By Messari-Ally Zach
By Messari-Ally Zach
Original compilation: BlockTurbo
2022 is the year when the Layer 2 narrative is fully heated up, replacing the highly competitive Layer 1 pattern. Arbitrum and Optimism have attracted hundreds of thousands of loyal users and created a thriving DeFi ecosystem. As each of these chains seeks to carve out its own place in the broader crypto environment, they arguably create a test that can be used to determine which user acquisition strategies are most effective.
Due to multiple black swan events, all major public chain ecosystems have encountered major setbacks in 2022, and the activity and user base of the entire industry are declining. However, in the second half of 2022, with the collapse of FTX, users began to return to the EVM chain. Today, we mainly analyze the six major EVM chains: ETH, BNB, Polygon, Arbitrum, Avalanche, Optimism.
Ethereum and BNB have two of the largest crypto user bases, with 226 million and 274 million cumulative unique users, respectively. BNB Chain has seen an average monthly growth rate of 6% over the past 12 months, but Ethereum’s new user adoption rate has dropped by an average of 5%.
Ethereum user growth has stagnated in part due to the popularity of its L2 scaling solutions Arbitrum and Optimism. Active addresses in both ecosystems have grown nearly 5x over the past 12 months, driven by a 20% month-over-month user growth. Additionally, both ecosystems retain more users than any other, with a 12-month retention rate of 30-40% compared to an industry average of less than 20%.
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While the size of the user base of mature EVM chain systems typically decreases over time, Arbitrum and Optimism have steadily increased. The largest user cohort sizes have occurred in recent months, suggesting that both networks may continue to grow — especially if retention rates remain the same.
While L2 network activity has increased recently, the alternative L1 remains relevant for its proficiency in acquiring and retaining users. Historically, some projects have found that focusing on a niche industry can be a profitable and viable long-term strategy. Typically, the networks that build the strongest industry ecosystems enjoy higher retention rates.
However, finding a niche does not guarantee long-term success, as user loyalty can be unpredictable. When applications are forked and redeployed across chains, users dont hesitate to jump ship. Additionally, some crypto narratives may become fads, with investment value disappearing overnight as interests change.
In the era of L2 ecosystems, it is important to identify which specific blockchain ecosystems demonstrate successful user acquisition and retention patterns, and which employ ineffective strategies. To further assess the sustainability of each EVM chain, the impact of these strategies on retention engagement at different domain levels should be assessed.
different tracks
Derivatives trading
Derivatives trading
borrow money
NFT
secondary title
DEX
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Among these mature EVM chains, Ethereum tends to have about 5% higher long-term user retention, mainly due to the deeper liquidity of its native DEX. For example, Uniswap has been deployed on most other EVM chains and has been forked more than any other application, creating SushiSwap, Trader Joes, and PancakeSwap. Despite its top DEX being deployed on other chains and being forked, Ethereum has built enough trust with its community to continue to attract more liquidity and transaction volume than its peers.
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Much of Ethereums success comes from its strong DeFi ecosystem. It has some of the most widely used applications for trading, lending, staking, and liquidity mining. The respective tokens and stablecoins of many of these applications make up some of the deepest liquidity pools — not just on Ethereum-native applications, but in the larger crypto environment.
Arbitrum and Optimism have above-average long-term user retention compared to their competitors. Their success may be attributed to their rapidly expanding DeFi ecosystem and DeFi-focused incentives. In Arbitrums case, the most active DEX pools came (by a landslide) from its top derivatives trading platforms GMX and Gains Network. Optimism’s top mining pools, on the other hand, have succumbed to most of their non-native assets after the end of the Optimism Quests rewards program.
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Derivatives trading
Derivatives trading
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During Optimism’s mission activity, native perpetual trading platforms such as Perpetual Protocol, Kwenta, and Pika quickly accumulated perpetual traders. However, as soon as the campaign ended, most of the traders on these incentive platforms disappeared completely. In order for Optimism to organically capture perpetual volume share, it will have to rely on unique models and marketplaces, such as Synthetixs (Kwenta) new perpetual product.
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Compared to Optimism, Arbitrum has seen steady and arguably more organic user growth over the past year. Every time a derivatives platform is added, its new users will increase. Arbitrum dominated around 80% of derivatives traders on the EVM chain after Optimism’s mission campaign ended. GMX started gaining traction as a single derivatives trading platform on Arbitrum, but the ecosystem only took off when competition emerged. Since derivatives traders are already on Arbitrum, there is little friction to switch between similar platforms, creating a healthy form of competition.
borrow money
borrow money
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Cross-chain lending platforms have seen a decline in new users, which can be attributed in part to the rise of alternative forms of leverage. For example, as derivatives become more popular on chains like Arbitrum and Optimism, users can use high leverage to trade more frequently. In fact, over the past year, there has been a negative correlation between derivatives trading volume and lending platform borrowers.
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Lending activity in mature markets should pick up once the market shifts from a stable sideways period. In addition, new application innovations and further expansion of collateral and bond issuance may inject some vitality into the respective markets.
NFT
Although NFT transactions as a whole have been on a steady downward trend since the NFT boom in 2021, the bear market has spawned a wave of innovation. It brings new market mechanisms and even expands NFT use cases beyond static images. Decentralized social media, on-chain identity, and new forms of in-game assets have emerged over the past year, nurturing value on different chains.
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Ethereum has been home to many viral blue chip NFT collections. It is also the original chain of leading NFT marketplaces like OpenSea and Blur, both of which lead to its higher long-term user adoption.
PFPs and markets
Although Ethereum is not the first chain to support NFT, it does host the NFT boom cycle starting in 2021.
The Ethereum blue chip family, such as CryptoPunks, BAYC, and Pudgy Penguins, have built high value in the cryptocurrency space, likely due to their early stages, implied social status, and rampant virality. Blue-chip NFT collections account for about half of the total transaction volume of Ethereums top NFT market, resulting in relatively high global transaction volumes for other chains.
Additionally, Ethereum has 10 times more retail NFT traders than its second largest competitor, Polygon. Collectively, these blue-chip favorites keep users coming back to Ethereum despite relatively high gas fees, resulting in high long-term user retention.
From the perspective of the entire NFT market transaction, Ethereum markets such as Blur and OpenSea lead the transaction volume in the EVM chain by nearly 100 times. New entrant Blur has firmly grasped its share of Ethereum NFT traders, retaining 62% of the chains total volume. Its success is largely due to novel advanced trading features and an ongoing airdrop mechanism. Additionally, Blurs user retention rate is on average 15% higher than its core competitor OpenSea, likely due to its lowest transaction fees and airdrops.
While Ethereum has found its product market to be suitable for high-value collectibles, chains with lower overall gas fees like Polygon, Avalanche, and BNB are home to lower-value NFT collectibles. When the gas price is much lower than the actual asset value, it will be more efficient for traders to transfer NFT.
GameFi
Due to the high-frequency trading nature of in-game assets, gaming applications require high throughput and minimal gas costs. Cheap gas fees and a large number of game applications choose to use Polygon and BNB first, becoming the destination in the EVM chain of Web3 gamers. Currently, both chains host over 300 different active gaming applications and each retain approximately 50% of EVM gamers.
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The current gaming landscape is pretty saturated, with the same money-making, quick-reward games being deployed in the same way. To date, no on-chain game has built a long-lasting relationship with its users. As a result, even the top gaming apps on Polygon (Alien Worlds) and BNB (Mobox Farmer) have relatively low user retention compared to traditional PFP transactions. Additionally, GameFis total active users are down more than 50% year-to-date, and the size of its new user base is down about 55% each.
The gaming space is relatively unique among crypto apps in that it only needs to deploy a killer game to attract a large number of users. While games may generally take more time to build, they are more self-contained than other applications. They don’t necessarily rely on the same network effects as other consumer applications for adoption, nor do they depend on the deployment of other applications such as DeFi. In this sense, the first low-cost chain to launch the next big game may succeed in capturing the industry.
utility extension
During the last NFT boom, Arbitrum and Optimism were still in their infancy and had yet to gain a firm foothold in the GameFi space. Despite their low gas fees, growing user base, and some basic NFT applications, they have yet to find their niche in the consumer space.
In both cases, one of the most widely used consumer applications per network is the Galxe authentication platform. It is used in the corresponding incentive programs: Arbitrums Odyssey campaign and Optimisms Quests. In both cases, users are incentivized to participate in applications in each ecosystem in exchange for Galxe NFTs and possible economic rewards. Outside of these activities, however, the app has yet to find its place in either ecosystem, likely due to a lack of cross-app utility.
Polygon, on the other hand, has been able to foster a modern Web3 social ecosystem through partnerships with Web2-based companies like Starbucks and Reddit. It also hosts some of the most widely used decentralized social applications such as Lens. However, neither of these niche industries has found massive traction, leaving room for another low-cost chain to hold a competitive advantage.
The use cases for NFTs have expanded to include new forms of on-chain physical and digital content. Emerging use cases in areas such as social media, on-chain identity, music, and physical assets continue to grow within the larger crypto ecosystem. Because it takes time to build a strong, cutting-edge Web3 ecosystem, if a new ecosystem is executed correctly, it is unlikely to be replicated on other chains overall. For almost all low-cost chains, establishing a niche in one of these areas has the potential to be a major driver of adoption and fee revenue.
fee income
For most EVM chains, most of the fee income comes from DeFi-based applications, such as DEX and derivatives platforms. As far as Optimism, BNB, and Avalanche are concerned, there is a considerable difference between the total fee income of DeFi and NFT-based applications.
On the other hand, Ethereum’s consumer-based applications have higher average total fees per user. This is not surprising given that Ethereum-based NFT marketplaces process close to 100 times the average transaction volume compared to other chains. While Ethereum has a wide range of applications, it has developed a niche expertise in the high-value blue-chip NFT market, which has become one of its strongest revenue streams.
Summarize
Summarize
The “jack of all trades” multi-domain mastery pioneered by Ethereum is no longer a viable strategy for emerging ecosystems. In todays competitive environment, establishing a niche within a field appears to be the most profitable strategy with the highest user retention.
