The evolution of DeFi: Why humanization is more important than digital growth?

Original author: James Glasscock

Original translation: TechFlow

This article will delve into how DeFi relies on its most valuable asset - people to thrive and develop, as well as the key strategies and valuable experiences that drive sustainable community growth.

Successful DeFi protocols use their communities as a powerful lever for growth. This article dives into the strategies, challenges, and successes that have shaped their ecosystems. By focusing on incentives, metrics, contributions, and governance, we uncover some subtle but profound lessons that are relevant to many projects. This article shares insights from mature protocols that have weathered challenges, evolved, and continue to lead the future of DeFi.

In the process of writing this article, we had in-depth exchanges with six core DeFi contributors, who generously shared valuable insights. Mastery is in the details, and this article only provides some preliminary observations. If you are eager to understand more deeply, you are welcome to join these communities and actively participate.

• @DeFi_Made_Here - Instadapp Fluid, providing efficient lending services

• @wagmiAlexander - Aerodrome and Velodrome, trading and liquidity provision on the Base and Optimism networks respectively

• @MattLosquadro - Synthetix, as a liquidity base layer for on-chain derivatives

• @omgcorn - Yearn, a decentralized automated yield aggregator

• @amplice_eth - Gearbox Protocol, the leverage layer for DeFi

• @kmets_ - Aladdin DAO, providing flexible yield farming, leverage and stability products through Concentrator, CLever and f(x) Protocol

For these discussions, we focus on projects with a TVL between $70 and $700 million by August 2024. As projects scale, their needs and opportunities evolve. In the future, we will explore the unique dynamics in larger protocol ecosystems.

Over the past few years, I have been working to help build the Reserve Protocol ecosystem. During this time, our on-chain TVL has grown from zero to over $200 million, especially during the bear market. However, this process has not been smooth sailing. Writing this article gave me the opportunity to reflect on it from a broader perspective and share these experiences with everyone, hoping that it will be helpful to you.

This article is suitable for:

• Crypto projects and community leaders looking to expand their toolset and empower community-driven growth.

• Job seekers who want to enter the crypto space and make a substantive contribution.

• Enthusiasts of community experiences who want to create a space where people enjoy gathering and collaborating.

The Nature of Community

Contribution is the core and source of vitality of the community. In the complex field of DeFi, the product is still in the experimental stage, and the initial value is reflected in the depth of participation rather than the breadth of quantity.

Borrowing the ideas from Gearbox co-founder @ivangbi_ ’s excellent article “ 1-9-90 Community and Brand Building ”, communities can be divided into three levels:

• 1% are the developers, builders, and teams who are the creators.

• 9% are users, authors, funds, researchers and angel investors who are keen to observe this field and make some comments. Although they are not part of the team, they are not newbies who are just passing by.

• 90% are random traders and speculators who usually dont read the documentation. They follow the headlines, buy and sell cryptocurrencies, but dont care to do in-depth research. They are not stupid, they just dont have an attachment to any investment. For them, fundamentals usually dont matter, they only focus on price action.

Using the funnel analogy, 90% is at the top of the funnel, 9% is in the middle, and 1% is at the bottom.

We applied the 1-9-90 model to the standard marketing funnel, mapping from initial awareness to enthusiastic support.

Typically, community building needs to start with 1% and 9% and then gradually advance. For emerging DeFi platforms that have not yet found product-market fit, a combination of technical education and continuous practical exploration is needed, and only those who are curious and entrepreneurial are willing to invest their energy in this regard. A small number of dedicated and high-quality contributors can often outperform thousands of ordinary enthusiasts.

Key contributions include:

• Developers : Create data dashboards, mortgage plugins, or new infrastructure.

• Deployers/Integrators/Apps : Leverage code, assets, or incentives to assemble and release new products.

• Liquidity providers/coin collectors : deposit assets into a pool or vault to earn fees or returns.

• Borrower : Provides collateral and applies for a loan.

• Leveraged Gainers : Amplify your earnings through cyclic deposits and borrowings, manual or one-click operations.

• Minters : Deposit collateral to mint leveraged tokens or stablecoins.

• Token stakers/lockers : Lock governance tokens to gain higher governance rights and rewards.

• Governance : Make proposals, elect committees, guide token issuance, and support protocol upgrades.

• Trader : Conduct swap transactions on spot or derivatives.

• Researcher/Narrator : Provides analysis and education through various mediums.

While the above list is not comprehensive, it is important to emphasize that these people are real users and not just spectators or speculators. In many DeFi communities, this core group usually accounts for only 10% or less of the total members (i.e., 1 and 9 in the 1-9-90 model). A considerable number of contributors are attracted through business development activities, which also reflects the close connection between community building and business development. For ecosystem builders, the key is to create an environment to identify and promote these important participants.

Health indicator analysis

Low priority metrics include engagement on Platform X, YouTube views, Reddit posts, Discord participants, community call attendance, and feedback from token holders who don’t actually use the protocol. Focusing on these superficial metrics can create a false sense of engagement but ultimately lead to misleading conclusions.

As the old saying goes, “If you want to make the wrong decision, ask everyone.” Conversely, if you want to make the right decision, rely on data. The protocols surveyed in this article all aim to achieve $1 billion in sustained value locked (TVL) as their next major milestone. While TVL is undoubtedly the most popular metric, it has multiple levels of complexity. Some parts of TVL may be utilitarian in nature, so it is particularly important to dig deeper into its components. Here are some aspects worth considering:

• Liquidity and capital supply

• Listed assets

• Quality and quantity of integrated applications

• Trading Volume

• Outstanding loans

• Monthly Active Users (MAUs)

• Revenue and/or profit

In our conversations with survey projects, the quality and quantity of integrations were cited as key factors in driving community growth. However, the most important goal remains to maintain a stable number of monthly active users, which is a truer measure of continued engagement. Although building these integrations requires a large investment and has high switching costs, each high-quality integration provides additional compounding value. Each additional integration opens up greater trading volume channels, driving monthly active user growth, which ultimately increases locked value (TVL), revenue, and even profits.

As @DeFi_Made_Here said, “In the early stages of development, 10-20 core users have far more influence than thousands of casual users. A small, focused team can create initial momentum that drives user growth to the hundreds or more.”

Misconceptions and Motives

There is a significant difference between superficial engagement and true community building.

Communities that focus only on atmosphere or speculation often have difficulty converting participants into actual users of the protocol, ultimately leading to long-term failure. Real community building requires deeper support and sustained contributions at all stages of user engagement, especially in the middle and lower stages. Multiple projects pointed out that key community building is often driven by business development teams in private, high-signal Telegram groups that work with other protocols. Projects often have hundreds of such groups, each focusing on a different protocol partner.

In terms of incentive mechanisms, it is crucial to balance extrinsic and intrinsic incentives. Extrinsic incentive activities, such as learning to earn tasks or low-threshold airdrops, often attract short-term, utilitarian participants. These activities usually lose 90% or more of their users after the incentive disappears. Through meticulous management of multiple touchpoints, providing long-term rewards, and conducting attribution tracking, user retention can be effectively improved.

Likewise, incentivized influencers (KOLs) can help spread the word, but be chosen with care—many KOLs act like mercenaries, which often reflects on the quality and authenticity of their efforts. In contrast, well-designed and long-lasting community content programs, such as the one in f(x) Protocol , buck this trend and thrive in close-knit communities.

Intrinsic incentives, such as a clear mission, unique products, transparency, and a positive developer experience, are key to maintaining long-term engagement. Fully on-chain protocols create value directly for users through transparent incentives and strengthen network effects. Aerodrome excels in this regard, ensuring that all actions are closely tied to the protocol and are not influenced by off-chain intermediaries.

Some agreements state that retroactive grants and rebates are powerful tools for combining extrinsic rewards with intrinsic motivational contributions.

Governance and the coordination of power dynamics

There is often a gap between the appearance of community governance and actual decision-making power. When a few entities hold a dominant position, the role of the community becomes a superficial phenomenon, which raises concerns about whether the project is truly committed to decentralization. This is a common problem, and potential solutions include how to distribute tokens, such as through fair launch, adjusting the timing of governance votes to match on-chain incentives, or establishing an official delegation program. Some interesting approaches will be discussed later in this article.

The human factor in community building

Emerging systems rely on building a trusted brand, and that starts with nurturing a community. Announcements and tweets alone are not enough to build a thriving community. The earliest users need personalized guidance and meaningful support.

Focus on one-on-one interactions with the 10 to 20 individuals or projects that have the greatest potential to become long-term contributors. As those relationships deepen, scale naturally—from 20 to 40 to 80, and so on.

Team members with strong social presence who can explain the project in clear, understandable terms are invaluable marketing tools. While this role is often filled by founders, it doesn’t have to be them. As @wagmiAlexander says, constant and clear communication is key: “Even if the code is immutable, it’s still people who make the decisions.”

Intentionally Designed Community Spaces

Have clear intentions when building community spaces. With limited resources, attracting speculators distracts attention from actual growth factors and leads to inefficiencies. This not only weakens the vitality of the community, but also weakens the influence of real value creators. Although speculators have their place, their sentiments fluctuate with unpredictable market changes - among which, only the actual application of the project is what you can influence. More than 90% of your energy should be invested in educating real users and collecting product feedback. Builders and innovators cannot thrive in noise; uninformed conversations will weaken valuable network effects. As the project matures, encourage the community to create spaces autonomously.

Beware of excessive enthusiasm in venture capital

In a recent All-In Podcast , venture capitalist David Sacks noted, “One of the big changes in our industry is that in 2020 and 2021, we’ve been in a bubble. There’s been a massive influx of capital into the industry as a result of the $10 trillion in liquidity that the federal government has injected into the economy in response to Covid.” This wave of capital not only drove up the market, it also flooded the VC industry with cash. As a result, barriers to entry have been lowered, allowing some inexperienced, opportunistic people to call themselves VCs.

Announcing funding or showing off partnership logos does not represent true community engagement. Projects that rely too much on this type of publicity may expose a lack of actual user engagement. Some VCs adopt a cast a wide net strategy, focusing more on short-term exits than long-term sustainability. Their focus is on quick financial returns rather than the long-term success of the protocol.

In contrast, VCs who actively participate in governance, continue to hold tokens after the vesting period, provide analysis, and promote ecosystem cooperation become important allies of the project. When seeing dazzling financing announcements, we should stop and evaluate how past and current investors can help the project achieve real user growth. If you are the one who publishes the announcement, remember that the most valuable potential contributors and partners may research the project in depth and not just rely on the press release.

Governance Experience and Achievements

Governance is indeed important, but in the early stages of a project, builders and users are the cornerstone of TVL (total locked value) growth, and TVL growth invigorates governance. For example, three years ago, when Yearn reached its peak of $1 billion in TVL, governance participation was 50 to 100 times higher than it is now. Governance is usually at the bottom of the development funnel.

To put it another way, imagine a water source on the African savannah, where elephants, lions, antelopes, zebras, hippos, and crocodiles gather. The water here thrives under the regulation of natural laws. In this metaphor, water symbolizes TVL (total locked value) - without water, the number of governors will decrease.

Before participants have governance capabilities, they first need to be active users or contributors. When TVL is low, participation decreases and power is concentrated in the hands of a few, weakening community cohesion and governance. In order to build a strong community, focus on increasing TVL, so that governance capabilities will naturally increase. While this post will not delve into governance models, I want to point out some interesting approaches worth exploring.

Protocols like Velodrome and Aerodrome take a fully on-chain approach, integrating governance and rewards through mechanisms like veTokenomics. Such mechanisms allow participants to vote on emissions and share in fees and rewards. The decentralized front end can autonomously decide whether to include new versions of the protocol in the future. This model abandons traditional DAO governance forums or Snapshot voting, forming a participant-led pull system instead of a push system that relies on external drivers. Aerodrome has created a community culture where everyone looks forward to voting and rewards day every Wednesday. Aladdin DAOs f(x) protocol also takes a similar approach.

Delegation of token voting is very important in DAOs, and while there are some criticisms , it is an effective way to expand participation for small token holders who do not often participate in governance. Synthetix has been successful in setting up a representative committee, with 4 to 8 members elected by SNX token holders. The Spartan Committee is responsible for leading protocol changes, the Ambassador Committee handles external partner proposals, and the Treasury Committee manages allowances and payments. Any community member can run for a committee seat, with a term of 4 months and a monthly allowance of 2,000 SNX.

In early 2024, Pyth Network used a clever strategy to airdrop PYTH tokens to Synthetix governance veterans. Eligible recipients are those who have voted on proposals or made important contributions in governance. To claim these tokens, participants must stake them within a specific time, which incentivizes them to participate more deeply in governance. Unclaimed tokens will be returned to the Synthetix treasury, ensuring that only those who truly participate in governance, not speculators, can benefit from it.

Unfortunately, none of the protocols I came across have come up with innovative approaches to governance communication or dashboards. Most protocols still use the traditional way: submit proposals on the discussion forum, vote through Snapshot or Tally, and update regularly on 𝕏 and Discord. It seems that we are all groping in a similar decentralized environment.

A litmus test for governance. While governance is still in its early stages, I would like to quote @MattLosquadro: The biggest litmus test is whether the project leader can be fully or partially vetoed by the community during the governance process. This helps keep community members actively engaged.

Surprises along the way

Despite the existence of many composable infrastructures, @omgcorn noted: “It is interesting that some protocols have chosen to build from scratch rather than leverage existing, proven and audited code. It should be an obvious choice to adopt a mature system and integrate its network effects, but this may reflect that we are still in the early stages of development.” In addition, the choice to build rather than buy may be because new protocols need to prove the actual use of their tokens. As the core innovation matures and enters a more stable state, and the understanding of network effects deepens, the current hesitation may disappear.

The success of the community and total locked value (TVL) is closely related to its responsiveness and adaptability. Although the development of DeFi has been relatively slow recently, innovations such as liquid staking tokens and points farms have surged. Take Pendle as an example, it is a protocol that seized the market opportunity at the right time and successfully established itself in the market, almost reaching blue chip status. @amplice_eth emphasized: Its not just about innovative products, liquidity or oracles, but also about being a DeFi veteran who deeply understands the market dynamics and can seize opportunities when they arise.

“Aerodrome chose to focus on the actual use of the token, the immutability and decentralization of the system, rather than catering to venture capital or exit liquidity,” said @wagmiAlexander . By building a community based on transparency, openness and practicality, and providing constant progress updates, Aerodrome has inspired strong production energy. Its Flight School program is a manifestation of this commitment. Conversely, operations that are opaque and only benefit a few, especially in a bear market, often erode community trust.

However, there is a meritocratic path based on values that leads to the formation of value-driven subcommunities that welcome anyone willing to work hard to earn a seat at the table. Almost every project has a subgroup that provides real value through capital, product feedback, governance, or influencing the narrative. Some groups are formal and public, while others operate behind the scenes with a small number of key contributors taking on these roles informally.

For example, Aladdin’s Community Boosters, Yearn’s Secret Cultists, Synthetix’s Representative Council, Club Gearbox DAO, and Aerodrome’s Pilots, Partners, and Sky Marshals. These subgroups foster a deeper sense of belonging, and their culture radiates to the broader community. To ensure that the most loyal supporters are attracted, some of these subgroups are not public and require a clear commitment to the project’s values before invitation.

It’s unrealistic to just launch a product into the market and expect it to be successful automatically. To succeed early on, you need to carefully guide and support the first users to build initial momentum. A good developer experience is critical, and fast and high-quality feedback from the community can greatly promote growth. For early contributors, recognizing and rewarding their efforts is key to expanding the network effect.

The community is not a monolith, but gathers on different platforms, such as GitHub, Discord, governance forums, Telegram groups of BD partners, Twitter/𝕏, Farcaster, YouTube or Reddit. Although specific interactions need to be targeted for each platform, it is equally important to focus and abandon unnecessary parts due to limited resources. You cant be good at everything, and it is better to succeed in one or two places than to be mediocre in five places.

Talent training system

Building the right team is one of the biggest challenges when scaling any project. In my conversations with various protocols, Ive noticed a general trend: talent in business, operations, data, and marketing is often not recruited directly from outside the community, and they are usually already actively contributing before they officially join. This approach works because it attracts people who truly identify with the projects mission. These people have a deep understanding of the projects goals and can make a significant impact from the beginning. @amplice_eth emphasized, The people we want to recruit already understand and believe in the importance and uniqueness of the product, and this is what we are actively looking for.

@wagmiAlexander , who started his crypto journey as a volunteer in the Solidly community and has worked in politics, shared an important insight: “In politics, the people who get full-time positions are often the ones who get in early, deliver results, and stick with it. It’s less about resumes and titles and more about the contributions you make.”

If you can’t find the right skills in your talent pool, it may mean that you haven’t cultivated an ideal community. As @kmets_ said, “Community is the breeding ground for talent.” Recruiting from within the community can reduce risks, such as avoiding the introduction of bad elements. In a remote work environment like DeFi, internal referrals are particularly important.

However, finding engineering talent for DeFi protocols presents unique challenges. While it is important to find people who can hit the ground running, it is also necessary to design products for new users, not just for veteran users who are already familiar with the field. In smaller DeFi communities, the talent pool for software engineers may be more limited. In this case, it becomes necessary to go outside the community and adopt traditional web2 recruitment methods.

As the ecosystem’s total locked value (TVL) increases, stakeholders better align community engagement with recruitment, and network effects continue to grow, which becomes a major advantage. This phenomenon is particularly evident in the largest DeFi protocols, L2s, and alternative L1s. Grant programs also provide important opportunities to identify, test, and train new talent, just in time for the greater challenges ahead - we will explore this trend in depth in a future article.

Communities play an important role in talent acquisition, whether directly providing technical talent or as a form of social proof that can ignite the spark that attracts the right talent to a project.

Offline activities: how to make it worthwhile

The purpose of holding an event varies from person to person. Some people think it is for brand building, some think it is to attract users, and some think it is to build consensus - all of these views may be correct. Conferences like ETH Denver and Token 2049 not only have main stage speeches and hackathons, but also host hundreds of side events, providing protocols with opportunities for personalized and meaningful interactions with the community. Some protocols also hold regional gatherings in cities such as Berlin, Buenos Aires or Lagos. For project leaders, the key question is: where should time and resources be invested?

From talking to multiple protocol leaders, I learned that the ROI of these events varies. Some choose not to participate at all, believing that there is little value in an event that can be replaced with a YouTube video. But others have learned to leverage the unique culture and environment of the place to make the event fun and memorable while closely aligned with the core values of their project.

For example, at the Shielding Summit privacy event at EthCC Brussels, participants discussed privacy funding, policy, and technology on a remote island. Some attendees wore masks, symbolically echoing the anonymous theme of the event. And at Celestia Game Night at Devconnect Istanbul, attendees met by chance while playing Super Smash Bros., sparking more real and interesting conversations than the usual “Where do you work?” There was even cultural exchange in a traditional Turkish bath, making this experience difficult to replicate elsewhere.

While the Reserve ecosystem is not the focus of this article, I want to mention two events that highlighted consensus building. At the ReGov event at ETH Denver, veTokenomics enthusiasts came together to extract useful signals from noise and improve governance design through practical collaboration. Meanwhile, Monetarium in San Francisco - a three-day gathering focused on long-term stability and exploring alternative forms of currency to combat global inflation. These two events perfectly combined themes, participants, values, and locations to create unique offline experiences where work in just a few days could have a multi-billion dollar impact.

Finding the right balance is not easy. Loud clubs and large venues can diminish opportunities for deep conversations, while small dinners or impromptu gatherings often foster more intimate and impactful discussions. Co-hosting an event with a partner not only facilitates the exchange of ideas, but also shares the logistical and financial pressures. Aligning an event with business development goals, especially product launches, can increase its impact. Synchronizing the gathering with a new feature release can make the event more than just a party, but part of a strategic growth strategy.

The most impactful events are often informal and intimate. Small settings are more likely to spark deep conversations, especially when you bring together people from different fields, such as engineers and artists. Hosting multiple small discussions rather than one large conference can create a more engaging and creative atmosphere. Of course, choosing the right attendees is key - the worst thing that can happen, both as an organizer and as a participant, is that the attendees dont align with your goals and your event is overshadowed by the lack of impact.

Expanding international markets

Many of the projects mentioned in this article have contributors and partners around the world. However, their international reach is mainly achieved through differentiated products and communication in English. Although some projects have tried multi-language promotion, the results are often unsatisfactory or distracting. Given limited resources, focusing on English remains the most effective strategy as it can reach the vast majority of the DeFi community.

Still, if you plan to expand into other languages, French, Spanish, Portuguese, and Chinese were the most frequently mentioned key areas. Some projects have found that even the occasional tweet in the local language can spark a sense of identity and excitement in these communities. Of course, if your go-to-market strategy relies on a specific region, it’s especially important to tailor your communications to that audience.

Summarize

In this article, I share insights from veteran developers on protocols with $70-$700M TVL that have stood the test of time in the DeFi industry. While their approach may not work for you, if you’re willing to give it a try, the 1-9-90 framework can provide a valuable prioritization guide for community building.

This reminds us that a small number of high-level contributors are often more valuable than thousands of fans or critics. These core members, who are closely connected by common intrinsic values (preferably on-chain), often have a more lasting impact despite the higher upfront investment required.

Engage your community directly and personally — 20 well-placed private messages can often produce more immediate results than a tweet to 20,000 followers. While this approach doesn’t scale easily, it’s essential in the early stages of building a vibrant and healthy community.

A strong community is not only a rich source of recruitment, but is also particularly suitable for attracting non-engineering talent. If your project is not attracting talent from the community, you may need to rethink how to better combine community building with recruitment efforts.

While TVL is an important metric, the quality and quantity of protocol integrations are often better predictors of future development trends.

Core contributors are one of the most powerful ways to attract external attention and enhance user loyalty by openly and deeply sharing product features and benefits.

When choosing a community platform, you don’t have to have it all—sometimes less is more. Focusing on cultivating on platforms where core users and active participants are most active will naturally lead to new opportunities and a broader community. Those key players who are deeply involved will create an organic chain effect that drives the development of the entire ecosystem.

Governance participation will also increase with the growth of TVL. As long as you ensure user participation and increase TVL, the governors will naturally join in.

Your campaign strategy should align with your goals, whether its to build brand awareness, attract loyal users, or build momentum. Create an unforgettable experience, not something that a simple YouTube video can replace.

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