a16z: New Approaches to Measuring Crypto Growth

Chainfeeds Guide:

How do you evaluate the success and growth of your crypto protocol or product? In the crypto space, especially across L1, L2, and various protocols, the playbook for market expansion is still being written. Some metrics are inaccessible, some have diminished in importance, and many need to be rethought in light of blockchain characteristics.

Source:

Author:

a16z

Opinion:

a16z: In the Web2 space, there are mature methods for measuring product growth, but in the crypto world—especially across L1, L2, and various protocols—the definition of growth and the metrics system are still being explored. Different types of products have distinctly different growth metrics. For L1 and L2, growth often relies on the community and developer ecosystem, with monthly active addresses (MAAs) and the number of applications being key. If the number of addresses grows but applications do not increase, it may only be due to a single popular app or spam traffic; ideally, both should expand in tandem. For DeFi protocols, the core metrics are users, trading volume, and total value locked (TVL) or total value secured (TVS). Although TVL is a controversial metric, it still provides a global perspective when combined with other indicators. Some founders also calculate the cost of capital, i.e., the subsidies and incentives required to drive a certain TVL, and whether these are reasonable compared to the fees generated by the protocol. For infrastructure or SaaS-like projects, the focus is more on customer and revenue growth across product lines. For example, developer platform Alchemy emphasizes gross revenue retention (GRR) and net revenue retention (NRR), reflecting whether the product is sticky enough and whether customers can continue to contribute revenue. The growth logic for wallets and games is also similar to SaaS, with commonly used metrics such as daily active addresses (DAAs), daily transacting users (DTUs), and average revenue per user (ARPU). If tokens are involved, token price and holder distribution must also be considered, depending on the goal—whether to attract more small holders or whales. In short, each product should select the most suitable metrics to measure growth and health at different stages and under different strategies. In the crypto space, traditional SaaS core metrics—customer acquisition cost (CAC), lifetime value (LTV), and ARPU—remain important but need to be redefined. CAC can be divided into blended CAC, i.e., total acquisition cost divided by the total number of new users, reflecting the overall average cost; and paid CAC, which only counts users acquired through paid channels. Especially in crypto, many teams rely on airdrops or reward-driven strategies in the early stages, and failing to measure effectiveness can waste resources. CAC calculations include not only advertising, sponsorships, and marketing materials, but also token incentives for specific wallets or rewards on task platforms (such as Galxe, Layer3). LTV measures the contribution of a user over the entire relationship cycle, but in crypto, users are often wallet addresses, and one person may hold multiple wallets. Therefore, LTV can be understood as the value contribution of a single wallet to the protocol, such as its share of TVL. The LTV:CAC ratio is used to assess acquisition efficiency. In traditional SaaS, 3:1 is considered healthy, but there is no clear benchmark in crypto, and special attention must be paid to the distortion of data by rewards or points programs. Ideally, incentives only guide users in the early stages, and users stay for the product’s value, causing CAC to fall and LTV to rise, with the ratio improving over time. These metrics together form the baseline for evaluating growth efficiency. Once the core metrics are clear, they need to be mapped to the crypto context’s growth funnel. Starting from the awareness stage, increasing brand exposure remains the primary goal. At this point, reach and CAC should be measured, distinguishing between short-term attention and long-term interest. Acquisition channels in crypto are unique: KOLs and influencers, if aligned with the project, can bring real impact; advertising is limited by policies and community vigilance, but is more common on X, Reddit, App Store, Farcaster, and other channels; referral and affiliate programs are more effective due to on-chain verifiability and instant settlement. In the consideration stage, education is especially critical. Crypto products are complex, and users need in-depth explanations of security, governance, and tokenomics, while developers rely on technical documentation and tutorials. The conversion stage focuses on whether users complete target actions (such as downloading a wallet or purchasing tokens), which is difficult to attribute, but on-chain data transparency offers new possibilities. Post-conversion, user engagement and retention determine long-term value, requiring attention to governance voting, community discussions, and on-chain activity. The challenge of retention is that airdrop users may surge in the short term but quickly churn, so it is essential to define the ideal user and measure based on that. Retention directly drives LTV up and improves LTV:CAC; churn needs to be mitigated by identifying friction points and precise re-marketing. Ultimately, growth is not about copying Web2, but about building a new framework that leverages on-chain characteristics. Beyond data, it is also important to value community atmosphere, user sentiment, and qualitative feedback from key users, as these often reflect whether the product has truly found product-market fit at the earliest stage. [Original text in English]