🌟 Dive into the world of blockchain adventures with us! New investors often face a barrage of hype and speculative predictions, which can lead to investment in worthless tokens. Understanding key on-chain metrics is essential to making informed decisions. Check these latest insights and ready to use strategy.
Unleashing Blockchain’s Potential for Retail enthusiasts
As we’ve often highlighted, the world of blockchain offers vast opportunities for retail investors. For those who are thoughtful and proactive, cryptocurrencies unlock incredible possibilities across various domains — financial services (investments, trading, loans, passive income), access to capital (crowdfunding platforms, ICOs, and token sales), tokenization of gaming, social networks, real-world assets, and the formation of decentralized self-governing organizations.
Even by the most conservative estimates, there are over 100 million active cryptocurrency users worldwide. The trend indicates a continual rise in retail investors globally.
However, a beginner’s first encounter with investing is often an overwhelming deluge of enthusiastic articles about specific tokens and confident predictions from various analysts about the future prices of certain cryptocurrencies.
This hype serves a single purpose: to extract money from private investors in exchange for worthless tokens, or “shitcoins,” whose value is essentially zero.
Unmasking the Hype: The Typical Manipulation Scheme
A marketing frenzy is created around a crypto project on social media. Money is pumped into the token, creating artificial demand, leading to rapid growth by tens or even hundreds of percent. Due to the low trading volume of such fleeting tokens, this can be done without significant investment. Retail investors, mesmerized by the social media buzz and forecasts from “successful millionaire crypto traders,” start investing in the next shitcoin. Once enough money is amassed from retail investors, the organizers sell off their tokens, secure their profits, and drain liquidity from those who fell for the hype. This is the fate of most meme-coins and, regrettably, many cryptocurrencies.
A Smart Strategy for Savvy Investors
As we discussed in our previous article, a prudent private investor should follow a simple strategy to avoid such traps. Conducting thorough research is crucial. Please review these guidelines here:
Use reliable tools like BlockchainMetrics.online to gain insights into wallet activity, transaction volume, and other on-chain metrics. Blockchainmetrics provides comprehensive analysis and interpretations, saving you significant time in data collection and analysis, ensuring you make informed investment decisions based on accurate and up-to-date information.
Key On-Chain Metrics to Watch
Let’s look at what indicators and why you should pay attention when analyzing on-chain blockchain metrics in order to determine its current potential and sustainability.
(1) dApps ecosystem TVL.
This metric serves as a vibrant barometer for the maturity and monetary worth of a blockchain’s decentralized application ecosystem, expressed in fiat currency. While fluctuations in this metric often mirror speculative moods, a steady rise over an extended period signals a blossoming acceptance and widespread adoption of the blockchain.
(2) Average number of daily active wallets.
This is a definitive customer metric, serving as a clear indicator of user engagement. It reveals whether the platform is attracting a growing number of active users each day or, conversely, facing a decline and losing its real, active user base.
(3) Transaction volume.
This metric serves as a dynamic gauge of user activity, reflecting how energetically existing users engage with the platform. It reveals the current usage patterns, indicating how frequently an active wallet performs transactions on average. A rise in transaction activity signals positive momentum, while a dip highlights concerning trends.
(4) Fees & average transaction fee in native token.
Whenever a user performs any operation on the blockchain — be it transferring cryptocurrency between wallets, making online purchases, or exchanging cryptocurrencies — the blockchain charges fees in its native tokens. High fees can discourage user activity, but they also generate substantial revenue for the platform and offer attractive rewards for validators, thus fostering the platform’s development. The metrics for total fees and average transaction fee in native tokens are closely connected. While their values might differ, they always trend in the same direction: if the average fee in native tokens rises, the total volume of platform fees increases, and vice versa. An increase in fees signals robust platform growth, benefiting both the platform and its validators by providing direct income. This higher value attracts community interest in developing the platform further. For consumers — whether actively using decentralized applications or investing in the blockchain token — rising income is a positive sign. However, it is crucial to maintain a balance to ensure that fee growth remains within reasonable limits.
(5) Average transaction fee, USD
As previously mentioned, every user operation on the blockchain — whether it’s transferring cryptocurrency, making an online purchase, or exchanging cryptocurrencies — incurs fees in the blockchain’s native tokens. While rising fees in native tokens incentivize community engagement and validator participation, from the average user’s perspective, high fees in USD can be a deterrent. Users are disinclined to pay increased fees in fiat currency. Excessive transaction fees in USD can stifle the growth and development of any blockchain platform.
(6) Number of validators
A higher number of validators enhances the decentralization of the blockchain. More validators contribute to the platform’s reliability and stability. While an increase in validators might not directly reduce transaction costs, it can positively influence network dynamics by alleviating pricing pressures from high demand on block space and boosting overall network performance. Thus, it’s crucial for ordinary users to observe a steady growth in the number of blockchain validators, as this indicates a healthier, more resilient network.
(7) Diversity of decentralized applications.
It’s well known that the DeFi sector currently reigns supreme in the blockchain industry. However, a thriving ecosystem brimming with diverse decentralized applications, beyond just DeFi, appeals to users with a wide range of interests. When applications from various categories start ranking high among the top decentralized apps, it signals that the platform is branching out into new niches and attracting a broader audience, not just traders. In today’s landscape, this diversity is a crucial indicator of blockchain long-term growth and evolution.
(8) Unexplained anomalies.
Occasionally, while monitoring the metrics and statistics of blockchains and dApps, you may encounter sudden, inexplicable spikes in a particular indicator, followed by equally abrupt and illogical drops back to previous levels. For instance, you might see a sudden surge in active wallets without a corresponding increase in transaction activity within the same month with following return to the previous trend line of this metric. Such anomalies suggest manipulation of the metrics, indicating that something is amiss with the blockchain. These manipulations can have various motives, but they always serve as a warning sign for retail investors and end-users.
Conclusion
By monitoring listed above key indicators, you can assess a platform’s development dynamics — how well it’s progressing in the current period. This comprehensive analysis, available at Blockchainmetrics, ensures you stay informed and make savvy investment decisions.
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