3 Metrics that Traders Can Use to Analyze DeFi Tokens
Have you just started your crypto journey or been trading for years?
Whatever be the case, there’s a fair chance you might have struggled to look beyond options like Bitcoin and Ethereum.
Since the decade Bitcoin began to catch up, more than 8,000 cryptocurrencies have emerged into the digital world. Besides being good news for the crypto ecosystem, this also means ever-growing selections available on the IXFI platform.
This count includes tokens as they are gaining popularity each day, so a significant number is coming from the DeFi world. But much to the calls of crypto supporters, demanding an “immediate mass adoption” and the existing “digital landmines” in the crypto ecosystem can make newbies feel like lost souls.
There’s certainly more about investing than just gut feelings or analysis. A handful of platforms have launched metrics dashboards to help users better understand the fundamentals backing a crypto project.
If you’re ready to work your way out with DeFi, below are the 3 metrics you can use to analyze DeFi tokens.
# 1: Look for the growth in Total Value Locked
Otherwise, the overall strength of a project or just the sum of all assets deposited in DeFi protocols; TVL has become the key metric for estimating interest in a certain segment of the crypto industry.
TVL encloses all the coins deposited in every function that DeFi protocols present, including Staking, Lending, and Liquidity pools.
Importantly, it does not mirror the yield these deposits can earn.
The value doesn’t only change when users withdraw or make a new deposit, but it’s constantly changing with those assets’ inconsistent dollar value. Here a trader can leverage TVL while accessing if the DeFi project’s native token value is measured suitably.
DeFi aggregators can help the users dive deep and look at the stats of blockchain networks. Protocols with a high TVL tend to be reliable and secure, while those ranking at the bottom of the list have greater risks and a less active community.
# 2: Identify the major token holders
Another key metric to consider is the advantages that holders get for holding or being an active community member.
Look into the manners, “How token was launched,” or “Who are the present dominant token holders.” This may signal whether the platform could fall prey to the whimsy of ‘mercenary capital.’
Caution is warranted if excessive yields are available for low liquidity because these are the perfect ambiance for catastrophic losses. If the supply available is held by backers or creators, there’s a great possibility these tokens will be later sold when early investors vacate their positions.
# 3: Check on developer & community activities
The best way to read a project is to constantly check the stats depicting the activity levels from a platform’s developer community or user base.
Numerous protocols in the crypto space offer analytics to help traders track growth. If a protocol boasts of “soon-to-be-launched” but has little ongoing development, it’s best to stay away until the activity matches the claims.
Developer’s time is certainly a pricey resource, and if developers are devoting their time and efforts on a given project, it’s a sure-shot that:
· Project will be successful
· It’s unlikely a fraudulent exit
· The project is highly functional
Stepping into the DeFi space demands intellectual strategies. Knowing the different metrics for analyzing the DeFi tokens can ease your efforts of getting started in the segment.
Want to delve further into the topic? Take it from the top about DeFi concepts, more financial wisdom and the latest developments of the industry on IXFI’s Medium blog. If you’re more interested in the practical part, trade now with Your Friendly Crypto Exchange, IXFI.
