DeFi investors frequently need to filter through a wide set of data to locate relevant information that will assist them in making informed investment selections. This work might be hard and time-consuming if you don’t know which metrics to analyze and which tools to use. This article provides a collection of DeFi measurements and tools to get you started.
Must-Know DeFi Metrics
Total Value Locked
TVL indicates the total value of assets placed in a DeFi protocol, including staked, borrowed, and liquidity pool tokens. It is an important statistic for assessing the growth and performance of DeFi protocols. TVL is affected by the price and the number of locked tokens. Users can assess a project’s performance by examining the growth in TVL over time. DeFi aggregator platforms rate DeFi projects according to TVL, allowing users to compare their popularity to other protocols.
Why does this metric matter? DeFi platforms require capital to be deposited as loan collateral or liquidity in trading pools to function. TVL is important since it reflects the capital’s impact on the earnings and usability of DeFi applications for traders and investors. When the TVL of a DeFi platform increases, so does its liquidity, popularity, and usability. These elements help to ensure the project’s success. A larger TVL indicates that more capital is invested in DeFi protocols, with participants reaping more benefits and profits. A lower TVL suggests less money available, which leads to lower yields.
Market Cap and Fully Diluted Value
The overall value of a cryptocurrency at a given time is referred to as its market cap, which can be estimated by multiplying the token’s value by its circulating supply. This metric is frequently used to assess and rank the size and popularity of a cryptocurrency or DeFi project. Users believe that a project with a significant market cap is more stable. Tokens with greater market caps are also less subject to price changes than those with smaller market caps.
Market Capitalization = Token price x Circulating supply.
Another comparable indicator is fully diluted value, which refers to a cryptocurrency’s total value if its whole supply was in circulation. This can be computed by multiplying the token’s value by its maximum supply, which considers the number of tokens that have been and will be distributed. A fully diluted value is used to assess the worth of a project while accounting for future token production. Only if the token value rises in proportion to the future released supply can a project with a large, diluted market cap indicate long-term growth. If a token’s supply grows faster than its value, it will face significant inflationary pressure, causing its value to fall. Other elements to consider when utilizing this metric include token allocation, release schedule, vesting periods, emission rates, and staking plans.
Fully Diluted Value= Token Price x Maximum Supply
Suggested tools: Coinmarketcap, Coingecko.
Loan to value
The Loan To Value (LTV) ratio is a metric used to assess lending risk. A loan’s notional value is compared to its collateral’s market value in this ratio. A high LTV ratio, for example, indicates a significant level of financial risk.
Loan To Value = credit or borrow amount/ collateral amount
Why does this metric matter? The higher the LTV, the riskier it is for the lenders. Lenders believe you are more likely to default on your mortgage if you have less equity in your property. The lender will suffer a loss if your property is sold. This is due to the possibility that the property’s worth could decrease below the amount you initially paid for it, and, if you have a significant mortgage, the possibility that the mortgage’s balance would ultimately exceed the value of the property.
Active wallet addresses
The number of active wallet addresses on a blockchain estimates the number of distinct active users on a certain network. Active addresses are wallets that have participated in successful on-chain transactions, either as a sender or a receiver. An increasing number of active wallet addresses corresponds to a wider network of individuals participating over time. Because this metric only counts the number of unique active addresses, wallets that participate in many transactions in a particular period will only be registered once. The number of active wallet addresses can be used to gauge network or DeFi protocol activity and the utility of a currency. A large number of active wallet addresses means a high user activity, which results in a healthy project.
Suggested tool: Glassnode
The total value of a token traded back and forth among users over a given period is referred to as trading volume in cryptocurrency. It is the total of all recorded network transactions. This statistic is often used to assess the popularity of a token and on-chain activity among participants. A cryptocurrency with a large trading volume shows a high level of transaction activity, which might boost trust in the project. Trading volume more closely reflects user activity than metrics such as the number of active wallet addresses since it includes the entire value of token transactions that occur within a certain period.
Because blockchains are open-source, anyone can access on-chain data. However, extracting and processing blockchain data for personal purposes may be difficult for inexperienced investors. This has resulted in developing several strong tools that enable users to access and comprehend on-chain data easily. Here are three sorts of blockchain research tools for you to consider:
A blockchain explorer is an app that allows anyone to access vast data and network activity. This includes transaction information, wallet activity, token data, and smart contract data. To find alpha, crypto investors often employ explorers such as Etherscan or BscScan, which analyze whale wallets and their transaction history. Investors can also acquire valuable information by reviewing token statistics like price, market capitalization, transaction volume, and the number of holders, among other things. Blockchain explorers can also read smart contract codes and check network gas pricing.
Data analytics platform
With Web3’s plethora of DeFi protocols, some useful applications have been built to collect and curate on-chain data to assist users in visualizing and better understanding DeFi statistics.
Dune Analytics is a blockchain analytics platform that transforms on-chain data into digestible data for customers to consume. Users can query blockchain data from SQL databases, which are then visualized and presented in tables, graphs, and charts for easy comprehension. They can also combine certain datasets to create dashboards that comprehensively depict the collected data.
Without coding, you can convert on-chain data into charts using Footprint Analytics.
You can also use Python or SQL to explore data. Footprint Analytics enables users to create custom analytics applications for their projects or group. Besides DeFi, Footprint analytics also uses the most comprehensive GameFi database available.
Glassnode is another useful tool for obtaining on-chain and derivative data in graphical forms. There are many metrics to investigate, and systems like these make it simple for users to access data to analyze tokens, derivatives, DeFi protocols, and blockchain networks. This can assist investors in making better educated DeFi decisions.
Platforms like DeFiLlama and DappRadar make monitoring protocol performance remarkably easier in a space where users are continuously seeking the best yields and rotating crops.
DeFiLlama is the largest DeFi TVL aggregator, tracking over 800 protocols across 80 blockchains. They primarily supply TVL statistics and rate the greatest returns across many blockchains and DeFi protocols. This is quite important for users to assess the DeFi landscape and study protocol performance.
Dappradar is the beginning point for dapp discovery – hosting 11734 dapps from over 48 protocols – comprehensive NFT valuation & portfolio management, and industry reporting guided by data.
DeFi Pulse is a website that provides the most recent analyses and rankings of decentralized finance protocols. The various rankings keep track of the total amount of money locked up in the smart contracts of the most popular DeFi applications and protocols. Furthermore, the “DeFi Lists,” a collection of the greatest DeFi resources, and the DeFi Pulse Farmer, a weekly covering the newest DeFi news and possibilities, are curated. The website provides a 360-degree view of the DeFi world and does it clearly for anyone.
DeFi is still in its early stages, with thousands of builders and developers attempting to challenge existing financial institutions by leveraging the power of blockchain technology. With innumerable companies providing fresh ideas and concepts that appear to have the potential to transform finance, investors must develop the art of analyzing projects before deciding whether or not to invest in them. Consumers may make more informed investing decisions by analyzing blockchain protocols using certain criteria. Now that you know how to spot a promising DeFi project, you can use these crypto research tools to your advantage. They can assist you in identifying, developing projects, and uncovering hidden treasures. When ready to trade, you can use our advanced trading charts to choose a suitable buying moment and set up auto-trades and price alerts. After all, figures depict the overall performance of a project. A friendly reminder to always conduct your research (DYOR) before investing in anything.
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DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.