- The DeFi craze seems to be far from over as trading volume keeps increasing.
- Several on-chain metrics that can be used to have an edge in this market sector.
Decentralized finance (DeFi) has seen a lot of hype in the cryptocurrency market. The increasing volume further reinforces the belief that it is yet to lose interest in this market.
Before this time, cryptocurrency traders only had to work with fundamental and technical indicators to determine a trend's direction. Now, on-chain metrics provide a holistic view of any digital assets, showing what is happening behind closed doors. Challenges and opportunities prevalent in the DeFi market
DeFi has gained a lot of traction lately as it brings some of the essential financial services controlled by banks to the people. Lending, borrowing, staking, and yield farming is some of the different services that can be performed on an open-source permissionless platform.
The use of on-chain metrics to analyze the price action of multiple cryptocurrencies within this market sector enables the opportunity to obtain the most intelligent financial vehicle in the history of finance. For instance, the automated market maker (AMM) is a decentralized protocol that serves as an exchange platform to price many DeFi assets.
These on-chain indicators reduce some of the AMM risks and challenges, such as impermanent losses during high volatility periods.
On-chain metrics to profit the most from DeFi tokens
Bitcoin Locked on Ethereum: This is one of the most critical indicators that give a glimpse into circulating Bitcoin being used to participate in Defi protocols, such as AMM. This tool further corroborates the data shown on BTC's dominance chart.
It shows the direct inflow and outflow of the pioneer cryptocurrency to other Ethereum-based assets through Wrapped BTC, which is currently at an all-time high. Such market behavior can be perceived as an increase in Bitcoin holders who want to participate in the DeFi market sector.
Bitcoin Locked on Ethereum by IntoTheBlock
Top Five Value Locked: The total amount of coins locked is a parameter used a lot within the DeFi ecosystem. It shows the amount of money vested in some of the most prominent protocols in this market sector. While this tool essentially shows the projects with the most vibrant markets to participate in, it should be used in tandem with other gauges, such as the number of active addresses.
Top Five Value Locked by IntoTheBlock
DeFi Tokens Active Addresses: This metric reveals the aggregate number of dynamic addresses that use DeFi tokens within a 24-hour timeframe spread out over an extended period. Traders can use it to understand the volume of transactions and the level of participation in any given project, eliminating the risk of potential pumps and dumps in the market.
DeFi Tokens Active Addresses by IntoTheBlock
In/Out of Money: This statistical model aims to estimate profitability across different wallets using on-chain data. Thus, it shows a macro perspective of the flow of assets across various DeFi protocols and gives investors an edge to not leave the market too late.
In/Out of Money for Aave by IntoTheBlock
The application of on-chain metrics in the DeFi world could quickly revolutionize data in the financial space and give investors huge leverage in their trading activities. Like every other type of analysis, it is best to combine various tools to get a broad and balanced view of the market.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
Is Altcoin Season here as Bitcoin reaches a new all-time high?
Bitcoin reaches a new all-time high of $98,384 on Thursday, with altcoins following the suit. Reports highlight that the recent surge in altcoins was fueled by the victory of crypto-friendly candidate Donal Trump in the US presidential election.
Shanghai court confirms legal recognition of crypto ownership
A Shanghai court has confirmed that owning digital assets, including Bitcoin, is legal under Chinese law. Judge Sun Jie of the Shanghai Songjiang People’s Court shared this opinion through the WeChat account of the Shanghai High People’s Court.
BTC hits an all-time high above $97,850, inches away from the $100K mark
Bitcoin hit a new all-time high of $97,852 on Thursday, and the technical outlook suggests a possible continuation of the rally to $100,000. BTC futures have surged past the $100,000 price mark on Deribit, and Lookonchain data shows whales are accumulating.
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange
Shiba Inu trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.
Bitcoin: New high of $100K or correction to $78K?
Bitcoin surged to a new all-time high of $93,265 in the first half of the week, followed by a slight decline in the latter half. Reports highlight that Bitcoin’s current level is still not overvalued and could target levels above $100,000 in the coming weeks.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.