Using DAU/MAU Ratio in Cryptocurrency Investment

Key Takeaways

• Facebook was initially DAU/MAU ratio to measure user engagement, or ‘stickiness’ of a platform or app.
• Repeat users are generally more valuable and less expensive to acquire than new users, so high DAU/MAU can be a good indicator of adoption and growth.
• Investors can combine DAU/MAU with other metrics such as TVL or volume to identify “sticky” projects with outstanding growth potential.

Intelligent cryptocurrency investors look at the numbers before buying tokens. (See our guide to the 3 most important metrics for cryptocurrency investors.)

One of the most important numbers is Number of users in cryptocurrency projects, which is like a customer of a traditional company. This number is typically measured using Daily Active Users (DAU) or Monthly Active Users (MAU).

But there is another metric: Ratio of daily active users (DAU) to monthly active users (MAU)It is simply expressed as DAU/MAU.

You can use this ratio to measure: User ParticipationIt shows how many of the people using the platform in a month are using it every day.

This guide shows examples of the DAU/MAU ratio and how to add it to your investment analysis.

Understanding the DAU/MAU ratio

In cryptocurrency and blockchain projects, DAU refers to the number of unique users interacting with the platform within 24 hours. MAU, on the other hand, calculates this unique number over a period of one month.

The DAU/MAU ratio is calculated by dividing DAU by MAU and provides a percentage that reflects this. User engagement, consumer retention, and impact of newly added features. (The higher the better.)

Ideal DAU/MAU ratio in the 10-20% range This indicates healthy user engagement and retention, indicating that users visit the platform 6 to 9 times per month.

A DAU/MAU ratio below 10% is often considered poor., because users use the platform less than three times per month. This may indicate that users need more ongoing value.

DAU/MAU ratio It helps businesses identify early instances of customer churn.. If your daily active users start to trend separately from your monthly active users, your users are visiting less frequently, and that’s a warning flag.

Use DAU/MAU ratio to invest in cryptocurrency

User retention is just as important as customer acquisition. Cryptocurrencies, in particular, can be tricky as users chase short-term rewards.

Cryptocurrency projects learn how to better retain users while also improving revenue, increasing stability and longevity, and gaining a competitive advantage in the market.

Just as the DAU/MAU ratio can indicate churn, It can also serve as an early indicator of a project’s traction and growth potential.. (That means it’s a promising investment.)

DAU/MAU ratio analysis

Two insights we can gain from the table above are:

• 1. Layer 1 protocols may have lower DAU/MAU ratios because people simply buy and hold them rather than using them on a daily basis.
• You would expect a higher DAU/MAU ratio to be correlated with a higher market cap, but that doesn’t seem to be the case in this scenario. For example, Bitcoin’s DAU is 505K, which is much less than Polygon’s 1.13M. In other words, Bitcoin’s market capitalization is 141 times that of Polygon. This is likely because Bitcoin is used as a store of value rather than a transaction currency.
• 2. Layer 2 protocols with higher DAU/MAU ratios have higher market capitalization.
• On the other hand, for frequently used L2s, a higher DAU/MAU ratio may indicate a higher investment value. This is especially true for Arbitrum, Polygon, and Ronin. Since it is primarily used to speed up transaction processing, this use case will likely allow more users to generate higher market capitalization.

Integrate the DAU/MAU ratio into your investment strategy

Like any smart investor, we examine a variety of metrics and ask questions such as: “How can we integrate these into our investment strategy to improve results?”

Here are some ways to use DAU/MAU ratio in conjunction with other metrics:

• Total Value Locked (TVL): TVL represents the total capital held by the project’s smart contracts. High TVL and favorable DAU/MAU ratio mean that the project has strong user participation and significant financial support.
• trading volume: A favorable DAU/MAU ratio and high transaction volume indicate a vibrant and active project with a solid and engaged user base.
• market capitalization: While market capitalization alone provides little insight into a project’s long-term growth, when combined with the DAU/MAU ratio, it allows investors to better understand whether the level of user engagement justifies valuing the project.

When using the DAU/MAU ratio in conjunction with other metrics, it is important to recognize that the tool has limitations. Seasonality, project life cycle, and different types of user configurations are considerations that are not immediately apparent at first glance.

Two useful DAU/MAU examples

Let’s look at two key examples of how the DAU/MAU ratio can impact your investments. These case studies highlight the importance of context when analyzing cryptocurrency projects.

ronin

Ronin is an EVM blockchain built to create a player-owned economy within the digital world. As a layer 1 blockchain built for developers, its DAU/MAU ratio of 11.7M/30.1M (38.87%) indicates a highly engaged user base. The market capitalization may be smaller than other projects on this list, but healthy ratios indicate growth potential.

If you think about Ronin’s use case, this makes logical sense. As a token created to support the gaming economy, we expect regular use of the token to become the norm (assuming the game is successful). Gamers tend to play their favorite games on a regular basis, and naturally they need to make regular in-game transactions, which increases their DAUs and increases their DAU/MAU ratio.

Bitcoin

Bitcoin has the highest market capitalization on our list. However, DAU numbers do not correlate with market capitalization. The token’s DAU performance has been a horizontal channel over the past year, despite its price rising by around 150% at the same time. There is a logical reason for this. Most investors do not trade Bitcoin on a regular basis. Instead, they purchase and hold tokens as a long-term store of value.

Context is important when using this ratio.. A high ratio often means strong user interest and retention, but more research is always needed to find the ‘why’ behind the data. (Conversely, a low DAU/MAU ratio does not mean that a project is useless.)

Ask yourself: Is this a project to engage users on a regular basis?? If so, a high DAU/MAU ratio can be a good indicator of product/market fit.

Investor Implications

The DAU/MAU ratio helps investors determine the “stickiness” of a cryptocurrency project or product. Measure how many users return regularly.

However, the proportions should be taken with a grain of salt. It is primarily useful for projects that you plan to use frequently (games, social media platforms, DeFi protocols, and metaverse projects, etc.). Not useful for infrequently used projects.

Remember, the higher the better. Once you find a project with a good DAU/MAU ratio, dig deeper with the best valuation metrics. Of course, also conduct qualitative research using the Blockchain Investor Scorecard.

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