Bear market is hitting hard. Fewer users, lower fees.
A lot of protocols fighting for the attention of the same users while marketing budgets are shrinking.
For some products, differentiation is harder than others; hence growth requires exceptional strategy and execution.
After the blog post on PoolTogether, we‘ll deep dive into bridges to find out what’s working and what’s not.
Why is the Bridge space harder than other web3 verticals?
- Bridges are very complicated. There are several designs and no clear formulas (like AMM for Dexes). This complexity can make it difficult for the average users to understand the trade-offs involved.
- Users want to bridge as fast as possible with as little costs as possible and security is a hard selling point to convey.
- The network effects are not as clear as for other protocols (for instance, Lending or DEXs), and providing liquidity to bridges is a sophisticated operation for the average web3 user.
To avoid competing in a race-to-the-bottom with ever decreasing fees, bridges Go-To-Market strategies follow two pillars:
- B2B partnership and integrations: LI.FI (a leading bridge aggregator) is for instance focusing on easy integration and distribution. Many users will happily pay additional transaction fees for better UX, and Metamask Swaps is a perfect example of that;
- B2C campaigns (quests, airdrops, community engagement) can provide much-needed brand differentiation. Stargate meme game and community is top notch in this regard
There is very little data that can inform the growth strategies of bridges. We decided to look at on-chain data to shed some much needed light on:
- Volume trends in some bridges
- Active users and retention trends
- Acquisition channels ROI
- Customer Lifetime Value
The article concludes with strategic and tactical insights that can help bridges optimize their growth strategies.
How is the sector doing?
The average daily volume in Q1 2023 is about $200 mln.
The market is still roughly dominated by chain-native bridges— but “branded” bridges are quickly eroding the share, and probably the trend will continue over time, as there is little incentives for L2s to innovate on proprietary bridges once the “branded” infrastructure is mature enough.
Active users and retention trends
For the rest of the analysis, we’ll focus on Across, Stargate, LI.FI, AnySwap and Hop.
As expected, Stargate leads the way in active users.
What about retention?
LI.FI and Stargate are head-to-head in retention. Interestingly, both of them show an increasing retention rate after 4 months — users tend to come back after a 4–6 months period, which is coherent with our experience of bridge users.
Migrations
We mentioned the low differentiation for bridges — but how much are users effectively switching? The table below displays users' migrations between bridges.
- The diagonal is a measure of stickiness — if your previous transaction was in a given bridge, how likely is your next bridging transaction there as well? The overall average is about 73%.
- LI.FI is attracting the most churned users from other platforms, with Stargate following suit
Acquisition channels
Marketing teams are employing various methods to drive engagement and activity in their respective protocols.
From running quests and distributing POAPs to awarding discord roles, community, and growth teams are constantly deploying new campaigns to attract and retain users.
Despite these efforts, it’s important to ask whether these activities result in any significant increase in protocol revenue and activity.
In other words, what is the ROI of marketing budgets on protocol growth?
Let’s find out with a couple of cases.
Across Quest on Galxe
The chart represents the share of transactions coming from users that minted the Across Ape into Arbitrum NFT on Galxe. As a campaign reward, users would be eligible for transaction fees cashback in the period just after the campaign.
We see a transaction spike of holders during the period — however, it suddenly drops to the pre-campaign level after, indicating a negligible impact on new users and transactions.
Polygon Degen (stargate and LI.FI) on Galxe
The chart shows the share of daily active users holding at least a Polygon Degens NFT. During the campaign period (February — April 2023) this share spiked to quickly drop just after it to levels that are lower than the pre-campaign average.
Interestingly, the share of users is high also in the period right before the campaign. This is probably due to other quests running in that period — on Galxe or other similar platforms — and the existing high correlation in participants in different quests (for instance about 75% of Polygon Degens also holds the Galxe OP quest badges).
Like in other cases , we see a very transient impact of quests on protocol metrics. The wallets that took part in the quests are also quite overlapping, suggesting that the only retention achieved with quests is for the quest platform used.
A Simple Customer Lifetime Value Model
The Customer Lifetime Value (CLV) represents the total amount of money a customer is expected to spend on a company’s products or services over the course of their relationship with the company.
CLV is a useful tool for protocols to manage their marketing budgets effectively and put an upper limit on customer acquisition costs (CAC).
Let’s compute it on Stargate data, using this simple formula:
Where
- Volume: bridge volume in the first year, aggregating all user wallets
- fee: the protocol fee, 6 basis points
- g: the web3 CAGR (50%) to account for increasing volume
- r: the yearly retention rate
By averaging out over users and chains, we obtain:
This is a very rough measure to help protocols manage their marketing budget efficiently and put an upper bound to the CAC (Customer Acquisition Cost).
There are three main considerations here:
- CLV is rather low — it’ll likely increase in the next years as the average transaction on chain increases. Most users bridge very low amounts (see histogram below)
- The most important variable under the control of protocols is retention. CLV is exponentially increasing with retention.
Retention is a product problem, but crypto allows to run frontier campaigns to identify the best wallets and provide personalized and cashback-like (meaning, with negative ROI for sybils) rewards to boost it.
- Protocols should differentiate CLV by user clusters, as the average CLV is not ideal in this case.
Billionaire wallets will have a much higher CLV than retail airdrop hunters. Like volumes, CLV is exponentially distributed, and CAC strategies should be adapted accordingly. It is crucial to understand the drivers of CLV, which we will cover in the next articles.
Insights
What should a bridge do to grow?
- First, it is imperative to start measuring what matters: protocol activity, revenues, active users, etc. It is very hard to find actionable data on web3 performance marketing. Tide team can help.
- Regarding acquisition, quests have severe limitations. Experimenting with new channels like referrals is a great idea.
- Retention is paramount to reach substainability long term. Well designed, data-driven and personalized quests should be tested for loyalty on a recurrent base.
The frontier of web3 marketing
Tide is the next-gen marketing and analytics suite for web3 projects to acquire and retain valuable users.
- A quest engine that supports tracking of sophisticated on-chain actions (currently live)
- A CRM / performance marketing dashboard to know CAC, LTV and ROI of campaigns and iterate (currently live in beta)
- An on-chain referral campaign
- [Redacted]
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