3 Metrics Traders Can Use To Analyze DeFi Token Performance

Proponents calling for the immediate mass adoption of blockchain technology have not only disappointed, the many “digital landmines” that exist in the crypto ecosystem, such as carpet drawing and protocol hacks, have caused problems.

Investing is not just about technical analysis and forecasting. In the past year, a number of blockchain analytics platforms have introduced metrics that provide better insight into the underlying or supporting fundamentals of a crypto project.

Here are 3 key factors to consider when assessing whether an Altcoin or DeFi project is the right investment.

Check out the project’s community and developer activities

One of the basic ways to understand a project is to look at statistics that represent the levels of activity from the platform’s user base and developer community.

There are many leading logs in this area that provide analytics that track the growth in active users over time. On-chain metric dashboards like Dune Analytics provide more insight into this metric. For example, the following diagram illustrates the number of new users of the Olympus protocol every day.

S.New users on Olympus every day | The source: Dune analysis

Other relevant data points to consider when evaluating community activity are the average number of active wallets on a daily, weekly and monthly basis. Investors should also pay attention to the number and volume of transactions in the log, as well as indicators on social networks like Twitter, as this can help gauge investor sentiment about a particular project.

In terms of project development and developer activity, GitHub is the place to go to find out about upcoming upgrades, integrations, and where the project is on the roadmap.

When a protocol brags about features “coming soon” but little in-progress development or commits, it can be a clear sign not to interfere until operations are more in tune with instructions.

On the other hand, a project that is in constant evolution and has a secure user base can be a positive sign.

Looking for a steady increase in the total locked value

The second metric to consider when evaluating the overall strength of a project is the sum of all assets on record, also known as Total Value Locked (TVL).

For example, data from Defi Llama shows that the overall value of the DeFi DeFiChain (DFI) protocol has recently increased following a major protocol upgrade, with TVL hitting an all-time high in the days leading up to today’s December in December and interest in the project.

BILLIONValue chain blocked on DeFiChain | The source: Defi Lama

DeFi aggregators such as Defi Llama and DappRadar allow users to dig deeper into the data and view the statistics of various blockchain networks such as TVL in the Ethereum Network or Binance Smart Chain, as well as individual projects such as Curve and Trader Joe.

Logs with a higher TVL are generally more secure and the community can be trusted, while projects ranked lower on the list are often riskier and have less active communities.

Identify the majority owner sign who is

Other factors to consider are the benefits token holders get and the activity in the community. Investors should also consider how the token was launched and who are the current dominant holders.

For example, SushiSwap allows users to put native SUSHI tokens on the platform in order to receive part of the exchange fees, while Uniswap, the leading decentralized exchange (DEX) in DeFi, does not currently offer this feature.

While other factors such as trading volume and daily users make Uniswap a suitable investment for many owners, some traders prefer to hold SUSHI because of its revenue-sharing model and multi-trading capabilities.

On the other hand, caution should be exercised if the log offers too high returns for low liquidity and anonymous logs have little community activity, as this can happen in the event of catastrophic losses. In DeFi, they are known as carpet pulling, and they usually occur after large sums of money have been deposited into a smart contract controlled by a single anonymous party.

Studying how tokens are distributed for the protocol, as well as keeping track of the allocation ratio for developers and founders versus the number of community holdings, can provide some useful clues as to whether or not a platform may be a victim of carpet pulling.

If most of the available supply is held by the creators and supporters of the protocol, there is always the possibility that these tokens will later be sold at market prices when the original investors leave the position.

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