What factors does a DApp need in order to be successful?

What Key Factors Contribute to the Success of a DApp?

Product-market fit is perhaps the most important factor for the success of a protocol.

Written by: Stacy Muur

Translated by: Luffy, Foresight News

For the past 7 years, I have been dedicated to building Web3 products: some have skyrocketed, while others have underperformed. These victories and failures led me to create a framework for assessing the potential of DApps.

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Background

My Web3 journey began in 2016 when I was a marketer. I’ve collaborated with many protocols and worked towards their success.

But my influence was limited. Product development, token economics, and fundraising were beyond my scope. Therefore, I had to expand my expertise beyond marketing. That’s how this DApp assessment framework came into being.

I believe that the four pillars of DApp success are:

• Product-market fit (PMF): Building a product that meets market needs.

• Nurturing a strong community through marketing and incentive activities.

• Implementing a sustainable token economy that balances incentives and long-term value growth.

• Timing: Launching the protocol and token at the right time.

Product-Market Fit

PMF may be the most crucial factor for protocol success. Finding the intersection of product and market means:

• High demand: The product solves a problem or meets the needs of a large number of users in the market.

• User retention: Customers not only try the product but continue to use it over time, indicating sustained value.

• Word-of-mouth: Satisfied users recommend the product to others, indicating organic growth and positive market response.

• Easy to sell: The product doesn’t require deliberate sales strategies, signifying a clear and compelling value proposition.

• Market feedback: The majority of feedback from the market is positive, and any criticisms often lead to manageable improvements rather than fundamental issues.

• Scalability: The company is able to successfully deliver the product to a growing user base without sacrificing user satisfaction or product quality.

• Profitability: The product can generate sustainable and growing revenue streams, with clear monetization pathways.

• Competitive advantage: The product stands out in the competition due to its unique features, quality, or user experience.

A good example in this field is @friendtech.

While I personally believe that leveraging influencer followers is unethical (as it is more of an exception than the norm for influential individuals to bring value to their primary holders), Friend Tech has perfectly identified its niche market.

They provide opinion leaders with opportunities to earn additional income and new platforms to compete with other bloggers. In return, they require opinion leaders to attract audiences to their platforms.

This strategy targets the vanity of bloggers.

The result? Twitter is filled with bloggers calling on others to join Friend Tech and buy keys. Loyal fans quickly join this movement, causing the value of keys to increase. This, in turn, creates a new market for speculators.

Whenever a new blogger joins Friend Tech, speculators snatch their keys and sell them to loyal community members of that blogger.

Friend Tech could achieve a massive Twitter campaign with astonishing conversion rates, and all marketing costs are zero.

Why? Perfect alignment of product and market.

Such examples are very rare.

Usually, new protocols focus on existing industries and propose improvements to existing models.

“dYdX? Not decentralized enough. We will introduce a fully on-chain order book and dominate the market!”

“Maple? Only for institutional investors. We will create a Maple for ordinary people!”

“Friend Tech? Built on Base, we will build it on Solana!”

As you may already know, these examples do not prove a strong alignment between product and market.

Typically, each industry has 3-5 prominent protocols, either deployed on different networks (e.g. @opensea and @MagicEden) or offering different user experiences and feature sets (e.g. @dYdX and @GMX_IO).

Once an industry is established and the leaders are identified, gaining significant market share becomes very challenging.

Becoming a leader in the blockchain ecosystem? It is possible unless the current market leaders decide to expand in the same direction.

Conquering narrower niche markets and customizing products for specific user groups (e.g. the relationship between @Penpiexyz_io and @pendle_fi)? Much better. However, most protocols have bigger ambitions.

Let’s summarize the product-market fit part.

If the following conditions are met, the chances of project success are high:

• They are pioneers in a certain industry or one of the early participants releasing powerful products in a specific field.

• Their goal is not to gain a large market share in a big industry but to focus on improving the products of existing market participants (LSTfi, Yield Vaults).

• Their target is a niche user group with unmet demands.

Community and Marketing

Now, let’s dive deep into marketing and community building.

This allows the protocol to attract users to use its products and make short-term speculation.

But why is it short-term? If the product does not provide anything new, lacks long-term benefits, and is just another forked version with temporary incentives, the user retention rate will be affected.

In my career, I have come across cases like this: building a large and active community, but the product itself fails to truly meet the needs of users.

And what happens? Low retention rates and increasing marketing budgets, not a healthy situation.

At the same time, a well-designed protocol with unique features can easily succeed with the right marketing strategy.

Here are some key points to keep in mind:

• Incentive plans aimed at attracting new audiences and improving the retention rate of existing communities.

• Continuously promoting on Twitter, establishing long-term partnerships with bloggers, and conducting ambassador activities.

• Regular retention activities, such as tournaments, bounty hunting, and creative competitions.

• Short-term vampire marketing activities targeting competitors’ users.

These strategies are most effective when the protocol offers something truly unique.

Tokenomics

What’s next? Tokenomics.

Firstly, it is important to note that not all protocols and services need tokens. Tokens should only be launched if they provide a competitive advantage and additional use cases (such as actual earnings or governance).

Unfortunately, many DeFi applications ignore this principle and simply launch tokens for the sake of launching tokens, often with the sole purpose of raising funds from the community.

Poorly designed tokens have the potential to ruin everything.

In the Web3 community, DApps are often judged primarily based on the performance of their tokens at launch.

If the value of the token decreases after issuance, loyal community members are likely to despairingly sell their holdings, resulting in very negative effects.

What happens? Severe user loss, low community sentiment, and high acquisition costs for new users.

This doesn’t sound like a success story.

Market Timing

Finally, let’s talk about timing.

A bear market is the best time for building; but when a bull market arrives, you should focus on marketing. That’s the golden rule.

Unfortunately, not all protocols (even some good ones) have enough funds to survive this winter.

Some have taken the approach of token sales, but this only leads to community despair as prices inevitably plummet. Others simply stop maintaining their protocols or slow down development.

Raising funds, building quickly, and launching at the right time are crucial.

The interesting thing is: if there is a strong fit between the product and the market, getting venture capital funding and community support is not the main challenge.

However, if there is a lack of fit, most protocols have no choice but to wait.

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