Most DeFi teams talk about “the funnel,” but very few measure it in a way that reflects how users actually behave onchain.

In Web2, the funnel is linear: view → signup → activate → retain.
In DeFi, users move across chains, connect multiple wallets, interact with several protocols, and often disappear and reappear months later.

Growth only becomes meaningful when teams understand:

• How awareness leads to wallet connections

• How wallet connections lead to onchain actions

• How those actions lead to retained capital and revenue

This article explains how the DeFi growth funnel works in practice, how to instrument each stage, and how funnel insights change growth priorities.

Why DeFi funnels are non linear

DeFi funnels are non-linear because user journeys span multiple wallets, chains, and protocols, which breaks any single straight path from discovery to retention.

Users often bridge assets, switch interfaces, and re-enter the ecosystem after long periods of inactivity. This leads to fragmented paths that do not follow a simple top-to-bottom flow. As a result, linear funnels undercount real engagement and misrepresent where drop off actually happens.

What makes DeFi funnels non-linear

• Users bridge between chains before first transaction

• The same user may use multiple wallets

• Activity can pause for weeks or months before reactivation

• Value can flow across protocols rather than stay in one app

Non-linear paths make it harder to interpret drop off, which is why funnel design must account for re-entry and cross protocol behavior.

Mapping funnel stages to onchain events

DeFi funnel stages must be mapped to verifiable onchain events because there is no centralized account system to rely on.

Each stage in the funnel should correspond to a measurable event that signals real progress. This leads to better attribution and clearer growth diagnosis.

Mapping funnel stages to chain level events reduces ambiguity because each step is verifiable and auditable.

What breaks when you apply SaaS funnels to DeFi

SaaS funnels break in DeFi because account-based assumptions do not hold in a wallet-based environment.

In SaaS, a user signs up once and stays within a product. In DeFi, users can connect without transacting, transact without returning, and return through a different interface. As a result, conversion rates and retention curves become misleading.

Common SaaS assumptions that fail

• One user equals one identity

• Activation happens inside the same product

• Retention means repeated app sessions

• Attribution can rely on cookies

These mismatches lead to incorrect CAC, overstated churn, and misleading channel performance. This is why Web2 growth playbooks often fail in onchain environments.

Funnel instrumentation: what to track at each stage

Funnel instrumentation works when each stage is tied to a measurable signal because this creates causal links between marketing actions and onchain outcomes.

Tracking only traffic or wallet connections leads to shallow insights. Tracking contract interactions and capital retention reveals where growth actually compounds.

Instrumentation should follow the value flow, not just user counts. This leads to better prioritization of product work over top of funnel spending.

Common funnel blind spots DeFi teams miss

DeFi teams miss blind spots because they focus on volume metrics instead of transition quality between stages.

High wallet connections do not guarantee first transactions. High first transactions do not guarantee retained TVL. Each transition has its own friction that requires a separate diagnosis.

Frequent blind spots

• Overvaluing wallet connections without transaction follow-through

• Measuring TVL without separating short-term incentive-driven deposits

• Ignoring time to first transaction

• Treating all users as equal value segments

This leads to growth strategies that inflate surface-level metrics while long term usage decays.

How funnel insights change growth priorities

Funnel insights change priorities because they reveal where marginal effort creates the highest long term value.

If most users connect wallets but never transact, onboarding friction should be prioritized. If users transact once but never return, retention mechanics matter more than acquisition. This is why funnel analysis leads to reallocation of budget from campaigns to product improvements.

How priorities shift

• Low wallet to transaction rate leads to UX and onboarding fixes

• Low repeat usage leads to retention mechanics and product depth

• Low retained TVL leads to incentive redesign and value alignment

Funnel insights shift growth from channel optimization to system optimization.

Learn more: Web3 Funnel Analysis: Improve User Activation & Retention

Final takeaways

DeFi growth funnels are non-linear, wallet based, and value-centric. Measuring them requires mapping stages to onchain events, and instrumenting transitions between stages. Teams that do this move from chasing activity to building retained TVL, which leads to sustainable protocol growth.

FAQs About DeFi Growth Funnel (2026)

Why do users connect a wallet but never make a transaction?

Users drop after wallet connect because trust signals, value clarity, or first-action UX are weak, which leads to hesitation before committing capital. This often happens when the next step is unclear, risk feels high, or audits and docs are not visible at the decision point. As a result, wallet connect becomes a dead end instead of a bridge to activation. Tight first-action design and visible trust signals reduce this drop.

We get TVL during campaigns but it disappears after rewards end, why?

Liquidity leaves because incentives attract short-term capital that has no reason to stay once rewards stop. This happens when rewards outweigh the protocol’s natural utility or yield, which leads to mercenary liquidity. As a result, TVL spikes look like growth but do not compound. Retention improves when incentives reinforce real usage patterns.

Which metric should I care about more, TVL or active users?

Neither metric alone predicts success because TVL reflects capital depth while active users reflect product usage. When TVL grows without users, liquidity is often speculative. When users grow without TVL, usage does not translate into economic value. Growth is healthier when both move together over time.

Why does our funnel look broken compared to normal SaaS funnels?

DeFi funnels look broken because users move across wallets, chains, and protocols, which breaks linear attribution. Discovery, wallet connect, and transactions often happen in different places and at different times. As a result, standard funnels miss key steps in the journey. Connecting web events to onchain actions reveals where drop-offs actually occur.

Is it normal that growth slows down after launch even though traffic is still coming in?

Yes, growth often slows because early traction is driven by novelty and incentives, not repeatable usage. Traffic may continue, but activation and retention flatten when users lack a reason to return. As a result, surface metrics stay high while real adoption stalls. Growth resumes when teams fix post-first-transaction loops and retention design.