Using Key Performance Indicators (KPI) To Invest In Defi

On a public decentralized blockchain network, DeFi refers to financial services that are available to anyone. On blockchains, it allows users to establish self-executing smart contracts. The freedom from centralized authority, which traditionally controls a transaction, is the feature of DeFi.

Non-fungible tokens have risen in popularity as a result of DeFi’s flexibility, attracting interest from both regular investors and institutions. Looking at current DeFi statistics, it’s easy to conclude that the market is set for massive development.

DeFi, as opposed to traditional finance, aims to use blockchain to reconstruct financial services such as trading, lending, payment, and insurance in a more decentralized system. DeFi’s smart contracts use distributed consensus to enable peer-to-peer transactions without the need for a central authority. Through the smart contract integration that defines and monitors the loan, DeFi, for example, enables a more efficient cryptographic verification process in lending and borrowing.

What Exactly Is The Distinction Between Decentralized Finance And Cryptocurrency?

DeFi products don’t rely on a central authority like an exchange, credit union, or bank. Since most DeFi products don’t use fiat currencies, cryptocurrency is the driving force behind them.

Cryptocurrency and DeFi are inextricably linked. The goal of DeFi services is to recreate traditional financial instruments using cryptocurrency, especially on the KCC network.

Assume a DeFi product replicates the traditional services provided by banks. A DeFi lender provides you with a crypto loan that you may repay with interest. The interest rate is lower and more appealing than that offered by a traditional bank.

DeFi Technology Use Cases.

While there are many DeFi alternatives to traditional financial services, the technology’s projects go beyond lending and transactional purposes. Here are a few use cases:

_Borrowing and lending between peers (P2P): using autonomous interest-based protocols to allow two parties to borrow and lend assets for the purpose of earning interest.

_Decentralized Exchanges: These exchanges reduce the risk of market manipulation while also allowing for faster settlement and lower exchange fees.

_Savings: You can earn compound interest in real-time without making a long-term commitment if you use a flexible savings plan.

_Insurance: It allows users to submit automated insurance claims that are transparent and secure.

_Asset tokenization: Assist organizations in dematerializing assets in the form of legally valid tokens that are digitally available to investors via a decentralized blockchain.

_DeFi is commonly used for asset management, including staking, buying, selling, and borrowing for interest rates.

_DAOs (decentralized autonomous organizations) manage fundamental financial activities such as assets, fundraising, and governance implementation.

You Should Be Aware of These DeFi Indicators

Here are a few DeFi Indicators to be aware of:

Inflation Rate

The majority of DeFi protocols have rules in place to ensure that the token supply does not cause inflation, causing the DeFi tokens to devalue. This, however, does not apply to all tokens. While some projects don’t describe how they keep their token supply limited, others don’t have any meaningful information on the matter at all.

As a result, consider if a token is vulnerable to inflation when choosing a protocol. It’s advised to keep away if the response is yes.

Total Value Locked (TVL)

Total Value Locked (TVL) is the total amount of money locked within a DeFi protocol, as the name suggests. TVL may be thought of as all of the liquidity in a money market’s liquidity pools.

TVL is a good measurement for determining the overall level of interest in DeFi. In addition, TVL may be used to compare the “market share” of various DeFi protocols. This is particularly beneficial for investors looking for undervalued DeFi projects.

Token Supply on Exchanges

Tracking the token supply on cryptocurrency exchanges is another technique. Sellers often sell their tokens on centralized exchanges (CEXs). Users on decentralized exchanges (DEXs) now have a growing number of options that don’t require them to trust an intermediary. The liquidity of centralized venues, on the other hand, is substantially better. This is why token supply on CEXs should be monitored.

Here’s a simple token supply assumption. Sell pressure may be larger when there is a big quantity of tokens on exchanges. Because holders and whales don’t keep their money in their own wallets, it’s possible that they’re willing to sell it.

Count of Unique Addresses

Although it has its limits, an increase in the number of addresses owning a certain coin or token should indicate higher usage. On the surface, it appears that having more addresses means having more users and increasing adoption.

However, this is a measure that may be manipulated. It’s simple to generate hundreds of addresses and transmit payments to them, creating the appearance of broad use. You should compare the unique address count to other aspects, just like any other indicator in fundamental analysis.

Non-speculative usage

You’re interested in investing in an emoji-based token that promises high returns, but does it actually work? If the main objective is to increase in value, it could earn the Charles Ponzi stamp of approval, but it won’t last long.

To determine the real worth of a token, you must first understand what it is used for. In an ideal world, you’d count the number of transactions that aren’t carried out only for the sake of speculating. This can be difficult, but a good place to start is by looking at transfers that do not take place on centralized or decentralized exchanges. The goal is to ensure that the token is being used.

Token Balance Changes

We already know that keeping track of token supply is important. However, simply looking at the token balances may not be sufficient. Examining recent changes in such balances can also be beneficial. Large changes in token balances on exchanges can typically indicate a rise in volatility.

Consider the opposite of the issue we just described concerning token balances. If huge amounts of tokens are being removed from CEXs, it’s possible that whales are hoarding the token. Why would they withdraw to their own wallets if they were planning to sell soon? This is how monitoring token movements can be useful.

Final Thoughts

KPIs are a useful tool for measuring and tracking a company’s performance across a number of parameters. Managers can better optimize the business for long-term success by understanding exactly what KPIs are and how to implement them properly.

Ensure you’re making the best selections possible by using key performance indicators. While risk is unavoidable in DeFi, it may be significantly reduced by thoroughly researching the metrics ahead of time.

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