Why Tracking Both On-Chain and Off-Chain Data is Important:
On-chain and off-chain transactions serve different purposes in Web3, and their strengths and weaknesses make them ideal complements to each other, rather than competing alternatives. Understanding why they should be treated as complements rather than substitutes requires examining the unique advantages and limitations of each approach.
Leveraging On-Chain Insights:
On-chain solutions involve executing transactions or storing data directly on the blockchain, meaning that all interactions are recorded immutably on the distributed ledger. On-chain transactions typically involve some form of consensus mechanism, such as proof of work or proof of stake, ensuring trust and security within the network.
However, the downside is that on-chain transactions can be slow and expensive due to the need for consensus and validation by all participants in the network. Additionally, to analyze this data on their own, Web3 companies would have to launch nodes on every chain they support, index all their users’ transactions for the given chains that interact with their contracts, pipe all that data into a massive database, and then build a frontend to analyze the data. This would be an arduous process for any Web3 company, and for these reasons they tend to ignore analyzing on-chain data and focus only on off-chain data, giving them a fragmented picture of how users are interacting with their platform.
Leveraging Off-Chain Perspectives:
Off-chain solutions, on the other hand, involve transactions or data processing that occurs outside the scope of a blockchain network. These transactions are often faster, cheaper, and easier to access and interpret compared to on-chain transactions. With many proven services like Google Analytics, MixPanel, and Amplitude readily available, setting up off-chain analytics is easy and scales much more quickly than on-chain data.
Despite the ease of access to off-chain data, Web3 companies who are optimizing for an on-chain conversion event (i.e., purchase) can’t solely rely on off-chain data to give them an accurate depiction what their users are doing and for what reasons. While off-chain data provides valuable insights into user behavior and preferences, it often lacks the crucial context of what actions are leading to on-chain transactions.
For example, imagine trying to understand a customer's journey to buying a car solely based on their social media activity. You might notice they have an interest in racing games and luxury brands, but you wouldn't know if they're actively researching car models or financing options. This is where on-chain data becomes crucial. By analyzing user interactions with smart contracts and token movements, Web3 companies can directly observe the steps leading to a purchase and identify bottlenecks or areas for improvement within their on-chain user experience. This combined approach, leveraging the strengths of both on-chain and off-chain data, empowers Web3 companies to optimize their user journey and drive more successful on-chain conversions.
Conclusion:
Web3 companies should strive for a balanced approach, leveraging the strengths of both on-chain and off-chain data collection while keeping user privacy and decentralization principles in mind. While each approach offers several pros and cons, analyzing them in tandem can mitigate the downsides to both, thereby strengthening your product roadmap and giving you tangible data to optimize, which will ultimately help you reach product market fit.
About Multibase:
Multibase is a Web3 user analytics platform - the Mixpanel for web3. We allow teams to connect and query their users' on-chain and off-chain data to help them better understand and grow their users. Teams can query their product engagement, track user attribution, segment their user's data, monitor marketing campaign success, and much more. Our mission is to make web3 companies more successful by giving them the tools to track and optimize their KPIs and make the web3 customer lifecycle understandable.
Multibase is backed by top VC firms including Reverie, Y Combinator, and Orange DAO.
For more information, visit multibase.co
