Decentralized Finance (DeFi) experiences ups and downs often, even rapidly. How do you know not to miss? Let’s find out what DeFi indicators are!
Indodax lists more than 90 crypto assets or coins from all over the world. Not a few of them focus on the DeFi project. These tokens experience high and fast price movements. In fact, new investors often miss the moment to invest in tokens engaged in the DeFi field.
Well, to find out, you need to study the indicators first. DeFi has indicators that are commonly used. This you can use to get information. It’s easy enough for you to find out. Below we will describe it.
Total Value Locked (TVL)
Total Value Locked (TVL) is the aggregate amount of funds that is locked on the DeFi protocol. On some platforms, TVL means the amount of funds deposited by liquidity providers to the protocol.
TVL of course can be an accurate source because we can see how much interest people are in one DeFi platform. It should also be noted how TVL can be measured using different denominations. For example the Ethereum project TVL which uses ETH or USD.
Price-To-Sales (P/S) Ratio
The price to sales (P / S) ratio is the next indicator you need to look at. You can compare the market cap price with the income. This ratio is similar to looking at the ratio of shares to income. This ratio is then used to determine whether the stock is undervalued or overvalued.
In the DeFi protocol, we can see the income earning and it can be implemented just like stocks. You have to divide the market cap by the protocol market by the revenue. The lower the ratio, the more undervalued it can be. Although actually, this method is not very accurate, however, this is an indicator that can help you.
Supply Token on Exchange
The next indicator is tracking the supply of tokens on the exchange. Nowadays, there are more and more options available to users on trustless decentralized exchanges (DEX), there is no need to trust intermediaries. However, centralized means tend to have much higher liquidity. This is why it is important to pay attention to token supply at CEX.
Change in Token Balance on The Exchange
In the previous indicator, we already understood how to track the supply amount of a Defi token. Changes in the balance of a Defi token also usually indicate increased volatility or a trend. Observing the latest changes in the balance will really help you in analyzing the price of a Defi token
Understanding the use of tokens is very important to know the true value of the Defi token. You can measure it by looking at the number of token transactions on the blockchain network or on an exchange. Its purpose is to check whether the token is actually used by people.
The last indicator is looking at the inflation rate. The current small supply does not guarantee a small supply forever, especially if new tokens are continuously minted. The essential nature of Bitcoin
This does not mean that all systems have to emulate the scarcity of Bitcoin. In fact, inflation itself is not always bad. However, inflation that is too frequent or too much can reduce the value of assets.
So, that was how to check the DeFi indicator. Don’t miss other content on Indodax.Academy. For those of you who are not yet a member, don’t forget to register before starting trading.