Analyst Says 40% Of Users In Most Web3 Games Are Bots – Here’s How To Avoid Being Duped

The decentralized app industry surpassed $40 billion in smart contract deposits in February 2021, and the figure currently stands at $59 billion. To date, “real money” continues to flow into the sector, and on August 29, gaming startup Limit Break raised $200 million. The project gained popularity after the successful launch of its DigiDaigaku free mint NFT collection.

According to a report by Dove Metrics and Messari, the crypto industry saw $30.3 billion in funds raised in the first half of 2022. This amount exceeded the $30.2 billion seen in 2021. Excluding the $10.2 billion in funds raised for the centralized finance sector, $20 billion remains that was invested in DApps, non-fungible tokens (NFTs) and Web 3 infrastructure.

One might wonder how much of that money has actually been deployed or reinvested in companies owned by the same investment groups. Of course, there are a handful of clever ways to overextend those ad numbers without breaking any regulations, but there’s certainly a lot of money flowing into decentralized apps.

There has always been a fair amount of distrust in the actual number of active users in DApps, but until now, no hard evidence of cheating has been presented. So what tools can retail users employ to detect inflated activity? Well, it turns out that there are at least three: active users, community participation, and liquidity.

Comparison of registered users with active users

Most Proof-of-Stake (PoS) networks charge minimal registration fees, and many are free to use. This leads to troves of “fake” active addresses interacting with the DApp and creates incentives for developers and investors to increase their numbers.

Filtering the DApps rankings by the number of users gives some amazing data, especially on the Tron, WAX, Flow, EOS and Thundercore networks. Some of the DApps claim to have more active users than industry leaders like OpenSea, Uniswap, and Axie Infinity.

Levan Kvirkvelia, co-founder of Jugger, a Web3 bot prevention service, analyzed over 60 games and DApps and found that 40% of active users are actually automated bots or a single entity controlling multiple accounts.

In some cases, such as the AnRKey X game on the Polygon network, the bot-to-incumbent ratio reached 84%. Although there could be a plausible explanation for distancing project developers from bot implementation, Kvirkvelia’s research shows that analysts should not use the number of token holders as an indicator of active users.

Faking community engagement is incredibly difficult

One sign to watch out for is inconsistent community engagement on the project’s social media, even if the DAU metric is high. Well-funded projects aim to “buy” real users, while bots are not skilled enough to contribute to discussions in a meaningful and consistent way.

This analysis takes no more than 10 minutes because it only requires logging into the official group and scrolling through the last 40 or 60 messages. Are there real questions and constructive discussions from the community or just activity from group admins and bot account shillings?

Going to the project’s official Twitter, Twitch, YouTube, or Instagram page, follow the same community post and comment review process. This qualitative data should lead to a much more accurate analysis compared to the number of shares, likes, or active blockchain addresses.

Counterfeit Token Liquidity Detection

Believe it or not, market makers offer liquidity services for tokens. For a set fee, they can keep bids and asks on reputable exchanges at all times, moving the price using algorithms based on order flow.

An experienced investor will notice the nuances that distinguish fake volumes and order book depth from actual trading activity. For starters, looking at 2% depth in bids and offers provides an easy way to avoid illiquid tokens.

UFO Gaming (UFO) main markets by volume. Source: Coinmarketcap

Notice how the UFO Gaming token has an unreasonably low number of offers compared to its daily trading volume. Aggregate buyer demand is 2% below last trade and less than 0.6% of reported trading volume.

While having a market maker is usually a good thing as it encourages users to actively trade the token, it does not necessarily translate into trading volume. The dissipation of community interest eventually causes the token’s liquidity to plummet.

Related: Singapore State Investor Leads $100M Round for Crypto Firm Animoca, Report

Top Orchid Protocol (OXT) Markets By Volume. Source: Coinmarketcap

The example above shows the Orchid Protocol token, which despite being listed on Binance, Coinbase, Kraken, and Kucoin, amasses $675,000 in daily volume. This effect causes the 2% order book depth to range from 9% to 47% of daily trading activity, which sounds pretty bad.

Investors should be aware that venture capitalists and market makers are becoming increasingly adept at hiding their manipulation. For example, finding a top 200 coin on Binance with skewed ratios in daily volume and order book depth is next to impossible. Traders, gamers, and investors should be careful not to be fooled by high DAU metrics for popular DApps. Doing a qualitative analysis of platform and GitHub social media accounts is a great way to cross-reference on-chain and business data.

The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.