The Blockchain Ecosystem Growth Loop
To increase adoption blockchain networks need to invest at strategically and support ecosystem teams at each stage of growth. Discover exactly how in this piece.
Layer 1 blockchains stole the show through 2020-2022. Top blockchains like BNB Chain, Solana, Near, Polkadot and Cosmos grew from nascent platforms into flourishing ecosystems.
In addition, Polygon, the leading Layer 2, proved that L2 scaling is possible and a number of much-awaited ecosystems, including Optimism and Arbitrum, launched in their footsteps. What's interesting is that both Layer 1 and Layer 2 protocols follow a similar development pattern — and we're likely to see the same cycle continue this year. I call that the Blocickahin Ecosystem Growth Loop model. Let's break it down
The loop starts with growing developer activity, which enables the creation of applications that then onboard users to the blockchain ecosystem; these new users in the ecosystem make the blockchain more desirable to build on, which in turn brings new developers to the ecosystem. Then the cycle repeats itself.
Therefore you can split a blockchain’s ecosystem growth into three stages:
Developer activity growth
Application growth
User growth
Blockchain Growth Strategies
As the leading smart contract blockchain, Ethereum has cycled through this growth loop multiple times. There was a cycle for ICOs in 2018, DeFi in 2020, and NFTs in 2021. Each growth cycle was catalyzed by developers creating a new application or product, which onboarded users and capital to the blockchain.
BNB chain and Solana have been hot on Ethereum’s heels when it comes to growing their ecosystem. Their strategies have been to aggressively fund Web3 developers to build new applications. Solana saw success with this strategy, notably with Stepn which gained mainstream awareness and onboarded millions of users to their blockchain.
Polygon is another ecosystem that is growing rapidly. In addition to a strong DeFi ecosystem, it has put a large focus on partnerships at the application layer. An example of this strategy is recent partnerships with Reddit, Starbucks and Nike that have enabled Polygon to onboard millions of new users to its ecosystem.
Over the last year, blockchains mostly competed to grow by:
Funding developers to build and scale native applications
Building partnerships and integrations with Web2 applications
A new strategy has emerged, that I expect to become more popular in 2023 for blockchain ecosystems.
3. Acquiring projects and developers from other blockchains Recently we saw Polygon persuade the largest Solana Projects, DeGods and y00ts to bride on their blockchain. In DeFi, we have also seen this strategy with blockchains giving token incentives for projects to launch with them, which is why many DeFi apps have opted to go multichain.
Competing to acquire developers that can build and scale applications is the key battle in 2023 for L1/L2s.
Over the next few weeks, I will break down the growth tactics for each part of the ecosystem growth loop that we use at Hype to help some of the largest web3 ecosystems scale.
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