What you will get:
A clear definition of onchain growth
Why traditional growth frameworks
Web2 frameworks fail in DeFi
The five components of a compounding growth model
A practical starting point for operationalising it in your team.
Why Onchain Growth Is Different from Web2 Growth
Most DeFi teams start with a traditional growth playbook. They run paid campaigns, track signups, measure DAU, and optimise their funnel. TVL spikes and then collapses. Users appear during campaigns and vanish when rewards end. The funnel looks fine on paper but growth feels fragile.
Growth in Web2 is built around acquiring users into a product that captures and retains their attention. But DeFi does not follow the same playbook.
Onchain growth is the discipline of building compounding, measurable usage growth in DeFi. It borrows from product-led growth but adapts to the reality of anonymous wallets, onchain data, open markets, and incentive-driven behaviour. This article defines what onchain growth means, why familiar frameworks break, and how to build a growth model that compounds.
What Onchain Growth Means
Sustainable growth in DeFi means sustained, compounding increases in the economic activity that matters to your protocol: transactions, liquidity depth, retained users, integrations, and fees generated. It is not a spike. It is not a campaign result. It is the cumulative effect of a product that becomes more useful as more people use it.
Three key differences define onchain growth:
Growth Is Measured in Revenue and Retention, Not Followers or Visits
A visiting wallet that does not transacted onchain has not grown your protocol. A new wallet that executes a meaningful action has. The unit of growth in DeFi is revenue and retention, not followers or page visits. This changes how you define activation, retention, and success at every stage of the funnel.
Liquidity Is a Product Feature
In Web2, a larger user base improves network effects. Similarly in DeFi, more liquidity directly lowers costs and improves the product for the next user. Tighter spreads, lower slippage, and deeper markets are measurable UX improvements that result from growth. This means growth and product quality are not separate concerns: each user who adds liquidity makes the protocol more competitive for the next.
Incentives Can Mask Real Growth
Web2 has paid acquisition, but users do not generally receive ongoing payments to keep using a product. In DeFi, token emissions and yield incentives can sustain activity levels that have nothing to do with product value. This makes it harder to distinguish real growth from subsidised activity. The token is not the product. The Formo blog has a detailed breakdown of how DeFi incentive programs shape onchain growth and retention.
Why Traditional Growth Frameworks Break in DeFi
The standard growth frameworks, AARRR, the growth flywheel, product-led growth, were designed for SaaS or consumer apps. They assume a few things that apply less in DeFi. For a fuller comparison, see Web2 vs Web3 marketing.
Users Are Anonymous
Traditional growth analytics rely on user identity. You track known users through funnels, segment them by job roles, company, industry, behaviour, and personalise their experience. In DeFi, you have pseudonymous wallet addresses and privacy browsers. Many users operate multiple wallets. Bots are indistinguishable from humans in raw data. Onchain user segmentation and wallet intelligence are required to do any meaningful user segmentation and cohort analysis.
Switching Costs Are Near Zero
SaaS products build moats through data lock-in, integrations, and switching costs. In DeFi, onchain data is public, markets are efficient, and capital moves freely. Switching costs are near zero: A user can exit your protocol, deploy capital elsewhere, and return to a competitor in under a minute. Growth models that assume users stay without reason to do so will consistently over-project retention.
The Funnel Is Not Linear
Web2 funnels move users from awareness to conversion to retention in a roughly linear path. DeFi users enter at different stages. A power user might discover you on X or LinkedIn on their mobile phone, before depositing directly to a liquidity pool via an API integration or agentic wallet. A retail user might discover the protocol through a token listing that links to your frontend. The DeFi growth funnel has multiple valid entry points that traditional funnel models obscure.
Incentives Distort Every Metric
Active users, TVL, revenue, and volume can all be inflated by token incentives in ways that make the protocol look healthier than it is. Understanding which DeFi KPIs actually matter for growth is a prerequisite for building any growth model that is not easily gamed.
Core Components of Onchain Growth
A functional onchain growth model has five components. They are not sequential steps in a funnel. They are interdependent elements that reinforce each other when aligned, and undermine each other when not.
Component | What It Means in DeFi | What Good Looks Like | Key Metric |
Acquisition | Bringing a wallet to the point of first meaningful interaction. Channels include content, integrations, and community. | Wallets arrive with a real job to do, not just to farm rewards. Channel mix includes organic and referral, not just incentive campaigns. | Activated wallets per channel (not raw wallet connections) |
Activation | The first meaningful conversion: a swap, deposit, or borrow. Everything downstream depends on getting here. | A meaningful share of new wallets complete a first transaction. Onboarding is clear enough that users do not drop off at the point of first action. | Activation rate from wallet connect to first transaction |
Retention | The depth, frequency, and breadth of interaction after activation. This is where habit forms or fails to form, and where real product value is proven. | Users return to transact across multiple sessions without incentive prompts. Position sizes grow over time. Cross-product usage occurs within the protocol. | D30 wallet return rate; transactions per active wallet |
Referral | Retained wallets that bring others through word of mouth, liquidity signals, or integrations that extend the protocol's reach. In DeFi, referral is rarely a button. It is trust made visible onchain. | Organic integrations grow without paid partnerships. New wallets cite community or existing-user referrals as discovery channel. Referral-sourced wallets show above-average retention. | Referral-sourced activated wallets; organic integration count |
Revenue | The economic outputs that matter: fee revenue, TVL, liquidity depth, and integrations. These are lagging indicators of real growth, not leading ones. | TVL is stable without incentive campaigns. Fee revenue grows in proportion to active wallet count. Integrations are driven by product utility, not paid deals. | Organic TVL; fee revenue per active wallet; integration count |
The Onchain Growth Framework
The five components above describe what onchain growth is made of. The framework describes how they should connect.
At the highest level, onchain growth works when the following conditions are met:
Usage Improves the Next User's Experience
When one user's activity directly improves the product for the next user, you have the foundation of a growth loop. In DeFi, the most common version is the liquidity loop: more liquidity means tighter spreads, which attracts more volume, which generates more fees, which attracts more liquidity providers. This is compounding growth, not linear growth.
The test for whether your loop is real: if you removed all incentives tomorrow, would usage improve the next user's experience regardless? If yes, the loop works. If no, the loop depends on subsidies to remain closed.
Acquisition Channels Match the Product and Market
Acquiring users who have a genuine job to do with your protocol is fundamentally different from acquiring users who are chasing yields. Do you know who your core market / users are? How will you reach them? The user acquisition channels that reach each user segment are different.
Publish content and integrations that will reach your Ideal Customer Profile (ICP). Token incentive campaigns tend to reach yield farmers. Both types of users have a place, but the growth model breaks when they are treated as equivalent.
Retention Converts Cohorts into a Compounding Base
A protocol that acquires 1,000 new wallets per month and retains 30% of them is in a fundamentally better position than one that acquires 5,000 and retains 5%. Compounding retention builds a floor of returning users that grows regardless of new acquisition spend. Use Formo's churn calculator to model how retention improvements compound over time for your specific protocol.
Data Connects Behaviour to Outcomes
Onchain growth requires the ability to see what wallets do, not just what they are. This means connecting web and in-app events to onchain transactions, segmenting wallets by behaviour, and building cohort views that show how different acquisition channels perform on retention and value creation over time. Onchain attribution is the connective tissue between marketing activity and actual outcomes in DeFi.
Framework in one sentence: Acquire wallets with a real job to do in the red-hot center of your ICP. Build products with real utility. Get prospective users from awareness to activation. Build usage that forms into habit. Retain them long enough for revenue to compound. Measure every step with analytics that show you the full user journey.
Where Marketing, Product, and Analytics Intersect
Onchain growth is not a function. It is not owned by marketing or product alone. It sits at the intersection of three disciplines, and it breaks down when any one of them is absent.
Marketing Owns Distribution
Marketing's role in onchain growth is to find and reach wallets with a genuine reason to use the protocol. This includes content that builds search presence, partnership and integration work, and community that creates trust and reduces perceived risk for new users. Every marketing channel should have a clear line to a measurable onchain action. The DeFi marketing analytics guide covers how to connect marketing spend to wallet activations specifically.
Product Owns the Value
Product's role is to build solutions that create recurring reasons to return. The product determines whether activation converts to retention. Product teams in DeFi often under-invest in post-activation experience because the most visible metrics, TVL and volume, are driven by acquisition rather than habit.
Analytics Owns the Signal
Analytics in DeFi requires purpose-built tooling. Standard web analytics tools cannot connect a wallet address to an onchain event, cannot segment users by their DeFi portfolio, and cannot distinguish genuine retention from incentive farming. The DeFi analytics stack guide covers the major tooling options and their tradeoffs in detail. The analytics function should be able to answer: which acquisition channels produce retained users, what activation events predict long-term usage, and where do wallets churn.
Common Misconceptions About Onchain Growth
DeFi founders and growth leads often arrive with these beliefs. Each one leads to a predictable and avoidable mistake.
Misconception | Reality | The mistake it leads to |
TVL is the primary growth metric | TVL is an outcome metric. It reflects cumulative growth but can be inflated by incentives and distorted by whale activity. Real growth shows in retained users and organic fee revenue first, TVL later. | Optimising for TVL through emissions, producing rented capital that exits when rewards end. |
More users always means better growth | User count without retention context is a vanity metric. 2,000 wallets with 35% D30 retention compounds faster than 10,000 wallets with 3%. | Prioritising acquisition spend over activation and retention improvements. |
Incentives drive growth | Incentives drive temporary activity. Growth requires that activity to leave the protocol stronger: deeper liquidity, more integrations, stronger trust. If nothing compounds, incentives are an operating cost. | Spending on emissions that produce no durable usage or liquidity. |
DeFi growth is untrackable | Onchain data is more transparent than most Web2 data: every transaction is public, timestamped, and permanent. The challenge is connecting events to acquisition sources, which is solvable with purpose-built tooling. | Relying on standard web analytics and making growth decisions with an incomplete picture. |
How to Use This Onchain Growth Framework
Growth is a team effort across marketing, product, and engineering. Here is how:
Start with a Single Shared Definition of Growth
Before building a growth team or running growth experiments, align on what growth means for your protocol. Is it:
Retained wallets?
Fee revenue?
Organic TVL?
Pick the metric that reflects genuine product health for your stage and protocol type. The DeFi KPIs guide is a useful reference for identifying the right north star by protocol type.
Map Your Current Funnel with Onchain Data
Build a clear picture of where you are today.
How many wallets reach your frontend?
What percentage activate?
What does D30 retention look like by acquisition channel?
Where do wallets churn?
This diagnostic step usually reveals that the biggest growth opportunity is not at the top of the funnel but in activation or early retention, where small improvements compound quickly.
Identify Whether You Have a Loop
Ask honestly: does one user's activity improve the next user's experience? If yes, identify where the loop is weakest and invest there. If no, identify what product changes would close the loop before investing in acquisition. The onchain growth loops guide covers the mechanics of different loop types in detail.
Invest in Analytics Before Investing in Campaigns
Growth decisions without onchain data are made blind. Before running acquisition campaigns or incentive programs, ensure you have the tooling to measure what happens downstream. The ROI calculator can help you model the expected return of growth spend before committing budget. Then ensure your analytics stack can track activation, retention, and attribution at the wallet level.
Run Experiments at the Weakest Stage of the Funnel
Once the funnel is mapped, prioritise growth experiments at the stage with the biggest drop-off and the clearest hypothesis. Activation experiments are often highest-value for early protocols. Retention experiments matter most once acquisition is consistent. Work in sequence rather than trying to fix everything at once.
The Bottom Line
Onchain growth is not a campaign, a token emission strategy, or a TVL target. It is a compounding system that connects acquisition to activation, usage to retention, and retention to value creation, closing the loop so that each cohort of users leaves the protocol stronger for the next.
The teams that get this right do not outspend their competitors. They out-measure them. They know which acquisition channels produce retained users, which product features drive return transactions, and where the loop closes or breaks. That knowledge compounds the same way the growth itself does.
Measure and Drive Onchain Growth with Formo
You can’t improve what you can’t measure. Onchain growth requires analytics that understands onchain data and DeFi. Standard tools like Google Analytics or Mixpanel cannot connect a campaign to a wallet address or transaction, cannot segment users by their DeFi activity, and cannot show you which acquisition channels produce users who actually return. Formo is the analytics and growth platform built for DeFi apps.
DeFi founders and growth teams use Formo to:
Connect web and app events to onchain transactions for a complete view of the user journey from first visit to repeat usage — see the product analytics overview
Build wallet-level cohort analysis to measure real activation and D30 retention rates by acquisition channel — see how Formo handles retention
Segment wallets by behaviour using wallet profiles and onchain activity history, to distinguish genuine users from incentive farmers
Track onchain attribution across campaigns so growth spend is connected to the wallets and TVL it actually produces
Use Ask AI to explore onchain data in natural language, without writing SQL or waiting on a data team
Formo works across all major EVM chains and integrates with the wallet providers DeFi teams already use, including Privy and Dynamic. Setup takes minutes, not weeks.
Explore the Onchain Growth Series
This article is the conceptual foundation of Formo's onchain series. The guides below go deeper on each component of the framework, from acquisition and activation through to retention, experiments, and playbooks by stage.
FAQs About Onchain Growth
What is an onchain growth loop, in simple terms?
An onchain growth loop is when usage by one group of users directly makes the product more useful for the next group. In DeFi, this usually means liquidity improves UX, which attracts more users, which deepens liquidity further. If usage does not improve the next user's experience, there is no real loop. One-off campaigns do not count as loops.
Why do we get TVL spikes but no long-term user growth?
TVL spikes without retention usually mean incentives pulled in short-term liquidity that left when rewards dropped. This happens when growth is driven by emissions instead of actual usage or product value. If volume, integrations, or repeat users do not increase alongside TVL, the loop is not compounding. TVL alone is not a growth signal.
Do referral programs actually work in DeFi?
Yes, referral programs can work, but only when the referred user has a real reason to keep using the protocol. If referrals only bring in wallets farming rewards, usage drops once incentives end. Referral loops compound only when the core product solves a real job for the new user. Otherwise, they create short-term traffic, not growth.
How do I know if our growth loop is just fake incentive growth?
If activity drops sharply when incentives change, the loop is incentive-driven and not real growth. Other signals include low repeat usage, shallow liquidity depth, and no organic integrations. A real loop leaves the protocol stronger after incentives are reduced. If metrics reset to baseline, the loop did not compound.
Can growth loops replace paid marketing or partnerships?
No. Growth loops reduce how often you need to buy distribution, but they do not replace it. Most protocols still need early distribution to seed the first loop. Loops only matter once usage feeds back into better UX, liquidity, or reach. Without that feedback, marketing remains the only growth lever.
