The decentralized finance sector is developing at a tremendous speed, so it is, in principle, extremely difficult to keep track of it, not to mention the detailed assessment of new projects. The problem is that in this assessment, there is, so far, no standard approach. There are many individual metrics by which to measure various aspects of DeFi performance.
Therefore, now we will tell you about some indicators that allow you to get certain information about certain projects related to decentralized finance. They operate on data that is freely available, so any trader or investor can use it. So.
Total Value Locked (TVL) - total value locked
As the name suggests, this is the cumulative amount of funds locked under the DeFi protocol. In fact, it is an analogue of “total liquidity” in all pools associated with this project. For example, TVL Uniswap is equal to the total amount of funds contributed by liquidity providers.
This is a pretty useful indicator that shows interest in DeFi in general and individual projects in particular. It can also be used when comparing “market share” occupied by different DeFi protocols. This is especially useful, for example, when looking for undervalued projects.
An important point - TVL can be measured in different currencies. Usually - directly related to a service or platform. For example, the total TVL of the Ethererum blockchain will be measured in both ETH and US dollars.
Price-to-sales ratio (P / S ratio)
If we are talking about traditional business projects, then when analyzing the price-sales ratio, the total price of the company's shares is compared with its income. This ratio allows you to understand whether a stock is overvalued or undervalued.
This approach can be applied to those DeFi projects that have already begun to bring some money to investors and creators. You only need to divide the market capitalization of this project by its revenue. The lower the coefficient obtained, the more underestimated the project.
This, of course, is not the final method of calculating the cost, but this indicator gives some idea of the state of affairs in the market and how adequately the project is being evaluated.
Token offer on exchanges
When large sellers want to sell their tokens, they usually use centralized exchanges to do so. Because they have more liquidity and speed of work. However, recent trends indicate that large whales are gradually increasing their interest in decentralized exchanges. However, in our case, this is not important, since the main trading still takes place on CEX (centralized exchanges).
Here's a simple evaluation example. Large traders and whales prefer not to store tokens in wallets, but to use them. So if the supply of a certain asset suddenly increased on the market, then knowledgeable people are going to get rid of it. Not without reason.
But it's not that simple. The fact is that many traders can use tokens sent to the exchange as, for example, collateral for margin or futures trading. So not every infusion of large portions of a certain cryptocurrency means a big sale. But it is better to monitor this indicator.
Change in token balance
Keeping track of receipts is one thing. And tracking the dynamics of these receipts is quite another. As a rule, a significant and regular change in the balance of tokens on the exchange may indicate its high volatility, which means significant and not always predictable fluctuations in value.
Let's look at another example. If whales begin to actively withdraw a certain token from their exchange accounts, then they are going to accumulate it. And this means that selling it in the near future will not be profitable - even for small traders.
Number of unique addresses
The more unique addresses and wallets associated with a particular coin, the wider its use and the more users are to some extent interested in it. But this indicator only at first glance reflects the real interest of the community.
The fact is that it is not so difficult to create unique addresses, but others will get the impression of the active circulation of flows of one or another token, although in fact, there is nothing like that. Therefore, this indicator should always be assessed in conjunction with others.
If you choose tokens just because the issuer promises you multiple returns, you are being reckless. It may turn out that this is the most common Ponzi scheme, in which the value of an asset is not really backed up by anything other than an artificially inflated agiotage among investors.
Understanding what a particular token can actually be used for determines its true value. This can be estimated if you look at the number of transactions made not for the purpose of speculation. It's complicated. Therefore, to begin with, it is worth taking a closer look at OTC transactions. This is what shows whether people are actually using the token or not.
A small supply of tokens does not at all protect them from future depreciation. Especially if new releases are planned. That is why, for example, the release of new bitcoins decreases over time. This provides an ever-decreasing inflation rate that should prevent cryptocurrency from depreciating in the future.
However, this is not the only approach. Inflation itself is not a bad indicator. There is no level that is unambiguously “good” or “bad”. So this indicator needs to be assessed only in combination with others.
If you are familiar with cryptocurrency trading, you will notice that most of the listed indicators are also used for fundamental analysis of “traditional” cryptocurrencies. This is logical, since the DeFi markets are as unpredictable, irrational and associated with high volatility as cryptocurrencies in their early stages of development. So to make the right choice - whether to invest in a particular project, only your own careful analysis will help.
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