Evaluating Crypto Growth: Key Metrics and Considerations

In the rapidly evolving world of cryptocurrency, measuring growth requires a nuanced approach distinct from traditional web2 metrics. According to a16z crypto, several key metrics are essential for understanding the success and growth of crypto protocols, particularly across Layer 1 (L1) and Layer 2 (L2) networks, as well as decentralized finance (DeFi) protocols and blockchain applications.

Key Metrics for L1 and L2 Growth

For L1 and L2 networks, the focus is on building vibrant communities of users and developers. Monthly Active Addresses (MAAs) and the number of applications built on these networks are critical indicators. An increase in MAAs without corresponding app growth might suggest the presence of spam or limited popular applications. Therefore, it is crucial for both metrics to grow in tandem to reflect genuine network expansion.

Evaluating Protocol Growth

For protocol growth, metrics such as Total Value Locked (TVL) and Total Value Secured (TVS) are pivotal. TVL measures the total dollar value of assets in a protocol’s smart contracts, while TVS represents the assets secured by the protocol. Although TVL is often debated, it provides valuable insights when analyzed alongside other metrics, offering a comprehensive view of a protocol’s growth trajectory.

Infrastructure and SaaS Growth

In the context of infrastructure and Software-as-a-Service (SaaS), growth is often assessed by product-specific metrics. Companies like Alchemy track customer growth and revenue retention across product lines. Metrics such as Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) are indicative of product stickiness and a stable customer base, reflecting recurring revenue potential.

Traditional Metrics Adapted for Crypto

Traditional metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV) require adaptation in the crypto space, where ‘customers’ often mean ‘wallets.’ Blended CAC, which accounts for both paid and organic customer acquisition, and Paid CAC, which focuses solely on paid marketing efforts, are crucial in determining the cost-effectiveness of customer acquisition strategies.

Furthermore, LTV in crypto may reflect a wallet’s contribution to TVL, offering a perspective on a user’s long-term value to a protocol. The LTV:CAC ratio remains a critical measure, indicating the cost-effectiveness of acquiring new users relative to their lifetime value.

Crypto-Specific Growth Strategies

Crypto growth strategies often incorporate unique elements such as token incentives and onchain behavior. For instance, referral programs in crypto can leverage onchain verification for seamless reward distribution, enhancing the effectiveness of word-of-mouth growth.

As the crypto landscape continues to evolve, understanding and adapting these metrics and strategies is essential for measuring growth and success. The insights provided by a16z crypto offer a comprehensive framework for evaluating the multifaceted nature of growth in the crypto sector.

For a detailed exploration of these metrics and strategies, visit the original article on a16z crypto.

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