DeFi Investment Guide: Look at investment opportunities in DeFi project from ten key performance indicators

Dec 15,2022
DeFi Investment Guide: Look at investment opportunities in DeFi project from ten key performance indicators

DeFi is an abbreviation commonly used for "decentralized finance" system. This is an upcoming technology that can work on distributed ledgers like cryptocurrencies. Decentralized financing challenges the traditional financial system by giving individuals more control over their transactions. One of the best practices of DeFi investments is to find market indicators that can reflect the performance of DeFi projects. There are many key performance indicators (KPIs) that can provide good advice on potential investment opportunities for the DeFi project.

1. Total value locked (TVL)

In a decentralized financing project, the total number of DeFi tokens or the currency used as a security deposit is called the "total locked value" TVL, which helps to evaluate the market share of different decentralized financing agreements. TVL is considered as the starting point for evaluating the value of the DeFi project. TVL indicates whether the asset is overvalued or undervalued. TVL represents the liquidity of a market, which can make you familiar with the interest rates in a wide range of decentralized finance. DeFi investors can identify undervalued decentralized financing projects by locking in the total value.

Generally, the total value of the lock is calculated in dollars or ether, which is a stable currency in itself.

If the total value of a project lock is high, it means that the total value of a valuable project lock occupies a high position in the key indicators of the DeFi agreement. Investors are urged not to miss the opportunity to consider TVL before finalizing the investment project.

2. Annual pledged output

Pledge in DeFi refers to the passive income that DeFi investors can obtain by holding a certain amount of legal cryptocurrency. Annual returns refer to annual profits, not short-term returns. The annual yield is much more reliable than the data obtained in a shorter period of time. For DeFi investors, it is very easy to find undervalued assets by checking the annual performance.

DeFi project returns may vary from project to project. A project may obtain favorable returns within a month, while another agreement may obtain favorable outputs in a longer time. Therefore, the annual yield will provide a more reliable and clearer picture of asset performance.

3. Price to sales ratio

This ratio compares the market value of the asset with its income. Since the DeFi project also generates revenue, the P/B ratio can be used to evaluate them. The value of a stock is determined by its price to sales ratio. In decentralized financing agreements, the P/S ratio is calculated by dividing the capitalization of the agreement by the total revenue generated., An agreement with a higher price to sales ratio would indicate that it is overvalued. This ratio can be better used for the evaluation of protocols at an early stage.

The revenues from these agreements are usually low, as most of the revenues are reinvested to help the agreements develop. The price to book ratio can be proved to be helpful for making wise decisions, but it should not be regarded as a decisive measure.

4. Exchange token supply

Tokens are traded on two types of exchanges: centralized and decentralized. The difference between them is that in decentralized exchange, no intermediate entity is required to establish trust. Pay close attention to the token supply of these exchanges. Tokens with high liquidity can provide good prospects for investment. For example, DeFi whales use a lot of tokens to enter the market. The sudden increase in the supply of tokens immediately increased the popularity of such assets. It also increases the overall demand for tokens.

Although the supply of tokens on the exchange is a very useful indicator, it is better to find other key indicators that can help investors make money in DeFi trading. Each DeFi investor must conduct a comprehensive study on a variety of factors before finally determining the investment platform.

5. Change in token balance of the exchange

Close attention to token supply may be an important strategy for understanding the DeFi market and investing wisely. However, significant and recent changes in the token balance of the DeFi trading platform should also be monitored. You can observe token volatility by checking the token balance in the exchange. Changes in token balances can indicate a possible increase or decrease in token demand and popularity. For investors, when large withdrawals are observed in centralized trading, it is often a sign that DeFi whales are storing tokens. Similarly, large deposits may indicate that the DeFi giant is trying to get rid of some tokens.

6. Inflation rate

If most DeFi protocols currently display a small amount of token provisioning, there is no guarantee that it will remain unchanged. It is always recommended to study the supply rate and inflation rate of tokens. If high inflation is obvious from the past signs, it may be a perfect decision to avoid high inflation. The DeFi market is very unpredictable and extremely unstable. Facts have proved that thorough research is crucial to investment income generation.

7. Unique address growth rate

The unique address growth rate indicates the popularity of a project in the DeFi market. Due to the increase in the number of unique addresses, the DeFi project is said to be very popular. This indicator is easy to manipulate, and decisions based on it may lead to losses. The unique address refers to a single encrypted wallet associated with DeFi. The positive growth of addresses in the DeFi agreement will indicate that investors are generating income. Creating addresses quickly is very easy and simple. If some people decide to generate many addresses and a popular scam, investors can easily be fooled.

8. Document integrity

A major disadvantage of decentralized financing as an unregulated platform is that many protocols are either introduced with incomplete documentation or poorly documented. A large number of gullible new investors have fallen into these traps. This led people to lose their hard-earned money to these projects.

Some details that must be checked before signing a project are: what actions will be taken if security vulnerabilities occur? Who is liable for any financial loss? Do platform users vote for compensation? Such details are often ignored by new investors, leading them to fall into the trap of being unable to extricate themselves. The website announcement and white paper of a project must be thoroughly reviewed before investment.

9. Non speculative usage

An investor usually has two questions about the agreement: what are the risks of the investment and whether he will get a considerable profit from the investment. High risk means that investments will lose money, and the return on these investments will be negative. Many assets often promise very good returns, but after investment, they have not fulfilled these commitments.

Therefore, understanding why a person should invest in an asset and where it is used is very important for determining the actual value of an asset. Urge customers to find projects with legitimate use. Transactions in agreements executed for speculative purposes should remind investors to be careful when investing in the agreement. The number of transactions for an asset can provide information about the actual value of the asset. Investors can learn about the use of potential assets by checking the number of transactions.

10. Social group size

Social media makes it easy for everyone to contact, ask about something, and even continue to look for DeFi projects. Social media platforms can provide good ideas about asset trends. The key words play a crucial role in determining these trends. The key words are "how to invest in J tokens", and "what is J tokens" indicates the increase in demand for tokens.

If some known influencers start to mention an asset on social media, their audience will often make a positive response to the asset. This makes the popularity and demand of such assets exceed the limit.


DeFi market provides a very attractive platform for investment. Investors have the responsibility to identify and select an asset that has a future. The investor assumes full responsibility. One can predict the potential of assets by studying the characteristics of certain DeFi indicators. These key indicators guide a person in the right direction of investment. In addition, the unregulated feature of DeFi system has the advantage of not relying on any intermediary entity. On the other hand, all responsibilities are directly transferred to the investors. Proper research on assets will ensure a certain return on investment.