Why Is Network Effect a Critical Factor in Valuing Early-Stage Protocols?

Network effect is critical because it describes how the value of a protocol increases exponentially as more users join the network. For early-stage protocols, achieving a strong network effect ▴ whether through user adoption, developer engagement, or integrations ▴ is the primary driver of long-term intrinsic value and defensibility against competitors.

It leads to higher utility and greater demand for the native token.