DeFi presents a wealth of chance for investors, however there also are risks. Here are three metrics investors use to investigate redistributed finance tokens and their associated protocols.
Much to the chagrin of cryptocurrency proponents who need the immediate mass adoption of blockchain technology, there are several “digital landmines” that exist within the crypto ecosystem like carpet pulls and protocol hacks that may offer new users the expertise of being lost puzzled.
There’s a lot of to investment than simply technical analysis and gut feelings. Over the past year, a couple of blockchain analysis platforms launched dashboards with metrics that facilitate give bigger insight into the basics supporting — or the lack thereof — a cryptocurrency project.
Here are three key factors to require into thought once evaluating whether or not an altcoin or decentralized finance (DeFi) project could be a sound investment.
Check the project’s community and developer activity
One of the fundamental ways that to induce a scan on a project is to appear at the statistics that show the extent of activity from the platform’s user base and developer community.
Many of the highest protocols within the space supply analytics that track the expansion in active users over time. On-chain dashboards like sand dune Analytics supply a lot of granular insights into this metric like the subsequent chart showing the daily new users on the Olimbos protocol.
Other pertinent knowledge points to think about once it involves evaluating community activity embody the typical range of active wallets on a daily, weekly and monthly basis. Investors ought to conjointly explore the quantity of transactions and volumes transacted on the protocol, additionally as social media metrics like Twitter mentions which will facilitate with gauging investors’ sentiment a few explicit project.
Alert systems like Cointelegraph Markets professional offer up-to-date notifications on a project’s Twitter mention volumes and strange changes in trading volume which will be an early sign that a cryptocurrency is turning bullish or bearish.
Regarding project development and developer activity, GitHub has been the go-to place for learning regarding future upgrades, integrations and wherever the project is in its roadmap.
If a protocol is speech act regarding “soon to be released” options however showing very little current development or commits being submitted, it would be a proof to steer clear till the activity is best aligned with the claims.
On the opposite hand, spotting an under-the-radar project with steady development activity and a committed user base may be a positive sign.
Look for steady increases in total value locked
A second metric to appear at once assessing the strength of a project is that the total of all assets deposited on the protocol, otherwise called the total value locked (TVL).
For example, information from Defi llama shows that the total value locked on the DeFi protocol DeFiChain (DFI) has been rising recently following a significant protocol upgrade, with the TVL touch new incomparable highs on many days thus far in December. This signals that momentum and interest within the project are increasing.
DeFi aggregators like Defi llama and DappRadar allow users to dive deeper into the information and appearance at the statistics for various blockchain networks like the TVL on the Ethereum Network or Binance good Chain, also as by individual comes like Curve and trader Joe.
Protocols with a better TVL tend to be safer and trusted by the community, whereas comes that rank lower on the list typically carry a lot of risk and have a tendency to have less active communities.
( Jordan Finneseth, Cointelegraph, 2021)