How to Discern Real Activity in the DApp Sector: A Guide for Investors

Billion Dollar Payday: The DApp Surge

The DApp sector has seen explosive growth, rising from $40 billion in smart contract deposits to a staggering $59 billion. With huge investments like Limit Break’s $200 million influx, one might think we’re in the golden age of decentralized applications. However, let’s dive deeper into whether the stats reflect genuine user engagement or just a flashy façade.

While We Were Raising Funds: A Closer Look at Crypto Investments

In the first half of 2022, the crypto market pulled in $30.3 billion – an increase from $30.2 billion in 2021! Excluding centralized finance, DApps and NFTs snagged $20 billion. But hold your horses! How much is really being put to use in these ventures? The murky waters of venture capital can often reflect inflated numbers, making us wonder if we’re seeing the full picture.

Are Those Users or Bots? The Disturbing Reality of Active User Metrics

Many proof-of-stake networks are like candy stores with registration fees. A ton of ‘fake’ users pop up, which may or may not be actual beings with a pulse. One analysis by Levan Kvirkvelia revealed a shocking 40% of ‘active’ users are actually bots. With some games showing ratios of bots to human users as high as 84%, the real engagement might be a lot lower than it seems.

How to Distinguish Real Engagement from Bot Activity

Checking community engagement is an art. Are there actual discussions in social media groups, or is it just crickets? A quick scroll through a project’s channels can reveal if bots are dominating the conversation. Whether it’s Twitter banter or cozy conversations on Reddit, seeing genuine interaction can help cut through the noise.

Liquidity: The Link Between Trading Volume and Real Activity

Market makers can work wonders (or chaos) with liquidity. They can keep markets active, leading to inflated trading volumes that may mislead investors. Observing the order book depth, particularly the 2% mark, can help spot fakes. If bids seem too low relative to trading volume, something’s fishy. Tokens like UFO Gaming and Orchid Protocol provide clear examples. Both of their high trading volumes and low order depths look suspicious, leading us to ask: What’s lurking beneath the surface?

Keep Your Ears to the Ground: Engage in Social Listening

In the end, being a savvy investor means not getting swayed by daily active users (DAUs) alone. Engaging with the community on social media, checking GitHub actions, and interpreting off-chain activity can provide a markedly clearer picture of a DApp’s viability. Don’t let inflated figures lead you into the wild world of fake engagements!