Introduction
In today's digital and decentralized era, decentralized finance (DeFi) has become an emerging force in the field of financial technology. DeFi uses blockchain technology to decentralize financial services, lower the threshold of financial services, and allow more people to participate in the financial market. However, investing in DeFi projects is not easy and requires an in-depth understanding of various indicators. This article will give you a detailed introduction to the seven indicators that DeFi investors must know to help you better grasp investment opportunities.
Total Value Locked (TVL)
Total Value Locked (TVL) is an important indicator of the health of DeFi projects. It represents the total value of all assets locked in the DeFi protocol. The higher the TVL, the more popular the project is and the better the liquidity. Investors can judge the investment value of DeFi projects by paying attention to the trend of TVL. For example, the trend of TVL of DeFi platforms such as Uniswap and Compound is often highly correlated with the price of their tokens. Therefore, investors can predict the trend of token prices by analyzing the trend of TVL, thereby making more informed investment decisions. In addition, investors also need to pay attention to the volatility of TVL to judge the stability and risks of the market.
Price to sales ratio (P/S ratio)
Price-to-Sales Ratio (P/S ratio) is an important indicator to measure the value of DeFi projects. It represents the price investors are willing to pay per unit of sales revenue. The lower the P/S ratio, the more undervalued the project is and the greater the investment potential. Investors can compare the P/S ratios of different DeFi projects to find targets with investment value. For example, for two DeFi projects, if their TVL is similar, but the P/S rate of one project is much lower than the other project, then the investment value of the former may be higher. In addition, investors also need to focus on the project's revenue sources and growth potential to more fully assess its value.
Token Supply for Trading Platforms
The token supply of the trading platform is a key factor affecting the price of the token. Generally speaking, the larger the token supply, the lower the token price; the smaller the token supply, the higher the token price. Investors need to pay attention to the supply of tokens on the trading platform to judge the trend of token prices. For example, the total supply of Ethereum's ERC20 tokens is usually set in the token contract, and investors can learn about the supply of tokens by querying the contract address. In addition, investors also need to pay attention to the token distribution mechanism and lock-up period to judge market liquidity and price volatility.
Token balance changes on the trading platform
Changes in token balances on the trading platform reflect changes in market demand for tokens. When the balance increases, it means that the market demand for the token increases, and the price may rise; when the balance decreases, it means that the market demand for the token decreases, and the price may fall. Investors can capture investment opportunities by paying attention to changes in token balances. For example, investors can regularly query the token balances of major DeFi platforms on Ethereum and analyze their changing trends to predict the trend of token prices. In addition, investors also need to pay attention to the liquidity and trading activity of tokens to more accurately judge market sentiment and investment opportunities.
Number of unique addresses
The number of unique addresses refers to the number of independent addresses participating in DeFi projects. The greater the number of unique addresses, the broader the user base of the project and the greater the market demand. Investors can judge the user activity and market potential of the project by paying attention to the number of unique addresses. For example, the number of unique addresses of DeFi projects on Ethereum can usually be queried through smart contract addresses, and investors can check these data regularly to understand the user activity of the project. In addition, investors also need to pay attention to user participation and retention rates to judge the sustainability and long-term value of the project.
Non-speculative use
Non-speculative use refers to the use of DeFi projects in actual application scenarios. The higher the non-speculative use, the greater the actual value of the project and the lower the investment risk. Investors need to pay attention to the non-speculative use of the project to judge the value of their investment. For example, DeFi projects such as Aave and MakerDAO provide practical application functions such as lending and stablecoins. The usage of these functions can be an important basis for judging the investment value of the project. In addition, investors also need to pay attention to the project's partners and business development to judge the project's competitiveness and market prospects.
Inflation rate
Inflation rate is an important indicator of the value of a token. The lower the inflation rate, the more stable the token value; the higher the inflation rate, the more unstable the token value. Investors need to pay attention to the inflation rate of tokens to judge their investment risks. For example, Bitcoin's inflation rate halved approximately every four years, making Bitcoin's value relatively stable. Some new DeFi projects may have higher inflation rates, and investors need to carefully evaluate their investment risks. In addition, investors also need to pay attention to the supply and demand relationship and market demand of the token to more fully evaluate the value and potential of the token.
Conclusion
Investing in DeFi projects requires paying attention to multiple indicators to fully evaluate the value of the project. This article introduces you to seven key indicators, including total locked value (TVL), price-to-sales ratio (P/S ratio), token supply of the trading platform, token balance changes of the trading platform, number of unique addresses, non-speculative Usage and inflation rates. Investors need to conduct in-depth research and analysis of these indicators to reduce investment risks and increase investment returns. At the same time, investors also need to pay attention to market dynamics.