Network Effect

A network effect is the way a blockchain, exchange or token becomes more useful as more people use it: developers build where the users are, users go where the liquidity and applications are, and the cycle reinforces itself. In crypto it shows up as deep liquidity on a large venue, a wide choice of wallets and tooling around a popular smart-contract platform, or a stablecoin that is accepted almost everywhere. Network effects help explain why technically newer chains do not automatically displace older ones. They also cut the other way: they can entrench mediocre designs, raise switching costs, and they say nothing about valuation — popularity is not a measure of quality or of how safe an asset is to hold.