The Insider #6 - 13 Nov 2023
The Core Crypto Developers Remain Committed Despite the Bear Market
Unpacking the Signal
The crypto bear market has led to a decline in new developers entering the space. However, the experienced core developer community remains steadfastly committed to building out decentralized networks for the long haul, according to a new report from Electric Capital.
While overall monthly active crypto developers have fallen 27% from the peak, the bigger picture is far more encouraging for the future. The transparency of open-source development on public blockchains allows us to analyse the developer community in detail. Diving into the data provides valuable insights and reveals the enduring resolve of veteran developers, which serves as a positive signal for crypto's long-term growth.
The open-source ethos of cryptocurrency enables anyone to inspect, audit, and contribute to the code. This transparency allows the community to monitor development progress in real-time. Rather than closed-door centralized development, blockchain code bases reflect the live state of decentralized networks.
Examining the public data during this bear market provides unique insights into developer commitment. It shows who is building for the long haul versus short-term gains. The trends demonstrate veterans' focus on driving steady progress in areas like usability, scalability, and privacy. Their dedication persists regardless of conditions, maturing crypto's foundational layers for mainstream adoption.
The Newcomers Depart, But the Veterans Persist
The decrease in developer activity is predominantly attributed to newcomers—individuals who embarked on their crypto journey in the last 12 months. The "Newcomers" category experienced a staggering 58% drop when compared to the figures from the same period in the previous year. Many of these individuals were undoubtedly enticed by the euphoria and "get rich quick" mentality that characterized 2021, only to lose interest once the allure of quick gains waned. Building the foundation for a decentralized future demands unwavering dedication through both the highs and lows.
In contrast, developers with over a year of experience in the crypto space, categorized as "Emerging" and "Established," continue to contribute at similar levels:
Emerging Developers (1-2 years of experience) have grown by 11%.
Established Developers (2 or more years of experience) have shown a 5% growth.
This data illuminates the unshakable commitment of experienced crypto developers, who remain resolute in advancing decentralized networks, impervious to the volatility of the market. They constitute the enduring heart and soul of this space.
Veteran Developers: The Backbone of Progress
Not only have the veterans persevered, but they also account for the lion's share of contributions over time. Developers active after July 2023 have historically been responsible for approximately 75% of all code commits.
This data underscores the fact that veterans shoulder the majority of the development workload, while newcomers contribute relatively little. The long-term builders possess an order of magnitude more experience and remain dedicated through any conditions.
The Network Effects of Developer-User Engagement
In crypto, the network effect plays a critical role in driving token value. This involves a symbiotic relationship between developers and users across three key stages:
Attracting initial users through papers, marketing, airdrops, bounties and community engagement
Continued engagement amplifies network effects by building credibility and trust. High levels of communication lead to strong communities that organically spread awareness.
Feedback loops generate mutual value. Developer support increases user friendliness and adoption. User insights improve the protocol and identify issues.
When developers consistently deliver exciting new features, upgrades, and fixes, active usage generally rises. More developer involvement can help crypto projects expand their daily active user bases through positive network effects.
Several of the blockchain networks with the highest numbers of daily active users, including Tron, BNB Chain, Bitcoin, Polygon, and Ethereum, also rank among the top for monthly active developers.
Despite the overall decline, certain crypto ecosystems have demonstrated impressive developer growth amid the bear market (YoY Oct 2022 vs Oct 2023):
Aztec Protocol: +400%, to 76 monthly active developers
Celestia: +155%, to 80 monthly active developers
Stellar: +71%, to 134 monthly active developers
Starknet: +14%, to 517 monthly active developers
This data highlights protocols with >70 fulltime developers and how development momentum continues advancing in key areas like privacy, payments, and scalability. The focus on building out these base layer protocols persists through the winter, laying integral groundwork for future adoption cycles when conditions improve.
Seeking Alpha in the Noise
While the link between development activity and price may seem murky in the short term, over longer horizons the data could reveal predictive alpha for momentum and narratives. Veteran developers building foundational protocol upgrades during bear markets could potentially foreshadow the next cycle's breakout applications.
As an example, increased work on Ethereum's transition to proof-of-stake during the 2018 bear market preceded the DeFi summer of 2020. Developers building the base layers for NFTs like ERC-721 in 2017 laid the groundwork for the 2021 NFT mania.
Similarly, a focus on optimizing Solana for speed and low costs during previous bears seeded the narrative for the ultra-fast and cheap "Ethereum killer" in the 2021 bull run.
Many other factors impact price, but observing what developers focus on through bear trends could provide insight into the next catalysts. Projects demonstrating consistent developer momentum right now, like modular consensus, layer 2 scaling, and zero knowledge proofs as well as core development on the settlement layer, may hint at the next waves of adoption or narrative.
Decoupling of Developers and Price in the Short Term
While we may expect a link between developer activity and value over the long run, the data reveals a decoupling of the two in the short term.
Several factors likely contribute to muted short-term correlation:
Development builds for the future while prices react heavily to near-term events.
Speculation and manias often disconnect prices from technical fundamentals and progress.
Impact of development takes time to materialize in the market.
Comparing across assets mutes the effect, as some projects do respond strongly to development.
Metrics like GitHub activity provide an imperfect measure of overall development.
A Positive Signal for the Long Term
While the short-term correlations between development activity and price remain murky, the data sends an unequivocally positive signal for crypto's future. The veterans' enduring commitment shows that real progress continues unimpeded by temporary market dips.
Their efforts today build the foundation for the next generation of innovation and mainstream adoption. With the core community intact, the possibilities of Web3 will be achieved over the long term. The veterans' resilience provides confidence that blockchains and applications are being battle-tested for primetime.
Rather than a short-term alpha signal, developer persistence may be best viewed as a reassuring indication of crypto's continual maturation and a factor for finding narratives and a metric for fundamental research. Their unwavering dedication through bear and bull cycles accelerates the long arc towards decentralization.
For investors, the veteran developers' commitment signals a promising opportunity to invest in high-quality projects with dedicated teams. Those who persevere through the crypto winters will emerge well-positioned to capitalize on the next growth cycle. Their areas of focus may foreshadow future trends and narratives to monitor. Tracking development activity during bear markets can uncover potential catalysts for the next bull run.