What Does a Successful Blockchain Look Like? Hint: Volume Isn’t Everything

How do you know that today’s most successful NFT blockchain will still be on top three months from now?

You don’t – and part of that uncertainty has to do with how “successful” is defined. In the infancy of the non-fungible token (NFT) space, maybe it was appropriate to obsess over sales volume. While that provides a snapshot of how blockchains rank at a moment in time in terms of a single metric, sales volume can no longer be considered the only indicator of current performance. Nor can it be relied on as an indicator of future performance.

Real-world consequences exist for ignoring other metrics. At the surface level, the value of the NFTs and in-game artifacts are diminished, while the price of the utility tokens that operate the platform could be penalized by the market. But the deeper consequence is that a blockchain’s sales volume is not indicative of how popular or scalable it might be.

Worldwide Asset eXchange, or WAX, is in a position to form a considered opinion on the subject. While its volume numbers are healthy, the project’s founders are adamant that this is not a sufficient goal for an expanding blockchain ecosystem.

Transaction capacity is key

Driven by gaming, WAX is the most highly utilized blockchain in the world, processing more than seven times more daily transactions than any other blockchain.

In payment processing terms, that would make WAX the Visa of blockchains, suggesting it would compare favorably with Mastercard or American Express, and all the stakeholders in business, finance and the general public would recognize that. But what if they said, “So what? So you make a lot of transactions? Big deal! The dollar volume is all in ACH!”

And they wouldn’t be wrong. While credit cards support the vast majority of retail purchases, big-ticket transfers – for mortgages, car leases and even to pay back the credit card companies – are done mainly through the Automated Clearing House (ACH) Network. Yet none of those stakeholders compares Visa directly with ACH. They have two different business models, two different value propositions and are essentially complementors rather than competitors. The market sees the need for the high-transaction credit card industry and values it accordingly, acknowledging that not everyone has a house or a car – or for that matter a bank account – so not everyone makes ACH transfers.

What about the users?

DappRadar, meanwhile, offers pertinent metrics that have little to do with turnover – except to suggest that turnover would subsequently increase or decrease in response to movements in these numbers.

How many smart contracts are currently living on the blockchain? How many dapps? Most importantly, how many unique users are using the platform?

Again, the myopia seems to originate in Web 3.0. Certainly, Web 2.0 metrics were all about acquisition and retention of new pairs of eyeballs. While this led to some bizarre price-to-earnings ratios in the early days, they were ultimately the most important predictors of each dotcom’s future success. So why aren’t Web 3.0 platforms measured in terms of user growth, frequency of user interaction, duration of user interaction and lifetime value per user?

Because first things first. There could be no Web 2.0 without a Web 1.0, which was developed for a personal computer running Windows NT on an i486 chip with maybe 200 MB of hard disk space. CD-ROM was still new and a solid-state drive would set you back at least $1,000. And if that wasn’t enough of a reason for coders to “write tight,” consider all their apps and all their data had to muscle their way through a 4,400-baud modem from one phone jack to another. The technological pipeline just wasn’t there to support much more than text or the occasional JPEG image.

As those bottlenecks widened, that’s when Web 2.0 became a thing, and those user-based metrics became the most meaningful benchmarks for any online business – and then eventually, all businesses with an online component, which is to say, everyone.

In the case of Web 3.0, the bottlenecks relate to adoption as well as technology. While throughput remains an issue in the blockchain space, solutions are emerging. During the infancy of blockchain technology, when transaction speeds were lagging and the infrastructure was still quite constrained, it made sense to prioritize high-value trades rather than high-frequency trades. Sales volume was a legitimate proxy for success in those early days.

But now a pivot is not just timely, it’s overdue.

“Mainstream adoption is what everyone in the blockchain space has been looking for,” says WAX CEO William Quigley. “To find this, a combination of users, transactions and sales volume must be considered to help cut through the noise and spin to discern real platform adoption and growth potential.”

Building a dashboard

Ultimately, a sensible view of a blockchain’s fundamental value would need to include sales volume, but only as an element of a scorecard, not as a scorecard itself. Even then, it would need to provide different trailing-period timeframes, of which the 24-hour figure would be the least- rather than most-emphasized. Ditto for transaction volumes and unique users.

The change in the quantities of smart contracts and dapps active on the chain would also be part of a meaningful dashboard. How each of these factors rate in comparison to one another needs to be determined in a marketplace of ideas. Each analyst will develop their own model, and the better ones will win out.

Still, there’s even more to it. These platforms are predicated on technology, and the ability to innovate is ultimately what will distinguish tomorrow’s winners from today’s. This adaptability is harder to capture empirically, but it’s important to make the effort because scalability is critical.

It’s great if a blockchain cleared 50 million transactions yesterday, but what if it maxes out at 60 million? As the space matures, the blockchain that cleared 25 million transactions yesterday but is prepared to clear 250 million tomorrow is ultimately the one most likely to come out ahead in the long run.