a16z dissects the crypto growth funnel: a comprehensive analysis of the indicator system, channel strategies, and token incentives

Author: Maggie Hsu
Source: a16zcrypto
Compiled by: Zhou, ChainCatcher

How to evaluate the success and growth of a crypto protocol or product? In web2, marketers have a set of methods to measure success. In the crypto space, especially in L1, L2, and various protocols, the market entry manual is still being written. Some metrics are unavailable, others are less important, and many need to be rethought from a blockchain perspective.

I have spoken with countless growth and marketing leaders, and everyone's dashboard is different, which makes sense because the definition of growth for L1 or L2 is not the same as for DeFi protocols, wallets, or games. Let's think more broadly about these differences:

The growth of L1 and L2 is closely related to the user and developer community. We can measure the success of L1 and L2 by looking at their monthly active addresses (MAA) and the number of applications built on top of them. If MAA grows but applications do not, it may mean there are only a few popular applications or spam/bot activities; ideally, both should grow in sync. In this case, the role of the Chief Marketing Officer is more about providing a marketing engine for the community rather than just promoting the protocol itself.

Protocol growth, at its most basic level, relates to users, transaction volume, and total value locked (TVL) (the total dollar value of assets deposited in the protocol's smart contracts) or total secured value (TVS) (the total dollar value of assets secured by the protocol). Although TVL is a controversial metric, it can provide a rough understanding of the protocol's growth when combined with other metrics discussed below. One founder shared that they also calculate the "capital cost" of a given "active TVL," which is the amount of funding they need to provide compared to the fees earned/TVL.

The growth of infrastructure and other software as a service (SaaS) is often related to the growth of individual products. For example, the developer platform Alchemy focuses on customer and revenue growth within each product line, similar to what we see in traditional SaaS companies. More specifically, focusing on the recurring revenue percentage of existing customer retention or gross revenue retention (GRR) indicates that the product is sticky and the customer base is stable, which is crucial for measuring recurring revenue. Net revenue retention (NRR) also considers upselling and reflects the ability to increase revenue from the existing customer base.

The growth of wallets and games also appears more traditional (similar to the SaaS example above). Here, overall usage and revenue are measured through the following metrics:

Daily Active Addresses (DAA): The number of unique addresses active on the network each day.

Daily Transaction Users (DTU): A subset of DAA, referring to the number of unique addresses conducting revenue-generating transactions on the network.

Average Revenue Per User (ARPU): The revenue generated from one user or customer over a specific period.

However, if tokens are involved, then token prices and holder distribution will be affected, but even these metrics depend on your goals. For example, do you want a large number of small token holders or a few whales? It depends on the specifics; you need to choose the right metrics based on the category, stage, and strategy of your product or service.

So, what metrics does your company's dashboard include? First, here are some potential metrics to track, which will be analyzed in depth regarding their position in the marketing funnel—but which metrics to measure, the importance of each, and how to act on the data is entirely up to you…

Core Metrics: What Matters

Key growth metrics, such as CAC, LTV, and ARPU, are crucial for understanding the success and efficiency of customer acquisition efforts.

While these concepts have been widely applied in traditional SaaS, they need some adjustments in the cryptocurrency space. In the cryptocurrency realm, "customers" often refer to "wallets," and the ways of value creation differ. Below, we will redefine these metrics and explore the nuances specific to the cryptocurrency field.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) refers to the total cost of acquiring a customer and can be measured in several different ways:

Broadly speaking, blended CAC is calculated by dividing the total customer acquisition cost by the total number of new customers. It tells you the average price paid for each new customer across all channels—not only including acquisition costs but also natural growth costs (which makes it hard to see which specific growth strategies are driving performance).

On the other hand, paid CAC focuses solely on customers acquired through paid marketing. Often, teams "aimlessly" invest in paid marketing without measuring effectiveness. Paid CAC can reflect the cost of acquiring these customers and whether specific marketing campaigns are truly effective. This is particularly important in the cryptocurrency space, as many teams have found themselves distracted by paid incentives early on without figuring out what their product is actually doing.

What counts as "cost"? When calculating CAC, costs may include advertising spend, sponsorships, marketing collateral development, task token incentives (on platforms like Galaxe, Layer3, or Coinbase Quests), and airdrops to target wallets.

Who counts as a "customer"? In this case, "customers" may refer to "users" or "developers"; for example, a brand new wallet that transacts on a protocol can be considered a customer of that protocol.

Lifetime Value (LTV) and Average Revenue Per User (ARPU)

Lifetime Value (LTV) represents the present value of future net profits from a customer over the duration of the customer relationship. LTV essentially measures the return from customers after they become customers, including how much they spend on the product.

LTV itself is a nuanced calculation and concept. In the cryptocurrency space, this concept does not always translate directly because "users" do not always resemble traditional "customers." For example, they may be anonymous wallets, and one user may hold multiple different wallets. Therefore, LTV may reflect the contribution of a single wallet to TVL (total value locked), which refers to the total dollar value of assets stored in the protocol's smart contracts, as mentioned earlier.

TVL can provide a snapshot of "how much money is currently available" for DeFi protocols, while LTV can still help answer "what is the value of a specific wallet to the protocol over its lifecycle."

LTV: CAC Ratio

Customer Lifetime Value (LTV) is often used to evaluate the initial Customer Acquisition Cost (CAC) and the "value" of that customer over a period of time. The LTV: CAC ratio provides insights into the cost-effectiveness of attracting new customers by comparing the value brought by customers to the cost of acquiring new customers.

For traditional SaaS products, a ratio of 3:1 is considered reasonable, as it means that the value created from customers is three times the cost of acquiring them, with the remaining profit reinvested in growth. In the cryptocurrency space, we have not yet established such benchmarks.

When evaluating the LTV: CAC ratio in the cryptocurrency space, it is also essential to consider other acquisition incentives, such as airdrops or points, as these measures may skew the metrics. Ideally, such incentives can help attract users to use the product and help them onboard, but when users genuinely like the product, it can continue to grow even without incentives—in this case, CAC would decrease while LTV would increase, improving the LTV: CAC ratio.

Here is a brief overview of the key metrics we outlined and how to think about them in cryptocurrency:

Together, these metrics provide a benchmark for measuring the effectiveness of your growth marketing efforts in attracting users at different stages of the marketing funnel relative to the costs of those efforts.

Breaking Down the Crypto Growth Funnel

Once the core metrics are in place, the next step is to map them from top to bottom onto the marketing funnel. It is essential to note that the growth marketing funnel in the cryptocurrency space does not always differ from that in Web2; there are specific differences in cryptocurrency marketing and strategies, and each stage of the funnel has its unique quirks and opportunities. These may include on-chain behavior, token incentives, and community-driven dynamics.

So, let's take a look at each stage of the funnel, along with some key strategies and measures, and how they differ in cryptocurrency and Web2…

Awareness/Lead Generation
Whether in traditional channels or cryptocurrency, the first stage of the marketing funnel is to raise brand awareness. Even in the cryptocurrency space, increasing brand awareness is a prerequisite for everything that follows.

At this stage, you will also begin to measure CAC. "Reach" (the number of unique users visiting your content) should also become a core metric. Coverage is particularly useful when evaluating the success of mass marketing channels (such as newspapers, media, and public relations). The challenge here is to distinguish between short-term spikes in attention and genuine sticky interest: are users just curious, or are they genuinely interested in using the product?

In addition to core acquisition metrics, the channels you use to seek new users each have their advantages, risks, and cryptocurrency-specific nuances:

Key Opinion Leaders (KOLs) and Influencers

Paying random influencers or key opinion leaders with large audiences may seem like a reliable way to raise awareness, but this approach often fails to generate meaningful engagement. This is especially true when influencers have no real connection to the project itself, nor do their audiences.

However, collaborating with influencers who align with your project’s vision and can share their excitement in a credible way is far more valuable. You might consider "micro-influencers," who are more targeted and trusted voices that your audience is more likely to listen to; you could even consider cultivating influencers in-house, such as experts within your team who have already built strong influence. Claire Kart, the Chief Marketing Officer of the privacy-focused L2 company Aztec, is also an influencer among her partner companies; she shared with us how she actively seeks promising influencers, builds organic connections with them, and brings them into the Aztec ecosystem.

Advertising

In the cryptocurrency space, advertising also faces a series of challenges. First, due to the ambiguous and constantly changing advertising policies related to cryptocurrency, many crypto companies cannot advertise on traditional platforms like Google or Meta. Beyond these access issues, the cryptocurrency community is skeptical of traditional advertising, as scammers sometimes use similar ad formats to lead users to malicious sites.

Cryptocurrency marketers have had greater success advertising on X, LinkedIn, Reddit, TikTok, or the Apple App Store to promote specific applications. They can also consider other alternatives, such as Brave browser ads, Spindl ads within Coinbase/Base apps, or Mini Apps and sponsored posts on Farcaster, even optimizing for prompts and integrating them into AI search answers.

Referral and Affiliate Marketing

The concept behind referral programs is the same as traditional marketing: you get rewarded when others sign up through your referral. The difference in cryptocurrency is that rewards can be sent instantly and verified directly on-chain, coordinating incentives and making the entire process smoother. Projects like Blackbird demonstrate how on-chain referrals can develop into compound network effects through ongoing loyalty programs and community engagement, rather than relying solely on one-off customer acquisition campaigns.

Word of mouth is one of the most powerful growth drivers in the cryptocurrency space: for consumer-facing products, adoption is often driven by referrals, as users recommend the product to others simply because they enjoy the experience and see its value. For infrastructure projects, referrals often come from existing customers and developers.

Measuring word-of-mouth growth can be simple; just track the Net Promoter Score (NPS) at various touchpoints or directly survey new users (at signup or onboarding) to see if they were referred and by whom.

In this sense, the referral mechanism acts like an inverted, bottom-up marketing funnel: users do not stop at the conversion stage but feed new potential users back to the top of the funnel. Early users become advocates, bringing more people into the network (who may also be rewarded for their contributions), thus continuously driving the flywheel.

Regarding accuracy: accurately measuring the growth of real users/customers versus bot users is a challenge faced across industries, especially in social media. Cryptocurrency has some unique identity primitives we can use, such as verifying "proof of humanity" through World ID or verifying identity through zero-knowledge proofs (via zkPassport), which can distinguish real users from bot users or airdrop farmers. Growth teams can leverage these primitives not only to build resistance against sybil attacks for community growth mechanisms like airdrops but also to better understand actual users and help plan product retention.

The Power of a Growing Network

Finally, one of the unique growth drivers in cryptocurrency is tokens, which are often the best way to attract users, developers, and liquidity into markets that traditionally face cold start problems. However, this is not for speculation: more importantly, when token prices rise, it can attract new users who want to participate in a movement or something that is developing. Developers also take note of this, as rising prices may indicate an active community and genuine demand, making it a more attractive place to develop.

Consideration/Interest
The next stage in the traditional marketing funnel is consideration, where potential customers express positive interest in the product and evaluate and compare it with other products.

In the cryptocurrency space, this is particularly important because every decision—from purchasing tokens to ordering hardware wallets—often requires a significant amount of education, as cryptocurrency remains a relatively emerging (and often complex) industry for users and developers. Providing users with the right information to help them make decisions and weigh competing products or platforms can have a significant impact. For this reason, many companies, from Coinbase to Alchemy, invest in educational content aimed at consumers and developers.

Effective educational content often goes beyond detailing product features and benefits; it also covers how the product works internally (e.g., security, custody, community and financial governance, token economic models, etc.). Developers may need in-depth technical documentation and tutorials, while consumers often need interpreters (e.g., before sending real funds between wallets or blockchains).

User education through email in key processes (such as product registration or purchase), in-product prompts and tooltips, interactive guides, and setting up product trials or "test nets" to demonstrate and experience features before committing to transferring assets are standard tools. Companies are also beginning to optimize educational content for large language models (LLMs) (as mentioned above)—when someone asks a question, your company can proactively bring it up, which is helpful.

Successful teams measure user interest metrics not just by clicks or downloads but also by whether users take mid-term actions that reflect trust and intent—such as joining a waitlist with a wallet or depositing small amounts to test a feature. However, determining whether these efforts are successful depends on the channels you choose, as each channel has its own metrics. Ultimately, you need to map these metrics to some conversion rate, which we will discuss below.

Conversion

Conversion is a stage in the funnel after you have attracted potential users' attention, engaged them, and informed them. At this stage, users complete any actions you have set for them.

As a metric, "conversion rate" is a broad term: in traditional marketing, it can refer to many things, from the number of customers purchasing a product to requests for demos or communication with the sales team. The same is true in the cryptocurrency space: downloading a wallet, purchasing tokens, or even deploying code on a platform can all count as conversions. As always, the definition of conversion rate depends on your product and goals, but precise definitions are crucial to finding the best metrics based on those goals.

Tracking conversions through marketing channels (e.g., wallets downloaded due to live events) is essential; understanding which sources drive results enables teams to optimize spending, messaging, and more.

Accurately measuring conversion rates also largely depends on attribution, which can be tricky, especially when tracking users' journeys from traditional websites and social networks to on-chain activities (accurately measuring channels that include off-chain to on-chain actions or vice versa remains challenging).

Web tracking tools like Google Tag Manager can track website conversions, while some new tools aimed at wallet holders (e.g., Addressable) can help bridge this gap, allowing teams to track the effectiveness of promotional campaigns from websites or Web2 ads to on-chain actions. However, user journeys are rarely linear—users may see a post on X, attend an offline event, and then make their first transaction.

While attribution tracking has historically been challenging in the cryptocurrency space, understanding overall growth has become increasingly easier today. Many people have multiple wallets, but as analytics tools improve, matching multiple wallets to individuals becomes easier—thus, a specific action that occurs can actually be traced back to a specific individual or user. As privacy updates (GDPR, cookie restrictions, etc.) make Web2 attribution more difficult, the transparency of on-chain data provides advantages while protecting identity information.

Post-Conversion Engagement

In the traditional marketing funnel, the engagement/interest stage measures product interactions before purchase. These interactions help better understand the product and brand and are often the stage where initial interest converts into active engagement.

In the cryptocurrency marketing funnel, measuring user engagement after conversion is also crucial, including both online and offline, on-chain and off-chain. Measuring this engagement not only helps you understand how to retain users but also helps you maintain the overall health of the community, regardless of where they are.

For example, online engagement (which we also covered in the social media guide) can include the following metrics:

• Discord or other hosted forum/chat participation
  X events
  Sentiment on social channels
  Participation in governance or voting

Many cryptocurrency marketers still rely on more traditional marketing stacks, especially in social listening. However, traditional methods still need to adapt to the cryptocurrency market. For example, sentiment tracking can monitor how the community feels about a project on social platforms; while it may be useful directionally, it should not be the sole reference for any decision. Sentiment tracking can help teams identify active contributors, engaged community members, and even key influencers, and help assess the effectiveness of their messaging. However, in the cryptocurrency space, this data can also be very noisy, as communities are dispersed across various platforms, and the quality and depth of metrics can vary widely, with a few highly active accounts potentially wielding disproportionate influence.

In addition to sentiment tracking tools, some teams also use other social media monitoring tools (e.g., Fedica) to track and reward engagement. For example, they can identify contributors who amplify content, create memes, participate in discussions, or simply drive energy and engagement within the community. It is important to note that incentive-based activities can easily be exploited: certain incentives may attract those who care more about rewards than the project itself. Over time, this could lead to a community that appears active in the short term but is unsustainable in the long run.

Of course, marketers can still see meaningful organic growth even without incentives or paid participation; for example, by running strategies that interweave different types of content. The stablecoin liquidity layer Eco runs an organic content strategy on X based on the so-called "4-1-1 principle": posting 4 posts introducing the market opportunities of its product; posting 1 "soft sell" post (e.g., third-party endorsements); and posting 1 "hard sell" post (e.g., "use our product"); then repeating this cycle every few hours, posting once every 7 days. By solely using organic posting strategies and leveraging major product announcements and co-marketing efforts, Eco's monthly total impressions grew by nearly 600%.

Offline interactions, such as attending conferences or events, also play a crucial role in helping users engage through deeper connections. While the traditional measurement method is to aggregate email addresses to grow mailing lists (you all know the feeling of walking to a conference booth just to have others scan the QR code on your badge), more detailed tools include sticking NFC chips on your giveaways (e.g., using IYK) and conducting various activities to encourage people to click/scan them. Meanwhile, online platforms like Discord or Towns provide dedicated spaces for ongoing engagement and relationship building, where you can not only track the number of interactions users have over time (posts, likes, replies) but also analyze the quality and sentiment of those interactions.

Retention

Retention answers the question: who stayed? This can be measured by the percentage of users who complete on-chain actions after a certain number of days, or more broadly, by the sustained activity level of users over a period of time. You can calculate the percentage of retained users over a certain period by dividing the number of existing users at the end of the period by the number of users at the beginning. If you are measuring email list subscribers or wallet downloads, then retention will not be measured by the initial registered users but rather by who is still using it after a period of time. Common retention metrics include: returning users or the number of daily active addresses over a period.

In the cryptocurrency space, retention metrics must consider the tension between "long-term" and "short-term" behaviors, as strong token mechanisms and behaviors are involved. For example, a spike in airdrop farmers at launch may look like growth, but once the rewards stop, many will leave. This is why it is important to define your "ideal" user and measure retention relative to that group, rather than just the raw total user count. This is also why it is important to measure product metrics (inherent metrics of the product and natural interest in the product) so that it does not confuse what is effective and what is ineffective, especially if your product has not yet achieved product-market fit. Otherwise, you may think you have found product-market fit when you actually have not; that is, people's interest is not genuinely in your product but rather in the rewards.

Retention rates naturally also drive user lifetime value (LTV), as the longer users stay, the more they spend or transact. This increases the users' LTV and makes the LTV/CAC ratio more favorable.

Churn

Churn rate is the flip side of retention rate, measuring how many customers you have lost over their entire lifecycle (and when you lost them). It can be calculated in several different ways, including dividing the number of customers lost at the end of a period by the total number of customers at the beginning of that period (expressed as a percentage). An alternative metric for churn rate (though it does not correspond exactly to traditional churn metrics) is the percentage of inactive wallets after a period. For example, if customers enter through a specific hype cycle or marketing campaign, register wallets, and then never use them again. Some of these customers may re-engage at a later time, but the trick with this calculation is to find active, repeat, and returning users—rather than dormant users who perform one-off on-chain actions.

There are some tools that can monitor user interactions with decentralized applications (such as Safary) that help identify friction points leading to user churn, such as high transaction fees, confusing user experiences, or the need to complete multiple onboarding steps. For example, when Solana released its Seeker phone, some users wanted to be able to preload wallets (like the previous generation Saga phone) to lower the barrier to entry, as requiring manual recharges before transactions would slow down product adoption. Although Solana has since shifted to conducting dApp reward activities after launch, it is still crucial to carefully examine and simulate all steps of the onboarding process to minimize friction as much as possible.

To reduce user churn, some funnel tracking and group targeting platforms allow customers of specific cryptocurrencies to engage (e.g., Absolute Labs' "wallet relationship management"), enabling teams to create custom audiences and re-engage users through Web2 channels and targeted airdrops as cryptocurrency-native strategies. Additionally, directly messaging individual wallets through secure, decentralized messaging tools like XMTP can provide timely personalized prompts, encouraging users to revisit and continue engaging.

Wallet Share

One way to track user churn and retention is to look at "wallet share": the share of total spending by customers in a specific category that is allocated to your product or service. In the cryptocurrency space, this can be understood very intuitively. By examining the composition of wallets, you can understand the assets they hold, the amounts, and the direction of activity. If users stop using your protocol, on-chain data can reveal whether they have turned to competitors. Of course, as the hierarchy of protocol products and services becomes complex, determining the reasons and contents of their turn becomes increasingly difficult, but if you notice patterns of users turning to specific competitors or other products with unique features, it can reveal a lot of information.

Similarly, if many of your token holders also hold tokens from related projects, there may be opportunities to leverage this overlap through "co-marketing"—for example, co-hosting joint events with that project or gifting some of your tokens to holders of other projects. General analytics tools like Dune can facilitate this analysis, while more specialized platforms can provide other token-specific insights. Since most users maintain multiple wallets, it is also important to associate them with a single end-user identity; on-chain analytics tools like Nansen can provide wallet tags across multiple chains, enabling more accurate wallet share analysis.

Measuring growth in cryptocurrency is not about copying Web2.0 strategies but rather about leveraging strengths, discarding ineffective ones, and building new frameworks around the unique advantages of blockchain. Given the wide variety of products we see, from L1 to games, each team's dashboard will differ.

But data alone does not tell the whole story. Ultimately, quantifiable metrics are just part of the narrative: nothing can replace a deep qualitative understanding of your audience and users. Conversations in the community (whether about the project or just memes and vibes), the energy you feel at events, or your intuition about what works and what doesn't are equally important for guiding growth strategies. Even the behavior of a few heavy users may be more valuable in the early stages than the behavior of everyone else. These more qualitative signals often provide the earliest indications of product-market fit. The best cryptocurrency growth strategies should strike a balance between data and intuition, combining short-term strategies that spark user interest with long-term strategies that build a stronger community.