Beyond the ICO: State of DApp Innovation

ICO volume has seen a steep decline in Q3 2018

The advent of smart contracts also saw the emergence of a new fundraising mechanism for crypto startups — the ICO. Overall, we have seen over $18B raised so far via this mechanism. And while falling prices of cryptoassets have slowed the market for ICOs of late, the funds raised should to be more than enough to sustain innovation.

So what does the state of token-based innovation look like in 2018? What type of decentralized apps (DApps) have emerged so far?

DApp Categories

Games are the largest category of DApps by volume

A cursory look at the data throws up no surprises. 45% of all DApps appear to be targeting entertainment (Gaming/Gambling/Social) and a further 24% fall are geared at enabling crypto purchases/ownership (Exchanges/Finance). Entertainment tends to be one of the first use cases targeted by any new technology as it poses relatively few development barriers in the early stages of any new technology.

But as I pointed out earlier, the mere existence of these DApps tells us nothing about their adoption. What types of DApps have real users, and more importantly, real engagement? What does this tell us about the state of innovation in the crypto space? Before we can answer these questions, we need to understand how to measure engagement and activity in the DApp ecosystem. On the web and mobile, user attention was the primary “currency” and was fairly easy to measure. But in the crypto ecosystem, attention by itself means very little. Instead, it is the volume of “transactions” enabled by the smart contracts underlying these DApps that is key. While the actual value of these transactions is likely to vary by the nature of a DApp (e.g. transaction value on an exchange is likely to be higher than a game), the number of transactions should give us a good enough understanding of actual usage of these services.

DApp Adoption vs. Activity

DApp adoption led by speculation enablers and games

The chart above shows 3 distinct groups of DApps with activity (transactions/user) above a base threshold. Among these groups, “Speculation enablers” have the strongest user adoption. This should be no surprise given the speculative nature of today’s crypto ecosystem. Some of the development happening here could potentially evolve into critical infrastructure for future innovation. But it doesn’t give us much insight into specific use cases.

The next group is what I call “experimental entertainment”, i.e. developers using the mechanics of blockchain-based transactions to enable simple, fun experiences. This group has the strongest engagement among all DApp categories, which is natural at this early stage of development.

The third group is distinct from the first two, in that it includes DApps attempting to discover real-world use cases, beyond infrastructure and experimental mechanics. User adoption is clearly low here, but this is partly because many of these DApps are in early stages of building out a network. Distributed storage and computing projects like Storj, Golem and SONM are great examples here. Their goal is to create a network of connected computers that can provide cheaper alternatives to Amazon Web Services (AWS)or Google Drive. Of course, untested technology is unlikely to appeal to current AWS or Google Drive customers. But this is always the case for untested technology. Instead, they are more likely to initially appeal to overserved, price-sensitive markets like early stage startups or students.

Despite receiving billions in ICO funding, it is obvious that the token economy is lagging the pace of the internet adoption in 1994. The only way to bridge this gap is to uncover new use cases that create real value for users. Distributed computing and storage, along with secure identity layers (long alphanumeric wallet addresses are hardly ready for mainstream use), provide the first hints of this promise.