At Bitcoin Market Journal, our discussions often revolve around Daily Active Users (DAUs). Today, however, we shift our focus to a different category of daily active users: developers.
These individuals are actively engaged in creating the blockchains that underpin our digital landscape. Their contributions are just as vital to the ecosystem’s growth as end-users. The involvement of developers has a direct impact on the valuation, stability, and future prospects of cryptocurrency projects.
In this article, we aim to address several key questions about Daily Active Developers (DAD) and its significance for investors:
- Who comprises the group of daily active developers?
- What roles do they fulfill within blockchain ecosystems?
- What insights can crypto investors gain from conducting a fundamental analysis of DAD metrics?
- How do the numbers and growth rates of daily active developers compare to those of daily active users in terms of the overall value of the blockchain?
Who Are Daily Active Developers?
In straightforward terms, individuals actively engaged in the consistent development and upkeep of software within the blockchain sphere are referred to as Daily Active Developers (DADs). This term encompasses both individual developers and developer teams.
Electric Capital, the compiler of the blockchain Developer Reports, assesses blockchain projects by examining open-source contributions to platforms such as Github. In essence, “active developers” are those who actively create and publish modifications to the code underlying the blockchain.
DADs hail from diverse backgrounds and fulfill various roles from across the globe. They can be broadly categorized into the following groups:
- Core Development Teams: Major cryptocurrencies rely on fundamental blockchain protocols. Teams of software developers, engineers, and data scientists are responsible for the development and maintenance of these protocols. They typically drive innovation within the blockchain field.
- Independent Contributors: Open-source development plays a pivotal role in the cryptocurrency space. Beyond core teams, a multitude of independent developers and blockchain enthusiasts voluntarily contribute their time and expertise to enhance specific features or identify and resolve bugs in crypto projects.
- Startups and Service Providers: Employees of blockchain-based startups and established companies also fall within the Daily Active Developer category. They are typically involved in the development of services like wallets, decentralized applications (dApps), smart contracts, and various other cryptocurrency projects.
- Academic Researchers: Universities and research institutions play a significant role in the cryptocurrency realm. Many protocols and blockchains originate as research projects conducted by professors and students within academic settings. For example, the Zcash crypto project had its beginnings at Johns Hopkins University in 2013.
What Is the Role of Active Developers?
Daily Active Developers (DADs) are the intellectual driving force behind blockchain technology. The blockchain ecosystem owes its existence to the relentless efforts of these developers. They are the architects responsible for constructing a blockchain protocol codebase from the ground up, crafting its essential functionalities and features.
The indispensable role of active developers extends to various critical tasks, including code testing, bug resolution, performance optimization, security enhancement, vulnerability patching, community support provision, technical guidance, documentation creation, and a myriad of other routine maintenance activities.
The entirety of the cryptocurrency sphere hinges on the productivity of developers, encompassing activities ranging from protocol hard forks and updates to the development of novel smart contracts and decentralized applications (dApps). Furthermore, numerous experienced DADs also engage in pivotal crypto governance roles, exemplified by figures like Vitalik Buterin, the co-creator of Ethereum.
What Is the Significance of Assessing Daily Active Developers?
Crypto investors can gain valuable insights by closely scrutinizing the activity of developers associated with a specific blockchain, project, or application. Several key performance indicators can signal that a blockchain project is gaining traction:
- Developer Interest: A protocol that consistently attracts a significant number of developers often indicates long-term viability. Ethereum, for instance, boasts a substantial developer community, positioning it as a potential contender to surpass Bitcoin as the world’s most valuable cryptocurrency—a phenomenon referred to as “the flippening.” Ethereum has consistently maintained a leading position in terms of daily active developers, with 5,946 in June 2023, nearly three times the number of the next-highest project, Polkadot. High levels of developer interest generally reflect the stability, maturity, and long-term prospects of a blockchain project.
- Competitive Advantage: In the realm of information technology, skilled talent is a valuable asset, and the same holds true in the cryptocurrency industry, particularly during growth periods like 2022. Intense competition exists among various projects and companies to secure talented developers. When a project sustains or increases its count of Daily Active Developers (DADs), it typically indicates its competitive advantage over rivals. Once again, Ethereum stands out by witnessing a 35% increase in the number of full-time developers since 2021, signaling robust activity within its ecosystem. A higher number of DADs enhances a project’s ability to refine existing features, drive innovation, and maintain a competitive edge.
- Community Support and Engagement: Hype often plays a pivotal role in the initial phases of a crypto project. It serves to raise awareness among users and eventually fosters a community around the project. A substantial number of active developers, particularly those who actively engage on social media platforms to promote the project, serves as a positive indicator. Ongoing interaction between users and developers can contribute to the project’s evolution. This interaction establishes feedback loops that enable developers to identify issues more swiftly and identify critical features for enhancing the user experience.
Utilizing Daily Active Developers (DADs) as an Investor Metric for Valuation
Market price, token supply, token ownership, market capitalization, and daily active users are all valuable metrics for assessing cryptocurrencies, primarily focusing on the demand side of the equation.
However, achieving a comprehensive evaluation of cryptocurrencies necessitates a thorough consideration of the supply side as well. From a cryptocurrency perspective, supply metrics encompass aspects such as tokenomics, governance, security measures, bug detection and correction, support for smart contracts, cross-chain interoperability, and more.
All these elements require extensive volumes of software code, and the number of active developers plays a pivotal role in determining a project’s capacity to manage these responsibilities efficiently and accomplish critical tasks promptly.
In summary, contributions from Daily Active Developers (DADs) influence cryptocurrency valuation in the following ways:
- Project Health: The size of a project’s developer community serves as a strong indicator of its viability and prospects, reflecting the sentiments of those knowledgeable about the cryptocurrency. A higher count of DADs suggests that the crypto project is robust and vibrant.
- Stability and Security: The codebase of cryptocurrencies constantly faces threats from hackers and cybercriminals who seek to exploit flaws and vulnerabilities. Having a larger team for tasks like patching, bug fixing, and code reviews enhances stability and reduces security risks within the crypto ecosystem.
- Innovation and Adaptability: Cryptocurrency projects must evolve continuously to remain relevant and competitive, introducing new features and use cases to drive user adoption. A higher number of DADs signals a greater likelihood of success for the cryptocurrency, as it indicates the capacity for ongoing innovation.
- Trust and Market Perception: Informed investors and crypto enthusiasts often scrutinize the developer community supporting cryptocurrencies for insights. A strong and active DAD community fosters trust and confidence in the project among users, investors, and other stakeholders. An illustrative example is Solana, which, despite facing pressure due to its association with FTX, maintains a robust developer community.
The Interconnection Between Daily Active Developers (DADs) and Users
The “network effect” is an economic concept that illustrates how the value of a network grows exponentially as its user base expands. This phenomenon has played a pivotal role in numerous industries in recent years, including social media and e-commerce platforms.
In the realm of cryptocurrency, the ascent of most tokens can be attributed to the network effect. This phenomenon entails a close interplay between developers and users, progressing through several dynamic stages:
- User Adoption Stage: The journey begins with the creation of the initial project codebase. The development team subsequently promotes the project among potential users through various means, such as whitepapers, social media outreach, airdrops, influencer endorsements, and bounty programs. Community engagement holds paramount importance at this stage. Developers actively participate in forum discussions, conduct Ask Me Anything (AMA) sessions, and address inquiries on social media platforms to engage with their audience and enhance project awareness.
- Community Building: In the second stage, sustained interaction between developers and users catalyzes the network effect in several ways. It fosters trust in the project and bolsters its credibility. Heightened engagement ultimately leads to the formation of robust communities that play a pivotal role in marketing the cryptocurrency to potential users.
- Feedback Loops and Value Generation: Continuous developer-user interaction results in a mutually beneficial exchange of information. Developer support contributes to making the project more user-friendly, thus boosting its adoption rate. Developers also gain invaluable insights and constructive feedback from daily users of the cryptocurrency or project. These insights enable further enhancements to the codebase, early identification of potential security vulnerabilities, and the generation of additional value for users. Consistent delivery of innovative features, quality-of-life enhancements, and bug fixes typically leads to a steady increase in active users for a software project. Having a larger number of Daily Active Developers (DADs) can further enhance a cryptocurrency’s ability to attract more daily active users.
Bitcoin, NEAR, Ethereum, and BNB claim the top spots in our ranking of blockchains boasting the highest number of daily active users. Notably, these crypto ecosystems are also home to numerous full-time developers, as per the latest statistics provided by DeveloperReport.com.
Up-and-Coming Ecosystems and Lesser-Known Chains
Since 2020, the cryptocurrency market has witnessed the launch of numerous new blockchain projects, including Layer-1 protocols. While many of these projects have faded into obscurity, a few noteworthy exceptions have emerged.
From the perspective of daily active developer counts, three projects stand out at the time of writing: Sui, Aptos, and Osmosis. The Sui Network experienced a remarkable 444% increase in its full-time developer count in 2023, coinciding with the launch of its token in April of that year.
Aptos, which has been active since early 2022, saw its DAD count grow by 191%. Launched in June 2021, Osmosis has witnessed a 296% increase in its total developer count over two years. As of the current data, all three projects have between 200 and 300 total developers.
To provide context, other well-established blockchains have experienced declines in their developer counts since the onset of the bear market in 2022. Examples include Algorand (-63%), Avalanche (-57%), and NEAR (-51%).
Aptos and Sui have secured substantial funding, with major investors such as a16z, Binance Labs, Accel Partners, Tiger Global, and Multicoin Capital backing them. Similarly, Osmosis Labs has received support from Paradigm and Ethereal Ventures.
In terms of market capitalization, Aptos ranks 36th, Sui is at 88th place, and Osmosis is significantly lower at 157th. Nevertheless, these emerging blockchain ecosystems have succeeded in attracting both investors and developers, underscoring their significant growth potential in the future.
This underscores the importance of considering factors beyond price and market capitalization when researching new cryptocurrency investments. Aspects like investor funding activity and increasing developer counts often provide insights into the future growth prospects of emerging ecosystems.
Key Insights for Investors
Despite the dramatic market crash in 2022, which resulted in losses of $2 trillion in the crypto space, major tokens like Bitcoin and Ethereum saw their valuations drop by over 60% from their peaks. Surprisingly, there was only a marginal decline in daily active developer counts between 2022 and 2023.
More significantly, the developers responsible for over 80% of the code commits have remained actively engaged in the crypto sphere for several years. The commitment of these developers to the long-term prospects of crypto augurs well for the industry’s sustained growth.
As the crypto winter gives way to spring, this underscores the importance of including Daily Active Developers (DADs) as a fundamental research metric in the realm of cryptocurrency. Developers serve as the architects of crypto’s foundational infrastructure. They play a pivotal role in constructing and upkeeping the codebase, engaging with users, and contributing to community expansion. Development and innovation are pivotal drivers of growth in the crypto space, with developers serving as the key indicators for both aspects.