To assess the value of Web3 projects, first understand these 9 key indicators

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, the original author: Alex Topchishvili, compiled by Odaily translator Katie Ku.

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.

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.

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DeFi: Realize value growth through capital inflow and integration

1. 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.

2. 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.

3. 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.

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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.

1. 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.

2. 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.

3. 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.

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P2E Gaming: Growth Through Partnerships, Player Incentives

1. 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.

2. 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.

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