The decentralized application industry pushed more than $40 billion in smart contract deposits by February 2021, and currently the figure has reached $59 billion. To date, “real money” has continued to flow into the sector, and in On August 29, Game Launch Limit Break raised $200 million. The project gained popularity after the successful launch of the DigiDaigaku free-mint NFT collection.
According to a report by Dove Metrics and Messari, the crypto industry saw $30.3 billion in funds raised in H1 2022. This amount exceeds the $30.2 billion seen in 2021. It will cost $20 billion, excluding the $10.2 billion in funding raised for the centralized financial sector. Invested in DApps, non-fungible tokens (NFTs) and Web 3 infrastructure.
It may ask how much of the money has been effectively used or reinvested in ventures owned by the same investment groups. Of course, there are a few clever ways to overextend those ad numbers without breaking any rules, but there’s undoubtedly a lot of money flowing into decentralized applications.
There has always been a healthy lack of confidence in the number of active users on DApps, but so far no hard evidence of fraud has been presented. So, what tools can retail users use to identify bullish activity? Well, there are at least three: active users, community engagement and liquidity.
Comparing registered users with active users
Most PoS networks charge small registration fees and many are free to use. This leads to “fake” active addresses interacting with the DApp and creates incentives for developers and investors to increase their numbers.
Checking the rankings of DApps by the number of users brings some interesting information, especially in the Tron, WAX, Flow, EOS and Thundercore networks. Some DApps claim to have more active users than industry leaders such as OpenSea, Uniswap and Axie Infinity.
Levan Kvirkvilia, founder of Jugger, a Web3 bot prevention service, analyzed more than 60 games and DApps and found that 40% of active users are automated bots or a single entity controlling multiple accounts.
After analyzing 60+ games and services, we found 200 000 bots. On average, every web3 game has 40% bots.
Connecting to the database with the results at the end of a thread pic.twitter.com/vvvuhgeRLV
– Levan (@LevanKvirkvelia) August 29, 2022
In some cases, such as the AnRKey X game on the Polygon network, the ratio of bots to holds reached 84 percent. Although there is a plausible explanation for dissuading project developers from bot deployment, Kvirkvelia’s research shows that analysts should not use the number of token holders as a proxy for active users.
Scamming the community is incredibly difficult.
A sign to watch for is inconsistent community engagement on the project’s social networks despite high DAU metrics. Well-funded projects aim to “buy” real users, but bots are not skilled enough to contribute to the conversation in a meaningful and coherent way.
This analysis will not take more than 10 minutes because it only requires one to enter the official group and scroll through the last 40 to 60 messages. Are there valid questions and constructive debates in the community or just activity from group admins and shilling from bot accounts?
Go to the project’s official Twitter, Twitch, YouTube or Instagram page and follow the process of reviewing posts and comments from the community. This qualitative data should provide more accurate analysis compared to shares, likes or active blockchain addresses.
Identifying fake token liquidity
Believe it or not, market makers provide liquidity for tokens. For a certain fee, you can maintain bids and offers at any time on popular exchanges, which move the price using algorithms based on the order flow.
A seasoned investor will notice things that distinguish fake volumes and order book depth from real trading activity. It provides an easy way for beginners to remove illegal tokens by analyzing the 2% depth in auctions and offers.
Notice how the UFO Gaming token has an unreasonably low auction volume compared to its daily trading volume. Buyers’ overall interest was 2% lower than the last trade and 0.6% lower than the reported trade volume.
While having a market maker is a good thing as it encourages users to actively trade tokens, it does not necessarily translate into trading volume. Dispersal from the community’s interest will eventually cause the token’s liquidity to collapse.
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The example above shows that the Orchid Protocol Token is listed on Binance, Coinbase, Kraken and Kucoin and collects $675,000 per day. This effect results in a 2% order book depth ranging from 9% to 47% of daily trading volume, which is quite off.
Investors should be aware that venture capitalists and market makers are more adept at hiding their leverage. For example, it is almost impossible to get a top-200 coin in Binance with a skewed ratio of daily volume and order book depth. Marketers, gamers and investors should be careful not to be fooled by high DAU metrics for popular DApps. A qualitative analysis of the platform’s social media accounts and GitHub is a good way to reference information on the chain and the business.
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