color in the Ethereum state leasing proposal, with the contract having the most network storage. Given the position of the IDEX platform in the network, it may be possible to have a say in how to assess the decentralized application of biological use.
Ethereum smart contract storage size
Jimmy Song and Joe Lubin's gamble
The gambling of Jimmy Song and Joe Lubin seems to be a whim, but they actually made a more precise agreement on the details and conditions of the bet. If Joe Lubin wants to win this gamble, Ethereum must have five separate decentralized applications, and 10,000 in any of the 12 calendar months before May 23, 2023. And the number of daily active users, and the number of monthly active users exceeds 100,000.
Jimmy Song also clarified that transaction statistics must be on the chain, although end users are not required to pay gas fees. They are now working on a more detailed agreement and said that they will be made public once the agreement is completed. For IDEX, I really want to see if this agreement covers all the latest cases we have identified. Although the concept is simple, there are still some challenges in assessing the use of decentralized applications, and the difficulty is far greater than we think.
Is the trading volume on the chain reliable?
Most decentralized app rating sites, such as DApp Radar or State of the DApps , measure the average number of active users per day by analyzing the transactions on the smart contract chain for each decentralized application.
Each transaction sent to the contract comes from a specific Ethereum address, which counts the number of unique Ethereum addresses that are submitted to the contract (for example, if a particular address sends five transactions in a day, they are counted once) , theory It should be one of the best ways to estimate the number of active users per day.
However, there are some problems with this method.
First of all, the wallet is not equal to the user! If you don't have an identity on the chain, you only need a simple Sybil Attack to make the data in this game unreliable. However, Jimmy Song seems to have taken over at this point.
Of course, the transaction costs on the chain are too high, so Joe Lubin can't falsify data metrics. What is unclear is the impact of the second layer of expansion ( the impact of the second layer of expansion will be mentioned below) .
Second, users do not always send their own transactions. For example, on IDEX, our system is responsible for submitting transactions to the network and for settlement. In this case, the IDEX transaction will only be recognized as a daily user. As a result, most websites continue to report IDEX's daily users because they only identify and calculate users who submit deposits directly to the contract. In fact, this is also an article recently published by Ethereum Light Wallet Metamask, which mentions that the head decentralization application only evaluates the number of transactions on the chain submitted by Metamask, not the number of transactions executed in the Metamask wallet. Jimmy Song has determined that this is an acceptable type of daily user, but this needs to be taken into account when analyzing the results.
In addition, not all active users will generate chain activities. Especially on IDEX, users who place new orders will do so under the chain and will not generate the corresponding chain transactions. According to Jimmy Song's standards, should these users not count? Also, in the case of IDEX, should these users be counted as the volume of the chain only when the transaction is settled and their address is displayed as a counterparty?
Second layer expansion
The second layer of capacity expansion solution represents a more extreme situation under the influence of the chain structure. Many projects, including IDEX, are working hard to explore expansion solutions designed to minimize the amount of network resources used in each transaction.
In 2018, IDEX users paid a gas fee of $4.3 million, and during peak hours, IDEX's contract volume accounted for 13% of the network's capacity. Obviously, if we want to expand further, we must reduce our reliance on the network.
At present, the entire encryption industry has initially reached a consensus that the use of sidechains will remove most transactions from the main chain and periodically clear them on the base layer. For now, we don't know if Jimmy Song and Joe Lubin's bet will involve transactions on the second tier, and whether the number of users on this tier will be considered as an average daily active user. Perhaps this may be the focus of the two people's future debates – and it is possible that they are already arguing.
According to Jimmy Song's request, the data eventually returned to the base layer, but it was just a form of "concentration." So, when calculating the daily users, should the transactions on the second floor be calculated? If we don't calculate the transaction on the second level, we think that Joe Lubin may lose technically, but win the game mentally.
From a financial perspective, daily users are not an important indicator.
The current gambling conditions, that is, the use of daily active users to assess the user application status of decentralized applications, is clearly not the best way, especially in the current emergence of decentralized finance (DeFi).
The number of daily active users and monthly active users is one of the most popular metrics for Facebook, and Facebook is currently the world's largest user engagement platform. The more users access your platform, the more ads you sell and the more you can earn. But this model does not apply to the financial services industry that makes money based on Assets Under Management .
For example, the Vanguard fund is a passive investment index. Users don't log in to the fund account every day to interact with it, but users don't log in to their fund accounts within a few months, and they can't represent users. It is not a valuable service.
The same thing applies to cryptocurrencies and decentralized applications.
Taking the Uniswap platform as an example, should a user who provides liquidity to a Uniswap contract be considered an active daily user each time someone makes a transaction? They will definitely get value in the form of transaction fees. And what about those who have locked Ethereum in the mortgage debt (CDP) to create DAI? Or, those who trade DAI on a centralized exchange, but whose transactions do not appear on the blockchain network? Should these users be considered active users?
A similar situation applies to Bitcoin, which is where Jimmy Song believes Bitcoin has real value.
If you are interested in an asset because you see it as an independent, digital value-storing asset and can hedge against uncertain monetary policy, then " HODL holding " may be the measure you take. Be aware that those users who have achieved zero transactions on the bitcoin chain since 2010 are the ones that benefit the most.
Finally, I have to say that given our understanding of Ethereum's capacity and transaction costs, if we only calculate data for the underlying transactions, it is likely that Joe Lubin will lose the gamble. If the second level of trading is also calculated, then Joe Lubin may win, because at least one of the five decentralized applications will be IDEX, so he only needs to find the remaining four.
Author: Alex Wearn, AURORA / IDEX co-founder and CEO Alex Wearn