How Early Are We? A Deep Dive Into The State of Web3

Leveraging On-chain Metrics to Determine Your Entry Point and Potential Investment Opportunities.

May 25, 2023

GM PRO DOers!

Ever wonder how many people are actually using web3 technology? 🤔

Not wallets, but actual humans… 🤓

Wouldn’t it be great to know how many people have migrated from the online world to the onchain world?

Or maybe take it a step further and try to understand how many people are using NFTs, Stablecoins, or DeFi. 👀

Whether you’re investing in web3 and want to understand how early you are or you’re building in web3 and want to understand your current TAM (total addressable market), understanding how many people are actually onchain (and what they are doing onchain) can be extremely useful.

That’s what we’re going to uncover in today's PRO report. 🚀

The most popular number that’s passed around in this space comes from the Crypto.com research report, which suggests that there are 425 Million crypto owners worldwide as of December 2022.

Up from 306 Million at the start of 2022. Some pretty solid growth during a bear market! 💪

This would mean that about 5% of the world currently owns crypto.

It’s larger than you might think, yet still signifies that we are extremely early, considering we still have another 7.6 Billion people or so to onboard! 🌊

But don’t let these numbers fool you, this is looking at crypto holders on and off chain, the bulk of which are on centralized exchanges (offchain).

A large % of these crypto owners are simply holding onto digital assets to speculate and have never actually used a web3 wallet, interacted with dapps, or had any onchain activity. 🫤

These are the aunts and uncles that bought crypto on Coinbase/Binance because you shilled it to them at the Christmas family gathering. 😏

The purpose of this report is to try to understand how many individuals are currently active onchain.

Now, this is not an easy number to determine since blockchain is a permissionless technology that doesn’t require identifying who you are or that you are a unique person. Onchain, anyone can have any number of wallets, and in fact, most people have many.

I, for example, have at least 10 wallets and 3 or 4 I’m active with. This makes understanding the human numbers onchain extremely difficult. 🤷

That said, let’s go down the rabbit hole and see what we can uncover anyway! ⏬

Unique Humans Interacting OnChain

In April, we had a total of 64.6 Million unique wallets interact onchain across 10 of the most used blockchains (Ethereum, Solana, Bitcoin, Arbitrum, Avalanche, BNB, Fantom, Gnosis, Optimism, and Polygon).

So does this mean that 15% (64.6 Mil) of the 425 million crypto owners are active onchain? Definitely not. If only things were that easy.

There are a few things to keep in mind with this chart.

Firstly, humans can, and many do, have multiple wallets on the same chain. ⛓️

Secondly, while the same wallet address can work across all of the Ethereum Virtual Machine (EVM) chains (i.e. Ethereum, Polygon, Avalanche, etc.), this is untrue for non-EVM chains like Solana and Bitcoin. 

This means that if a human interacts on non-EVM chains, they will need a Bitcoin address and/or a Solana address in addition to their EVM address.

So the question is, do we assume 10% of the wallets are duplicate owners? 30%? 50% or more? I don’t think anyone can answer that question accurately, but let’s see what else we can find. 👇

If we look at brand new unique wallets interacting onchain each month, we see that in April we had 41.7 Million. That is 65% of ALL active wallets in April, which seems a bit odd…

There’s little chance we brought 41.7 Million new people onchain in April (there’s simply no catalyst for that right now).

We also know this because in every month going backwards, the net new wallets account for about 65% of active wallets in the same month, yet we aren’t growing by that many wallets month over month.

What’s likely happening is that users, and more likely bots, constantly create and use new wallets on an ongoing basis. 🤦

It may also be that some people (aka wallets) interact one time and then never again. For example, the bulk of the 10 million unique reddit wallets who minted a Reddit NFT in the last year have taken no additional interactions onchain.

Get our PRO breakdown of Reddit NFTs here.

If we consider that over the last 6 months we haven’t seen any significant growth in total active wallets, we can then assume that those who were active onchain that are no longer active (people leaving the space) is close to on par with those who have never interacted onchain that are now active (people entering the space).

It might then also make sense to remove the 65% of the “net new active wallets” and assume that unique individuals interacting onchain are somewhere close to the remaining 35% (this is a pure guess, but it’s got some merit to it and it’s the best we have, so let’s roll with it).

That would give us a total of somewhere around 22.5 Million monthly unique humans actively interacting onchain over the last 6 months.

Now I know we are making a lot of assumptions here, and there is no way to accurately check our work. However, if we compare our numbers to a recent report that a16z released, we can see that they are suggesting that there are 15 Million unique active wallets on chain/month.

In a16z’s case, they used only unique addresses that send a transaction as their proxy. Whereas we used all interactions onchain (NFT minting, deploying smart contracts, sending tokens, etc.)

The chart above also excludes Bitcoin transactions, so if we were to isolate Bitcoin in our numbers and again remove the 65%, we see an estimated 5.1 Million Unique humans interacting on Bitcoin in April.

In order to compare with a16z numbers, let’s remove the Bitcoin wallets from our total, putting our estimated numbers at 17.4 unique active wallets last month. Interestingly, pretty close to the 15m that a16z is suggesting.

I think it's safe to say that in April, there were approximately 15-25 Million unique humans active onchain across the 10 most popular blockchains.

What’s really interesting is that we have been sustaining this number for the last 6 months, which is at all-time-highs and higher than during the entire 2020-21 bull market.

Ok, so we’ve established that there are approximately:

• 425 Million unique humans invested in web3 (5% of the world)

• 15-25 Million unique humans actively using web3 on a monthly basis (.275% of the world)

Now let’s zoom in and try to understand what users are actually doing in web3. We can attempt to understand the population size of those interacting with DeFi, stablecoins, NFTs, fungible tokens as well as developers deploying smart contracts.

Unique Humans Interacting with DeFi

DeFi exploded onto the blockchain world back in the summer of 2020, onboarding many new users onchain. However, since October 2021, active wallets using DeFi have been cut by more than half.

For the last 9 months, it’s remained pretty stable at 2.9 Million unique wallets/month. If we account for the duplicate addresses like we did above and remove the 65% then we end up at around 1.01 Million unique humans interacting with DeFi per month.

This means that .0125% of the world is currently interacting with DeFi on a monthly basis, and 4.6% of current web3 users are interacting with DeFi.

Let’s see how NFTs fare in the market share of web3 activity…

Unique Humans Interacting with NFTs

Wallets interacting with NFT marketplaces have been on a steep decline since the beginning of 2023 with only 719,310 wallets in April or about 251,000 unique humans across the most popular NFT chains.

I don’t think this is a great look into the NFT world, however, most NFTs minted are not actually being traded on NFT marketplaces these days.

For example, most NFTs on Reddit have remained off marketplaces, in addition to the recent NFTs launched by Starbucks, Nike, and others. Not to mention non-transferable NFTs which have seen great use cases and adoption in recent months.

Instead, if we simply look at all active wallets interacting with NFTs we get a much higher number with 6.8 Million unique wallets in April. This equates to approximately 2.38 Million humans interacting with NFTs currently.

This means that .03% of the world is currently interacting with NFTs on a monthly basis and 10.8% of current web3 users are interacting with NFTs.

One thing to note here is that these numbers do not take into account the NFT activity on more centralized blockchains like Flow or Wax, which have meaningful adoption with Top Shots and other big brand NFT projects.

This data is not readily available to pull so we’ve had to exclude it. That said, my assumption is that our estimations are skewed to the high side, so our numbers are likely still in the ballpark.

Unique Humans Interacting with Stablecoins

One of the fastest growing use cases on blockchains are stablecoins. Currently, 14.8 million wallets interacted with stablecoins in April, though this is likely lower than reality since this chart does not include the TRON blockchain, which has a significant amount of $USDT and $USDT users.

That said, we can estimate that at least 5.1 Million humans interacted with stablecoins in April 2023.

This means that .063% of the world is currently interacting with stablecoins on a monthly basis, and 23% of current web3 users are interacting with stablecoins.

Let’s jump over to the devs first before we look at the most widely adopted use case on blockchains. 

Unique Humans Developing In Web3

In terms of developers working in web3, this is a tough metric to pull since this is not a direct metric onchain. That said, some researchers have pulled the amount of Github users working on crypto and web3-related projects.

From the a16z report, we can see about 28,000 developers are active in web3.

And the Developer Report shows 21,697 developers are active in web3 (full or part time).

So let’s assume between 20k and 30k developers are working in web3 at the time of this writing. Of the 22 million people using web3, only .1% are actually building in the space.

Unique Humans Interacting with Tokens

Outside of simply moving the native token of the blockchain (ETH, BTC, etc.), the bulk of onchain activity comes from the first use case built on a blockchain… other tokens!

More than 35.6 Million wallets interact with tokens on a monthly basis and approximately 12.46 Million humans. Keep in mind this includes those interacting with stablecoins, which means that 40% of token activity comes from those solely or also interacting with stablecoins.

This means that .16% of the world is currently interacting with tokens on a monthly basis and 56.6% of current web3 users are interacting with tokens.

Web3’s Most Up-To-Date Numbers On Active Humans Onchain

The validity of these numbers in terms of unique humans is unknown, but it’s safe to assume that we are somewhere in the vicinity. Let’s recap the most recent monthly numbers to put this space into perspective:

Keep in mind: These numbers are for the month of April and they’re estimations! 

For a $1 Trillion asset class, crypto, and web3 are still very small in terms of their users. What this means is we have A LOT of growth ahead of us.

For investors, this means that we will continue to see incredible upside on digital assets for years ahead. There is no asset class positioned to have such a growth trajectory over the next 10 years like the crypto and web3 space does.

For builders, the total addressable market for web3 users specifically is quite small, especially when you think about the numbers split across web3 segments (DeFI, NFTs, etc.). This is very important to keep in mind when marketing/building for the existing users.

That said, there is plenty of user growth ahead of us in the future, however, it’s important to think about what tools and products those users will want and need in the coming years.

Web3, a few years from now, will look nothing like it does today, so it’s important to realize that if you are building for future web3 users, they won’t know or care about a lot of the things we do in the space today.

The famous Wayne Gretzky quote applies perfectly here: “Skate to where the puck is going, not to where it is”. This is the key if you are currently building or wanting to start building in web3.

As usual, we at Milk Road will continue to keep you ahead of the curve and help direct you to where this space is heading.

And until next time… Keep DOing. 😎

Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.