In DApps, daily active users are a simple metric to manipulate. Let’s take a look at some ways to cross-authenticate a metric.
As of February 2021, the decentralized applications (DApp) industry has generated more than $40 billion worth of smart contract deposits, and the figure is currently $59 billion. To date, “real money” has continued to flow into the sector, with gaming startup Limit Break raising $200 million on August 29. The project gained popularity after the successful launch of its DigiDaigaku Free Mint NFT collection.
According to a report by Dove Metrics and Messari, the crypto industry raised $30.3 billion in the first half of 2022. This amount has exceeded $30.2 billion since 2021. Excluding the $10.2 billion raised for the centralized financial sector, that leaves a whopping $20 billion that resides in DApps, non-fungible tokens (NFTs), and Web3 infrastructure.
One might wonder how much of this money was actually invested or reinvested in companies owned by the same investment groups. Of course, there are some smart ways to increase the number of ads without breaking the rules, but there is undoubtedly a lot of money pouring into decentralized applications.
There has always been a healthy suspicion as to the actual number of active users of DApps, but no clear evidence of fraud has been presented to date. So what tools can retailers use to spot over-activity? Well, it turns out there are at least three of them: active users, community participation, and liquidity.
Compare Registered Users to Active Users
Most Proof-of-Stake (PoS) networks charge a minimal registration fee, and many of them are free to use. This leads to an abundance of “fake” active addresses interacting with the DApp and encourages developers and investors to increase their number.
Filtering the DApps ranking by number of users yields amazing data, especially on the Tron, WAX, Flow, EOS, and Thundercore networks. Some of the DApps claim to have more active users than industry leaders like OpenSea, Uniswap, and Axie Infinity.
Levan Kvirkvelia, co-founder of Jugger, a Web3 bot prevention service, analyzed over 60 games and DApps and found that 40% of tactical users are actually automated bots or individuals managing multiple accounts.
In some cases, like the AnRKey X game on the Polygon network, the bot-to-owner ratio was as high as 84%. While there may be a plausible explanation for the project developers’ distancing themselves from bot deployment, Kvirkvelia’s research shows that analysts should not use the number of token holders as a proxy for active users.
Faking community involvement is incredibly difficult
One sign to watch out for is the inconsistent community engagement on the project’s social media, even when the DAU is high. Well-funded projects aim to “buy” real users, while bots are not qualified enough to make meaningful and consistent contributions to discussions.
This analysis takes no more than 10 minutes, since it is enough to go to the official group and view the last 40 or 60 messages. Are there sincere questions and constructive debate from the community, or just group admin activity and shillings from bot accounts?
Go to the official project page on Twitter, Twitch, YouTube or Instagram and follow the same process to view community posts and comments. This qualitative data should provide a much more accurate analysis compared to the number of shares, likes, or active blockchain addresses.
Fake Token Liquidity Detection
Believe it or not, market makers provide liquidity services for tokens. For a fee, they can always keep bids and offers on reputable exchanges and use algorithms to change the price based on order flow.
An experienced investor will notice the nuances that distinguish fake volumes and depth of order book from real trading activity. First, analyzing the 2% bid and offer depth provides an easy way to avoid illiquid tokens.
UFO Gaming (UFO) are the leading markets by volume. Source: Coinmarketcap
Please note that the UFO gaming token has an unreasonably low number of claims compared to its daily trading volume. Aggregate demand from buyers is 2% below the last transaction and is less than