Is the Success of A DeFi Project Correlated with The Size of its Community?

Community building is important for any DeFi project. Founders, VCs, and launch pads all have specific numbers in mind for their community goals. But is the size of a community correlated with the overall success of a project? We looked at the world's leading DeFi platforms and compared the size of their Discord, Telegram, and Twitter user bases with the Total Value Locked (via DeFi Pulse) and Number of Users (via Dune Analytics) on each platform. Users is defined as the total number of addresses to ever use a platform. All data was pulled from sources between September 17 to 20 of 2021.

So, does community size matter? Yes and no. Read on to learn more.

Finding #1:
Uniswap is an Outlier

Uniswap has so many more active platform users and Twitter followers that including it in the analysis has a significant impact on the results. Look at the graph below to see the impact visualized with Uniswap's community data on the far right side of the scatterplot. For the sake of further analysis, we will remove Uniswap in the following findings. It is worth noting that although Uniswap's user base and Twitter following is substantially larger than other platforms, its Discord and Telegram community size is more in line with the sample size.

defi-community-correlation-graph-users-with-uniswap_edited.jpg

Finding #2:
Correlation is Questionable at Best

After removing Uniswap from the dataset, there appears to be minimal correlation between platform Total Value Locked (TVL) or Users as displayed in the Pearson correlation coefficient table below with some community channels more correlated than others. You can see that TVL has a slight negative correlation with Discord and Telegram users but a somewhat strong relationship with Twitter followers -- we'll come back to Twitter followers in the next finding. Platform users displays some moderate correlation with Discord and Telegram users but weaker correlation with Twitter followers.

defi-community-correlation-coefficient-tvl-and-users-without-uniswap.PNG

In the scatterplot below comparing community users (by channel) and DeFi platform users, we can see that the data points have a weak linear relationship. At a high level, we can say intuitively that more community users is related to more platform users but we can't say with any confidence what the quantitative relationship is in terms of how much community is driving growth. And for TVL, there is no relationship as we saw in the correlation coefficients above, except for with Twitter followers which we'll look at next. 

defi-community-correlation-graph-users-without-uniswap.PNG

Finding #3:
Twitter Followers Displays a Relationship with Total Value Locked

The strongest relationship we saw in this analysis is between TVL and Twitter followers. Remember that correlation does not equal causation but there is a relationship that we can see between the two variables. We can generate a very loose rule based on this relationship:

GREATER THAN $1B TVL

=

GREATER THAN 100K TWITTER FOLLOWERS

 

Again, let's stress that correlation is not causation but we do have a pattern in the data. If we look at the bottom left corner of the scatterplot below, we see that all platforms at ~$1B TVL or less also happen to have less than 100K Twitter followers. Contrast that with all platforms with greater than ~$1B TVL and the majority have well over 100K Twitter followers.

 

The two outliers that have well over $1B TVL and low Twitter followers are Convex Finance and InstaDApp. This makes sense given that Convex Finance is built on top of Curve Finance and InstDApp is a dashboard aggregator, both of which may be reasons for fewer direct Twitter followers.

defi-community-correlation-graph-twitter-vs-tvl-without-uniswap.PNG

Considerations & Takeaways

Considerations:

  • Missing Data - There are obviously other data points that impact growth of DeFi projects. A multivariate model with numerous data points may be a better predictor of TVL and user growth. The point of this analysis was to simply show what relationship, if any, exists between community size and project growth.

  • Number of DeFi Projects - There are many more DeFi projects which, if included, would most likely yield different results. For this analysis, lesser known projects were excluded for simplicity and due to the fact that most projects simply have very few users and TVL compared to the top 20 or so projects. 

  • Types of DeFi Projects - The analysis above combines different types of DeFi projects such as exchanges, aggregators, and insurance products. Different products attract different types of user communities which impacts the community building strategy.

Takeaways:

  • Correlation was Weak-to-Moderate - In general, it is obvious that a larger community is better for growing a DeFi project, but there are no magic numbers for growth. 

  • Try to Get Over 100K Twitter Followers -  We said there are no magic numbers but over 100K Twitter followers doesn't hurt if you want to get past the $1B TVL mark according to the data. 

  • Pick Community Channels Strategically - It is important to point out that not all of the largest DeFi project use or have large followings on all community channels. Twitter is obviously a must-have but Discord and Telegram should be used strategically with resources in place to leverage their value. As they say, quality over quantity

The Data: If you want to see the data used in this analysis, check out this Google Sheet

NEXT: Strategy Framework: Cryptocurrency Market Segments