Stop Misleading Your Investment Research Judgments with the Daily Active Addresses Metric Seek Authenticity Not Deception

Coin World news report:
Instead of focusing on active addresses to study blockchain activity, it is better to look at network fee indicators.
Article by Donovan Choy
Translation by DeepTech TechFlow
Using Blockchain Metrics Better
Blockchain generates a large amount of public data. On Crypto Twitter, people constantly compare blockchain A and blockchain B, and investors, researchers, and Key Opinion Leaders (KOL) have many indicators to refer to when defending their views. However, misusing these numbers often leads to a blurred understanding of this field.
In today’s 0xResearch article, we will explore three metrics and their existing problems: active addresses, blockchain “profitability,” and total value safeguard.
Active addresses
“Active addresses” refer to the number of active, paying users on a protocol.
“Facebook has 3 billion monthly active users” is useful information that tells us something about this social network. Since spammers don’t have enough profit opportunities to flood Facebook, active addresses are a good way to assess the true value of the platform to consumers.
However, for blockchain, the value of active addresses is not as significant due to the ease of creating new wallets and the obvious opportunities for profit through airdrops or protocol incentives.
For example, the following figure shows an obvious case: Solana had the most daily active addresses in the past month, so Solana appears very active.


Source: TokenTerminal
Most Solana users trade on decentralized exchanges (DEX), so we need to closely observe activities on DEX. When we delve into the active addresses on Solana’s DEX, we find that in the past day, the majority of addresses – about 3.4 million out of a total of 4.4 million – had lifetime transaction volumes of less than $10.
This suggests that due to Solana’s low transaction fees, there may be a large amount of spam or bot activity rather than a large number of “high-quality” users.


Source: Blockworks Research
Here’s another example I mentioned earlier: In September, Celo L1 (now L2) saw a surge in daily active addresses sending stablecoins to 646,000. This number exceeded Tron, attracting the attention of Vitalik Buterin and CoinDesk.
After in-depth analysis, data analyst Jack Hackworth from Variant Fund found that 77% of the Celo addresses transferred an amount of less than two cents, mainly because thousands of users received small amounts of funds through a universal basic income protocol called GoodDollar. In both cases, active addresses showed high usage, but careful analysis revealed that this claim is not valid.
For more information on this, refer to Dan Smith’s research, which focuses on the misuse of daily active addresses.


Blockchain profitability
Instead of focusing on active addresses to study blockchain activity, it is better to look at network fee indicators. Fees reflect the total gas consumption of using the protocol, without considering the issue of “high-quality” users.
Analysts and investors often use fees to determine which blockchain generates the most “revenue.” Then, we consider the token issuance paid by the blockchain to validators as a cost. The result is the “profitability” of the blockchain.
This is how Token Terminal generates “financial statements” for crypto protocols. For example, the following chart shows that Ethereum L1 accumulated millions of dollars in losses over the past two months.


Source: Token Terminal
The only problem is that this calculation does not take into account a key factor: unlike PoW chains like Bitcoin, users on PoS chains can easily obtain token issuance rewards.
After all, if I can earn a 5% ETH/SOL staking reward from liquidity staking platforms like Lido or Jito, why should I care whether the network is “unprofitable”? Therefore, concluding that Ethereum is “unprofitable” based on token issuance as a cost is problematic.
In the real world, inflation is harmful because when central banks print a large amount of money, the increased money supply reaches different participants in the economy at different times, and those who receive the new currency first benefit before the “real” price adjustment. This is called the Cantillon effect.
In the PoS blockchain economy, the situation is different because inflation (i.e., token issuance) is distributed to everyone simultaneously. Therefore, no one becomes richer or poorer as a result – everyone’s wealth remains the same.
Instead, we can consider using the Real Economic Value (REV) as an alternative metric. REV combines network fees and MEV tips paid to validators but does not consider token issuance as a cost.
Based on this, we can see that Ethereum has actually been profitable over the past two months:


Source: Blockworks Research
REV can be said to be a better indicator for evaluating the real demand of the network and a more comparable income indicator to traditional finance (TradFi).
In conclusion, traditional profit and loss accounting methods are not easily directly applicable to blockchain.
For more information on this complex topic, you can listen to the Bell Curve podcast I recently participated in with Jon Charbonneau.
Total Trading Value (TTV), not Total Value Safeguard (TVS)
Oracles are the key infrastructure for blockchains to obtain off-chain data. Without Oracles like Chainlink, the blockchain economy cannot reliably reflect real-world prices.
A commonly used method to compare market share of Oracle providers is to use the Total Value Safeguard (TVS) metric, which aggregates the Total Value Locked (TVL) secured by Oracles. DefiLlama calculates it explicitly in this way:


Source: DefiLlama
The problem with TVS is that it obscures the actual activities that Oracles secure.
For example, Oracles that support high-frequency trading products, such as perpetual contract exchanges, constantly “pull” price updates from off-chain data sources with sub-second delays.
This contrasts with “push” Oracles used for lending protocols, which update prices on-chain only a few times a day since frequent updates are not needed.
TVS focuses on the total value managed by Oracles but overlooks the performance strength of Oracle providers.
In other words, it’s like saying a well-prepared steak and a salad are both priced at $50 on the menu, so they have the same value to diners. But obviously, making a steak requires much more work than making a simple salad, which is a factor to consider.
An alternative metric is Total Trading Value (TTV), which takes into account the volume of periodic transactions that use Oracle updates.
TTV excludes applications with low trading frequency, such as lending, CDP, and re-staking. But as Ryan Connor explained, “only 2-9% of Oracle price updates come from these low-frequency protocols, which is small in the cryptocurrency field due to the high volatility of fundamental indicators.”
When evaluating Oracles using TTV, market share changes significantly.


For more information, refer to Blockworks Research’s report on how TTV better reflects the fundamentals of Oracles.