Proponents calling for the immediate mass adoption of blockchain technology are not only frustrated but also causing problems for the numerous “digital landmines” that exist in the crypto ecosystem, such as carpet painting and protocol hacking.
Investing is not only about technical analysis and forecasting. In the past year, metrics have been introduced on a number of blockchain analytics platforms to better understand the underpinnings or underpinnings 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 activities of the community and project developers
One of the main ways to understand a project is to look at statistics that reflect the activity levels of platform users and the developer community.
There are many leading journals in this area that provide insights that track the growth of active users over time. In-chain metrics dashboards such as Dune Analytics provide a better understanding of this metric. For example, the following chart shows the number of new Olympus protocol users every day.
S. New users on Olympus every day | Source: dune analysis.
Other important data to consider when assessing community activity is the average number of active wallets per day, week, and month. Investors should also pay attention to the number and volume of transactions in the journal, as well as metrics on social media such as 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 learn about upcoming updates, integrations, and where the project is on the roadmap.
When a protocol boasts features that are “coming soon” but little is being developed or fixed, it can be a clear sign of not getting involved until the operations are more aligned with the instructions.
On the other hand, a project that is in constant development and has a solid user base can be a positive sign.
Looking for a steady increase in the total locked value
The second metric to consider when assessing the overall strength of a project is the sum of all registered assets, also known as Total Locked Value (TVL).
For example, Defi Llama data 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 is blocked on DeFiChain | Source: Defi Lama
DeFi aggregators like Defi Llama and DappRadar allow users to dig deeper into data and view statistics on various blockchain networks like TVL on the Ethereum network or Binance Smart Chain, as well as individual projects like Curve and Trader Joe.
Magazines with higher TVLs are usually safer and the community can be trusted, while lower-rated projects on the list are often more risky and have less active communities.
Determine the sign of the majority owner that
Other factors to consider are the benefits that the token holders receive and the activity in the community. Investors should also consider how the token was launched and who the dominant holders are currently.
For example, SushiSwap allows users to host their own SUSHI tokens on the platform in order to receive a portion of the exchange fee, while Uniswap, the leading decentralized exchange (DEX) at DeFi, does not currently offer this feature.
While other factors such as trading volume and daily number of users make Uniswap a suitable investment for many owners, some traders choose to keep SUSHI due to its revenue sharing model and simultaneous trading capabilities.
On the other hand, caution should be exercised if a journal offers too high a yield for low liquidity, and anonymous journals have little community activity, as this can happen in the event of catastrophic losses. In DeFi, they are known as tug of the carpet and usually occur after large amounts of money have been deposited into a smart contract controlled by one anonymous party.
Examining how tokens for a protocol are distributed, as well as keeping track of the distribution between developers and founders versus the number of community holdings, can provide some useful clues as to whether a platform might fall prey to “rude”.
If most of the available supply belongs to the creators and proponents 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.