Date: October 2021

Date: October 2021

Data source: How to Discover Valuable Projects (https://footprint.cool/valuableprojects)

With the development and popularity of the encryption market, more and more DeFi projects are attracted, and a large number of investors are also attracted. The development of DeFi in 2021 can be described as rapid. TVL (as of press time) has increased by 860.42% from the US$21.4 billion at the beginning of the year; the number of DeFi projects on the chain has also grown from 174 at the beginning of the year to 554, with a growth rate of 218.39%. The prosperity of the DeFi market not only allows investors to obtain higher returns than traditional financial investments, but also enhances confidence.

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Changes in the number of DeFi projects per month in 2021, data source: Footprint Analytics

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Comparison of various indicators of the top 10 TVL platforms (lock-up volume, price, market value), data source: Footprint Analytics

1. Total Locked Volume (TVL)

For those who participate in DeFi investment, TVL is no stranger to this indicator, and the required TVL data of DeFi platforms can be obtained on major data platforms (such as DeFi Llama, CoinGecko, and CionMarketCap). TVL refers to the total amount of assets deposited by users and locked in the agreement. The larger the value, the more assets the project has accumulated. Users have a high degree of trust in the project and are more willing to deposit assets into the platform for various economic activities. (such as providing liquidity, providing collateral, etc.), the more users are gathered, the higher the popularity.

As can be seen from the figure above, the top ten platforms in terms of TVL, in addition to their large volume (more than 5 billion US dollars), TVL has basically maintained a monthly growth trend, which proves that the projects continue to maintain their vitality and strength.

2. Market Cap

The market value reflects the market value of a project in the DeFi industry. This indicator is calculated in a similar way to the traditional stock market, and is mainly affected by the currency price and the number of tokens that have been circulated and available for trading.

As shown in the figure above, since the number of tokens is affected by the circulation and supply and demand, the price of the currency changes at any time, which affects the change of the market value. However, the increase or decrease of the market value remains within a reasonable range of about 20%, and there is no skyrocketing and then a cliff-like plunge. .

After understanding the basic indicators, let's see how to use the basic indicators to evaluate projects and discover projects with potential and worth investing in.

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Distribution of TVL platforms, data source: Footprint Analytics

As shown in the above scatter diagram, there are currently more than 500 DeFi projects, among which there are many projects that are just emerging and have small TVL (platforms with TVL less than 5 million US dollars account for as high as 33%). How to choose suitable investment from many projects s project? For the sake of safety, in order to prevent the risk of running out of funds for too small-scale projects, individual investors should try to select projects from the middle and above range of TVL (approximately 20 million US dollars) when determining investment targets.

For DeFi projects, projects with a value of US$1 million to US$10 million are suitable for investment institutions to conduct seed round investment, but not for individual investors, because the future development positioning and strategic direction of this type of project are not clear.

Although TVL has found a suitable development strategy for projects ranging from US$1,000 to US$20 million, and investors can obtain the data of this part of the project, from the perspective of stability, the growth of such projects is hindered. Once the growth is insufficient, There is a high risk of weak growth or a decline.

TVL has found a clear and suitable product mechanism and growth point for projects with a scale of 20 million US dollars to 50 million US dollars. The community and technical support are gradually improving. If you want to obtain higher income than the head platform, such Platform is a good choice.

If the risk tolerance is low and the demand for income is not too high, you can choose projects from top platforms to invest in based on your favorite DeFi project categories (such as DEX providing liquidity, Lending lending, etc.).

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Token price changes on the top 5 TVL platforms, data source: Footprint Analytics

After selecting a suitable candidate project through the TVL indicator, it is necessary to further screen through the situation of the project token. According to the price change law of the top platform token (as shown in the figure above), it is mainly evaluated from two aspects:

First, whether the token price maintains a relatively stable ups and downs trend (the increase or decrease should not exceed 20%). If the price of tokens remains relatively stable, the circulation of nominal tokens will be relatively stable, and the possibility of damage to the project due to a large number of selling tokens by a single investor will become smaller.

Second, whether the token issuance mechanism is reasonable. For example, whether the team/foundation's currency holding ratio is too high, if it is too high, the purpose of the project to "circle money" will increase; whether the token release speed is too fast, the currency price will be severely diluted if the release is too fast, and the token The possibility of the currency being sold increases, which is not conducive to the sustainable development of the currency price.

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Comparison of market value/fully diluted valuation ratio, price, token circulation, and total token supply of top platforms, data source: Footprint Analytics

Fully diluted valuation refers to the product of the currency price and the maximum supply of tokens. When all tokens are released, the market value is equal to the fully diluted valuation. If the "MC/FDV" ratio of project tokens (that is, the ratio of market value to fully diluted valuation) is too small, it means that a large number of tokens have not yet been released. At this time, investors need to consider carefully and focus on the project's online duration , Token supply schedule and whether the currency price growth is overheated.

For individual investors with long-term investment needs, it is necessary to evaluate the ratio of "MC/FDV" of the project. As new tokens are released and gradually flow into the market, when the supply of tokens is higher than the actual demand, the valuation It will become unreasonable. With the adjustment of the market, the price of tokens will drop, and long-term holders will face greater selling pressure. At this time, the project tokens held will become worthless.

Taking the top-ranked projects as an example, for platforms with a "MC/FDV" ratio higher than 60%, such platform tokens are more suitable for long-term holding, and the security is guaranteed, but the disadvantage lies in the high starting price; Low platforms, such as Curve (CRV), although the ratio is not high, but the currency price is in a more reasonable range, it is a platform that can be considered; in comparison, Lido's "MC/FDV" ratio is lower than Curve6.32%, However, the price of the token is 43.75% higher than Curve, and the market valuation is too high. It is not suitable for long-term holding at present. With the self-adjustment of the market, the price of the token may drop.

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Market capitalization/locked volume ratio of the top 10 leading platforms, data source: Footprint Analytics

According to the data provided by Footprint, the "MC/TVL" ratio (that is, the ratio of market value to locked-up volume) of the top ten TVL projects is basically less than 1, which means that the project valuation is underestimated and is worth investing in, especially the ratio of InstaDapp Only 0.65%. From the economic perspective, the higher the TVL of the project, the higher the MC should be, because projects with high TVL names are optimistic and can bring greater economic benefits to the project, and the market value should also increase accordingly, reaching the same value as TVL volume.

Summarize

Summarize

Readers can use the evaluation indicators in this article to evaluate the investment projects, which are summarized as follows:

● The TVL ranking is in the middle and above positions, about 20 million US dollars or more

● The token price is relatively stable: the monthly increase or decrease should not exceed 20%

● The token distribution mechanism is reasonable: whether the team’s token holdings and token release speed are reasonable

● With MC/FDV ratio less than 5%, project tokens are not suitable for long-term holding

● If the MC/TVL ratio is less than 1, the project is suitable for investment

click the linkclick the link), without additional calculations.

After some analysis through the above indicators, it will be found that DeFi, as a new type of investment market, has created more investment possibilities than traditional finance due to its "newness" and inclusiveness, and the styles are becoming more abundant. There are many projects worth investing in Known and understood, there are many potential projects that have not yet been discovered.

Footprint Analytics is a one-stop visual blockchain data analysis platform. Footprint assisted in solving the problem of data cleaning and integration on the chain, allowing users to enjoy a zero-threshold blockchain data analysis experience for free. Provide more than a thousand tabulation templates and a drag-and-drop drawing experience, anyone can create their own personalized data chart within 10 seconds, easily gain insight into the data on the chain, and understand the story behind the data.

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About Footprint Analytics:

Footprint Analytics is a one-stop visual blockchain data analysis platform. Footprint assisted in solving the problem of data cleaning and integration on the chain, allowing users to enjoy a zero-threshold blockchain data analysis experience for free. Provide more than a thousand tabulation templates and a drag-and-drop drawing experience, anyone can create their own personalized data chart within 10 seconds, easily gain insight into the data on the chain, and understand the story behind the data.