DeFi Analytics: How to Use Data to Make Smarter Investment Decisions

When it comes to DeFi investing, knowledge really is power. A big part of this comes from reliable data that can often be hard to find.
Updated Nov 17, 2022 at 5:04 p.m. UTC
Crypto Explainer+

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

Sourcing high-quality information is crucial when investing in decentralized finance (DeFi). This can be anything from identifying the daily trading volume of a particular token to finding the best yield rates across various platforms.

Without the correct data, you’re entirely dependent on luck, and investing becomes more like gambling. But how do you obtain reputable and accurate data?

Tracking DeFi data

When it comes to finding data related to account balances, how many investors are in or out of the money or how much volume is being moved on or off exchanges, there are a number of different tools available that pull information directly from public DeFi blockchains to provide these insights.

Since all data recorded on public blockchains is immutable, transparent and verified, it’s considered extremely accurate.

Blockchain explorers

Blockchain explorers, sites that publish the data of a blockchain’s entire ledger, are a great source of information. For Ethereum, try Etherscan, and consider BscScan for the Binance Smart Chain. These sites let you interact directly with a blockchain’s smart contract, bypassing any front-end user interface.

These will allow you to see things such as how many individual addresses hold significant portions of a particular token and how active those wallets are. These important insights, among others, can then be used to make educated investment decisions.

DeFi dashboards and wallet trackers

While blockchain explorers are great sources of data, they can often be difficult to navigate and understand, particularly if you’re a new crypto user.

If you want accurate and granular on-chain analytics without the headache, you might want to head to sites like CoinMetrics, Skew or Glassnode. These sites provide reliable metrics about the cryptocurrency market, including accurate data for derivatives, in a way that’s more accessible to beginner-level investors.

If you want to drill deep into specific wallets or tokens, Nansen’s "token god" mode lets you analyze any token, and its "wallet profiler" lets you follow top-performing wallets.

Dune Analytics has become a vital venue for dashboards about the latest DeFi projects. The community-created dashboards, which may include, for example, data about OpenSea trading data, gas fee analytics and Curve Finance user counts, are useful when trying to understand the crypto market. However, it’s important to note that because these are created by members of the community, there is potential for the data to be inaccurate, so it’s best not to rely wholly on them for your data needs.

Tracking wallets and NFT trades

Sites like CryptoSlam! have become popular venues for non-fungible token (NFT) tracking. CryptoSlam! is geared towards NFT trades and lets you track the top-performing collections. Sites like Context and Nansen let you track top-performing wallets, while Lucky Trader and rarity.tools provide information about an NFT’s metadata, such as how rare a pair of sunglasses on a Bored Ape might be.

Assessing the size of the decentralized finance market

When investing in DeFi, another thing you’ll need to do is assess the size of the market of whatever it is you’re planning on buying into. There are two main metrics for this, but it’s important to note that each comes with its limitations and caveats. This means they’re not necessarily as reliable as the above-mentioned options and should be used more as an approximate gauge than an accurate data point.

Calculating a DeFi token’s market cap

The first metric is the market capitalization of a particular DeFi coin. This is a crude multiplication of all the coins in circulation by the most recent price of a coin. Most price aggregation sites – those that calculate the average price of a cryptocurrency by scraping prices from different exchanges – have devoted DeFi categories: Here’s CoinMarketCap’s, and here’s CoinGecko’s.

The market caps of the entire DeFi market diverge greatly between the two price aggregation sites. CoinGecko pegs DeFi’s market cap at $146 billion and CoinMarketcap lists it as $165 billion (at press time.) The discrepancy can partly be chalked up to differences in what constitutes a DeFi coin. CoinGecko’s page also only lists the top 100 DeFi coins, while CoinMarketCap includes 537 different projects in its calculation.

The market capitalization of a specific coin is usually fairly consistent across price aggregation sites, and any discrepancies may be due to the exchanges the aggregation site includes in its price calculator and the accuracy of its circulating supply. However, remember that the market cap includes inaccessible coins, like those held in wallets to which the keys have long been lost, thereby making market caps slightly unreliable.

Calculating the total value locked (TVL)

Another important metric is "total value locked," or TVL. This refers to how much cryptocurrency is locked up within a certain DeFi protocol – usually those staked to earn yields. For investors that are largely uninterested in speculating on a DeFi token’s value, TVL is a useful indicator for gauging how popular a DeFi protocol’s financial services are.

Many sites attempt to calculate the TVL of various platforms. Leading ones include:

Again, you will observe that the TVLs reported on these sites are also very different. At press time, DeFi Llama, for instance, lists stablecoin-friendly DEX Curve as having a TVL of $21.2 billion, while DeFi Pulse records a TVL of $10.53 billion – about half that.

Head to a DeFi protocol’s site and you will often find the figure they display is also entirely different.

DeFi lending protocol Compound says that about $10 billion worth of crypto is currently earning interest in its smart contracts, while DeFi Pulse lists it with a TVL of $6.5 billion, and DeFi Llama says Compound has around $6.85 billion locked in its protocol.

That’s because the sites calculate TVLs in different ways, sometimes choosing to, for instance, avoid "double counting" borrowed and issued loans. Each statistic, therefore, tells a different story – you’ll have to dig into each specific computation to work out if you’re getting the data you want.

Whichever you choose to use, the thing that matters most is using the same TVL data source consistently. If you mix and match TVLs from different sources you might find yourself in a muddle when it comes to deciding whether or not you should get involved with a particular project.

This article was originally published on Apr 8, 2022 at 2:38 p.m. UTC

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CoinDesk - Unknown

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

CoinDesk - Unknown

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.


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