The Importance of Community-led Growth in the DeFi Industry
Description: 🔗 In this NFT.EU article, you can read about how community-led growth transforms DeFi projects 🌐. Strategies, examples, and benefits for sustainable success.
Gitcoin tells us that crypto began in cryptography forums where developers and academics discussed ideas on how ‘digital money might work better if it was programmed into a decentralised and transparent ledger known as a blockchain.’
It was this small community that later became the original builders of cryptocurrency.
Communities can make or break businesses, especially Web3 ones, that survive and thrive on their collective conscience.
This idea of co-creation and sharing forms the basic premise of community-led growth. But what is a community?
Become a part of the community
Subscribe to our newsletter to be in-loop with all news from the crypto world
A community can consist of developers, users, enthusiasts, learners, and others who feel connected to the brand. Communities form the core of Web3 and were a feature of Web1, too. Simply put, a community is where the members feel at home.
An old tweet by Kevin Pham compares Bitcoin and Ethereum culture to 2017.
Making this ‘home’ welcoming and rewarding is what founders do to attract users, create dialogue, co-create products, and ultimately share the success of their project with the community.
In web3, the community of talented and civic-minded individuals creates new tools, protocols, and pivotal conversations. These projects–like Ethereum, GitcoinDAO, and BanklessDAO–have enabled new political economies, i.e., new ways to exercise power collectively while positively impacting the world.
UniSwap, Ethereum, Solana, Maker DAO, and almost all successful crypto projects are led forward by their communities. Today, community-led growth (CLG) is a popular go-to-market (GTM) strategy for DeFi protocols and projects.
But what does community-led growth mean in the context of Web3? Let’s find out.
What is Community-Led Growth?
Overview of CLG
Community-led growth in DeFi is a business strategy that involves fostering communities and leveraging them to drive long-term growth. CLG is a shift from traditional product-led marketing strategies to a model based on decentralised collaboration and shared value.
Community-led growth happens when your community helps you achieve such ubiquity and such name recognition that it actually allows you to start moving upmarket into the enterprise.
For instance, on March 7, 2023, UniSwap passed a proposal to distribute protocol revenues among token holders via DAO voting. As a result, UniSwap’s native token, $UNI, doubled in value in a few days.
This is a great example of the power of communities and how passive consumers can become active members.
In Web3, code-driven mechanics govern protocols. As such, the community not only adds the human element but also becomes one of the prime marketing forces driving the brand forward. The very users become engaged communities and marketers for the brands they adore.
SaaS companies were the first to experiment with community-led growth for business growth and success. Today, SaaS growth strategies put customers front and centre. When your customers become a part of the community, they feel valued and connected to the brand at a closer level.
Today, some of the world’s best-known brands have grown from scratch using a community-led growth strategy: Slack, LinkedIn, Atlassian, Hubspot, Calendly, Notion, etc.
Key Characteristics of CLG
Transparency: Healthy communities should follow transparent practices. Data tells that 76% of Web3 users favour transparent communities. A good CLG strategy involves engaging and interacting with members via transparent communication channels. Feedback from the members can be used as input to reform and co-create existing and new products.
Inclusivity: Inclusive community practices put the power back in the users’ hands. They make them feel valuable and let them connect with the brand on a personal level. Members should feel empowered and rewarded. Their contributions to ideation, content creation, discussions, and other forms of participation should be counted.
Organic Growth: Engaged users are 5x more likely to stay and help the platform grow. Therefore, a good CLG strategy should focus on growing and scaling as a natural progression in the long term via authentic relationships with users and members.
One of the crypto industry's greatest strengths is its sense of community. When someone buys your token, they're not just purchasing a product—they’re joining a movement, sharing your vision, and contributing to your project’s growth.
DeFi Goverance: For Web3, the community takes centre stage. Given its decentralised infrastructure, users play a more active part in the governance, development, and upkeep of a DeFi platform. Platforms should focus on co-creation, collective decision-making, and profit-sharing models.
Why Community-Led Growth Matters for DeFi
Community-led growth is the most potent marketing strategy in Defi. Here’s how it has helped many platforms for the success of a Web3 platform:
Benefits of Community-led Growth
Authentic Users
Active participation from the community acts as a catalyst, bringing in authentic users who turn into product evangelists and brand advocates. The engaged users feel a sense of ownership and spread the word about the product far and wide, creating a network effect.
Today, many successful examples of DeFi communities exist. Polygon Labs and Solana Labs onboarded more than 100,000 developers through community initiatives and hackathons alone.
Network Effect
This network effect helps Web3 founders and VCs with sustainable and organic member-driven growth and co-creation from users. To understand how network effect works, watch this video by startup executive and investor Andrew Chen:
In the case of Bitcoin, Ethereum, and a host of other cryptos, they are community-owned projects. The communities are embracing the blockchain's growth, marketing, and development. The Ethereum Foundation conducts regular hackathons to onboard developers who become founders, co-founders, DAO members, and Web3 engineers.
Here’s a valuable writeup from Vitalik Buterin, Ethereum’s co-founder, on how L2s are turning into unique cultural extensions of Ethereum.
Feedback Loop
80% of successful crypto projects use community insights as inputs for key product updates.Web3 communities can be great for seeking feedback and garnering early adopters.
Consumers become the contributors, collaborators, developers, and communities become the testing ground for new projects. This creates an everlasting feedback loop in DeFi that helps the project grow and scale.
Cardano is a layer-1 project that uses peer-reviewed research to improve its blockchain design and decentralised growth model.
Organic Long-term growth
Retention is the key to long-term growth and success for any project. Loyal community members stay with a brand despite all odds and setbacks. Community building guarantees organic traction and trust.
By building a community, you optimise for connections, relationships, and emotional bonding, resulting in a "community sink" and "attention sink." Members are less likely to leave because of the strong emotional attachment they have with the community and brand.
With such backing, projects grab the eyes of VCs and investors. Community engagement metrics validate fundraising and partnerships. DAOs (decentralised autonomous organisations) become the decision-making wing of the platform. These DAOs help create buzz by helping in community onboarding and turning existing users into brand ambassadors.
Protocols like Uniswap Labs, AAVE, Solana Foundation, and Aptos Labs saw their user base grow by 20% quarterly by investing in community initiatives alone.
Examples of Successful CLG in DeFi
There are many real-world community-led growth examples in DeFi today. Let’s dig into the most popular and most recent DeFi success stories:
Berachain
Berachain, an L1 blockchain built on the lines of Ethereum, used internet meme culture to hit 1 million users in just 7.5 days and raised over $100 million.
An Overview Of Berachain Ecosystem
Berachain was started in all fun by two anonymous people, Papa and Smokey. Soon, their whimsical antics (read Ooga booga) and well-aligned incentives helped them earn a spot as the fastest-growing project. The blockchain’s proof-of-liquidity (POL) consensus and other initiatives are “𝘣𝘢𝘴𝘦𝘥 𝘰𝘯 𝘧𝘦𝘦𝘥𝘣𝘢𝘤𝘬 𝘧𝘳𝘰𝘮 𝘳𝘦𝘢𝘭 𝘶𝘴𝘦𝘳𝘴 𝘢𝘯𝘥 𝘥𝘦𝘷𝘦𝘭𝘰𝘱𝘦𝘳𝘴, 𝘢𝘯𝘥 𝘥𝘳𝘪𝘷𝘪𝘯𝘨 𝘷𝘢𝘭𝘶𝘦 𝘵𝘰 𝘵𝘩𝘰𝘴𝘦 𝘨𝘳𝘰𝘶𝘱𝘴 𝘸𝘩𝘰 𝘢𝘳𝘦 𝘢𝘤𝘵𝘶𝘢𝘭𝘭𝘺 𝘤𝘰𝘯𝘵𝘳𝘪𝘣𝘶𝘵𝘪𝘯𝘨 𝘵𝘰 𝘵𝘩𝘦 𝘯𝘦𝘵𝘸𝘰𝘳𝘬'𝘴 𝘨𝘳𝘰𝘸𝘵𝘩.”
The incentives have worked like magic for Berachain’s unprecedented growth, and strategic collaborations further amplified its market reach and growth. For your information, Berachain crossed Ethereum’s annual transaction volume in just six hours after its Testnet launch and achieved one million active wallets in just 7.5 days. Read the full story here.
Solana Community
Solana is today the hottest L1 chain, attracting interest from VCs and developers, and it is ready to become the next Ethereum killer. The biggest factor in the success of Solana is its community-first practices.
For long-term user engagement, Solana employs community-building tools such as Hackathons, grants, and Solana Hacker Houses. Developer incentives and open-source communities drive dApp and DeFi development. Ambassador programs like regional meetups, workshops, and events create a strong sense of community. Superteam’s community engagement initiatives have supported major projects like Phantom, Magic Eden, Wormhole, Circle, GSR, and Bonk.
Solana also provides funding, mentorship, and technical support to developers and incentivises global talent through bounties and challenges.
One of the coolest stories doing the rounds in crypto circles is of a memecoin $MIRA and how the Solana community helped a dad raise $20M to fund his daughter’s cancer research.
Here are a few more interesting links citing real-world examples of CLG as a DeFi marketing strategy.
Despite the immense potential that Web3 communities hold for both users and businesses, challenges remain.
The biggest challenge is the lack of moderation. Communities can lose a sense of purpose and vision if the team is not able to moderate proceedings properly. Rogue elements can take advantage of innocent members, duping them of their hard-earned money.
Often, the project cannot strike a balance between retaining existing users and onboarding new members. Existing members can be offered value via collaboration opportunities, exclusive content, or rewards/incentives for participation. Transparent communication helps to retain members and build trust in the blockchain ecosystem.
Overcentralisation issues may crop up in digital community management. This happens when there is a lack of dialogue between the core team and members. Regular AMA sessions and events - both online and offline, discussion forums, etc., can help revive the lost charm for any project.
Token fatigue is another challenge that communities face when the project team adds little to no time to build the project. To avoid getting stuck in such communities, people must research the project and its team well before becoming a part of it.
How to Implement a Successful Community-Led Growth Strategy in DeFi
How to Implement a Successful Community-Led Growth Strategy in DeFi
Step 1: Identify Community Needs
In a decentralised finance community, members voluntarily contribute, build, and collectively vote/give feedback on proposals. For instance, the Ethereum community is all about developing the future of the Internet for the betterment of all humanity. The Gitcoin community engages in building and funding the open web.
It is important to assess and understand the needs of the community and keep them engaged and involved at a deeper level in the project. In order to identify community needs, you can peruse numerous strategies.
Community Spaces: Create discussion spaces such as forums, meetups & events, and Discord/Telegram /X groups where members can share their insights and feedback.
Involvement in decision-making: The community should be involved in decision-making around product features, marketing, development, etc. By doing so, the community feels its loyalty acknowledged, and the developments face less friction and better reception.
User-generated content: Contributions in the form of write-ups, promotions, and campaigns foster stronger community involvement and also drive word-of-mouth publicity for the brand. The 2077 Collective for Ethereum and Superteam DAO for Solana are prominent communities working towards spreading awareness and growing their respective blockchain ecosystem.
Stronger brand voice: The brand will always be the rallying point for the community. As such, the founders and core team should work on developing a compelling brand identity so that the DeFi community understands the vision and mission of the project.
Step 2: Establish Transparent Communication Channels
In DeFi, though the community is decentralised, there’s always a need for a single source of truth. For that, the crypto projects need to look at community management as a laissez-faire affair with a central hub having all the necessary information, updates, mission statements, tutorials, etc.
A good example of this can be Week in Ethereum News, where members can find technical updates, opinions, counter opinions, job openings, and more. Binance Square is the space where community members, expert traders, and project leaders contribute news, updates, and trading alpha.
For community interaction to happen autonomously, real-time channels like Discord and Telegram come in handy. Discord for DeFi communities and Telegram community building allow peer-to-peer networking among members. Members can connect, discuss, and help each other within these groups. Most of the time, community managers manage and supervise these groups. These managers ensure decorum while keeping the community engaged.
Community-led marketing Stack
The distance between the user and the project is the least in a decentralised setup. The best way to grow is to maintain healthy and transparent communication in and across channels. The choice of channel also determines the efficacy of communication.
For instance, forums and online communities such as those on Reddit and Discord are more sought after by crypto-native users. At the same time, LinkedIn may be best suited for connecting with financial institutions.
Set up subreddits or sub-forums to have distinct discussions on separate topics. AMA (Ask Me Anything) sessions on X or other social media platforms can provide a direct route to connect with your audience. Reciprocally, the community can directly ask questions with product founders.
Here’s a quick guide on the latest crypto slang that you must know to become a true degen!
Step 3: Gamification and Incentives
Gamification in DeFi is a popular way to engage online communities by rewarding them with prizes in return for performing certain tasks. Airdrops are a great way to gamify the user experience of early adopters so that they engage more with the platform, bringing in traction and activity. Similarly, other examples of user engagement in DeFi are regular contests and campaigns that reward participants for contributing content, playing games, or making a video tutorial or review.
Referral programs also work well for incentivising community members and expanding the existing user base. By incentivising referrals, crypto projects can invite organic user growth and new participants without incurring huge onboarding and promotional costs.
Step 4: Foster Leadership Within Communities
Community managers and leaders form the backbone of user engagement in crypto. Besides having designated community managers, it is always good to have community leaders and managers, but encouraging users to engage and contribute value and, in return, giving badges to recognise their skill, dedication, and interactions with the community is also good.
Community-Led Growth vs. Traditional Growth Models
Here’s a comparative analysis of how community-led growth differs from traditional growth models:
Difference between tradtioal and community-led growth models
The Future of CLG in DeFi
As Alex Wagner writes, "Community has been a feature of the internet since Web 1. When most people think of web3, they think of financial capital. However, without the communities that power its ecosystems, web3 wouldn’t exist today."
Early users form the most loyal members of a project’s community, becoming project evangelists and earning token appreciation in return. Moving forward, the community is going to be a very significant part of the Web3 infrastructure and could even be used as a metric to evaluate the performance of a project.
DeFi platforms, therefore, need to consider communities as focal points and develop the project around them. While DAOs are quickly becoming an obvious choice for projects seeking to align community initiatives and project development, other trends, such as social tokens and metaverse integration, are also fast catching on.
Beyond DAOs, Web3 communities need to be regularly moderated to keep them healthy and alive. To make users feel their voice is being heard and valued, two-way communication, peer-to-peer discussions, and channels to submit proposals must always exist. Regular meetups and forums also help to keep ideas brimming and innovation blooming within member communities.
User incentives and gamification of community tasks via tokenisation, along with Metaverse-led interactions, can make the overall experience much more rewarding, fulfilling, and interactive.
Subscribe to our newsletter to be in-loop with all news from the crypto world
FAQ
Why is community-led growth important for DeFi?
Community-led growth is synonymous with most DeFi platforms. DeFI gives the power back to the hands of the users, who form the project’s community. Members actively build and submit proposals, invest in and promote the native tokens, and share feedback that helps the platform grow. A community helps the platform grow through continuous engagement and contributions.
What are some examples of community-led growth in DeFi?
UniSwap, Ethereum Foundation, Solana’s Superteam, Decentraland, and Berachain are some great examples of community-led growth in DeFi.
How can I implement a community-led growth strategy for my DeFi project?
Start by defining the purpose and shared objective for the community. It is this vision that the community members will ultimately rally for in the long term. Form a community of members who align with this vision. Retain the existing members and onboard new ones by creating value-driven interaction points and channels, as well as opportunities for earning rewards for their brand loyalty, emotional connection, and contributions.
