User Retention: Was the Holy Grail of DApps Found in 2019?

Crypto industry continues to keep its focus on decentralized apps (DApps). However, 2019 showed that DApps are still far from being the ”future of the internet”.

The 2019 projects had their usual problems, such as low user retention and user interfaces (UI) troubles. Though some projects claim that their market capitalisations reach $100 mln, they can not satisfy more than a small group of dedicated users.

At the beginning of 2020 some companies monitoring DApps published analyses detailing the performances of the past year’s DApp developers and projects. The results were alike for the decentralized apps ecosystem with remarkable increases in on-chain transactions, and new projects which could not boast better user statistics.

DApp projects also quickly emerge and fall out of the system, which is also alarming, because stability is the crucial element for DApps to prove themselves viable applications.

However, the 2019 did see some positives with decentralized finance (DeFi) platforms and non-fungible tokens (NFT) gaining significance within the wider ecosystem.

2019 DApp market overview

DApp aggregator DappReview and DApp analytics service Dapps.com have released reviews on DApps performance last year. The information presented below is a summary made on the basis of those reports.

DappReview indicated, that in 2019 on-chain transactions reached $23 billion, and over 1,900 new applications were added. Dapp.com, however, presents a smaller number of DApps added — around 1,450, a bit less than in 2018, when 1,500 new apps were added.

Data from Dapp.com shows that last year over 1,300 DApps were abandoned. The analytics platform states, that DApp can be deemed abandoned, when no transactions were recorded within 30 days.

Though Ethereum is an indisputable leader in several categories, after EIDOS launch in November 2019, the results of Dapp.com’s report changed, with EOS overtaking other platforms in transactions amount and volume.

EIDOS was so popular, that transactions on the DApp caused congestion on the EOS blockchain. As its transactions constituted almost 95% of all transactions on the EOS network, nodes with smaller staked CPU resources experienced difficulties operating with the transactions.

Putting EIDOS statistics aside, we can see that in 2019 the average amount of EOS users decilned. Its statistics dropped by some 80% from 80,000 to 15,000 active users per day. Thus, EOS gave way to TRON as the second-largest DApp platform after Ethereum.

User retention issue

User retention is still a major challenge for DApp platforms. Dapp.com 2019 report notes:

“The number of active dapp users in 2019 has doubled compared to 2018, from 1.48M to 3.11M. There are 2.77M new users who experienced decentralized apps. User retention is still a problem for dapps — there are only 348K old users remaining active in 2019, accounting for 11% of all active users.”

Speaking about traditional centralized apps, users do not have to pay for the computation. When data connection is needed, the users can get it as long as they have an active internet subscription.

The situation for Ethereum-based DApps is different, with computation costs put on the end-user. Ethereum network uses gas as the unit of measuring the cost of transactions on the blockchain. If a congestion happens, those costs may become impractical for DApps users, which results in an outflow.

One of the solutions to this problem is the use of DApp sidechains — DAppChains. DApps may be executed not on the main blockchain, but on layer 2 protocols, which will be more cost-saving and effective.

The developers can move all resource-consuming activities to layer 2 platforms, leaving only smart contract updating protocols on the main chain. This way, only a hash of the DApp data is stored on the main chain, with the most of work being done on DAppChains.

This approach is already implemened in gaming DApps. The in-game tokens reside within the main blockchain, while game assets which take much computing power run on sidechains.

Simon Schwerin, founder of fintech consultancy company Scalewonder, commented on some major problems influencing DApp reteniton:

“[The] largest problem is the challenge of providing true value to the users (look at apps that you use in your daily life and why you stay there) beyond monetary incentives that are often only possible for a limited time. Additionally, the users still have too often maneuver through a complex setup regarding their wallet and key management.”

Ease of use preventing wide DApps adoption

Ease of use is thus a problem affecting user retention for DApps. Considering exchanges, we may see that centralized platforms are more popular than decentralized, because users do not experience troubles when navigating them (which is not the case for decentralized exchanges (DEX)).

Ease of use prevents wide adoption of DApps, as sometimes they contain unfamiliar technical features, which makes the UI complicated.

DApps and web3 programs also suffer from smartphone browser incompatibility. Smartphone browsers do not readily have access to suitable web3 upgrades like extensions and plugins. Benjamin Cheng, a senior executive at algorithmic stablecoin issuer Timvi, stressed the need for easier-to-use Dapps. He said:

“Users deal with technology issues such as waiting for transaction processing, chain reorganization, etc. Blockchain technologies are at the ‘geek’ stage, still not for the mass user, hopefully, this will change with the advent of Level 2 solutions (Layer 2 solutions). Tools for interacting with blockchain are also not user-friendly. We need people like Steve Jobs to make the technology convenient and easy for the user.”

In order to gain mass adoption, the UIs for DApps have to become simpler.

DeFi and the future of DApps

DeFi was a major character in the 2019 DApps story. In simple words, DeFi is a decentralized finanical system based on public blockchains. DeFi includes lending, payments, DEX and crypto derivatives, among others.

DeFi enthusiasts say that the system aims at giving underbanked easy access to global finanical system via censorship-resistant blockchain protocols. The same concerns DeFi DApps.

Dapp.com’s report indicates that DApps offering DeFi services gained in popularity in 2019. Here is the excerpt from the report:

“Financial services (e.g. lending DApps) have the most impressive user growth in 2019. The number of financial DApp users has increased by 610%, and the transaction volume has increased by 251%.”

DeFi Pulse, an analytics hub for DeFi centered DApps, shows that total value of funds locked within the DeFi market gained 100%. In a blog post from January 2020, DeFi Pulse stated that the expansion of lending markets and the emergence of interoperability are the primary growth areas for DeFi in 2020. Schwerin shared this viewpoint:

“Most definitely, DeFi will be part of making DApps interoperable to exchange the unique values between DApps in a P2P fashion. Automated markets running in the backend, backed by collaterals of the DApps producers.”

2020 DApp perspectives

Decentralized app developers should improve usability and interoperability, like creating frameworks, which will allow easy transition of values from previous setups to a new DApp platform. Schwerin believes that such frameworks can spawn ”killer Dapps” which will get huge popularity:

“Using a unique way of interoperable infrastructure in the backend will allow you to swap value and KYC/AML Credentials in the background without having to worry about it. Imagine you set yourself up once and then never have to worry about sign ins/ SSO again.”

Schwerin also stated that such framework will enable cross-platform transactions. For instance, gamers will be able to exchange items in different games directly from their smartphones. Cross-platform interoperability also will allow DApps to penetrate deeper into the financial market.

Commentators predict that DeFi will address these issues. Speaking about DApp perspectives in 2020, Schwerin said:

“My forecast would be that we will see the first DApps with large user numbers on Blockstacks or other new blockchains that will then eventually move to Ethereum. These DApps will be mostly gaming related with probably DAUs of up to 100,000 if we are lucky.”

Timvi’s Cheng also suggests that DeFi will lead the DApps market in 2020. DeFi enthusiasts can hope that it will positively influence the market.