When you think about crypto, you often think about networks that are there today and gone tomorrow. Blockchains worth billions of dollars in total locked value have gone burst. A great example is Terra Luna. However, there were market gurus who foresaw the crash and ran to the safety of more stable blockchains.
One of the tools they used to make this prediction is DeFiLlama. Read on to get a beginner-friendly insight on how to use this powerful tool to invest in growing blockchains.
What is DeFi Llama
Defillama is a DeFI TVL aggregator that provides traders with very price data on the state of blockchain growth. The platform was created by anonymous founders who are only known by their Twitter handles – 0xLlam4 and 0xngmi.
With this tool, investors and traders can make educated decisions on which blockchains to invest in. For instance, if the volume on Blockchain X has been going down over the period of a month, it might not be a good idea to invest in projects on that blockchain.
Best Ways to Use DeFiLlama Optimally
DeFiLlama is good for defi-only research and putting the following things into consideration while using DeFiLlama for your research will give you an idea of where money and attention are flowing.
Total Value Locked (TVL)
Total Value Locked (TVL) can be thought of as deposits. More TVL means that users have entrusted a project with more money. Moreover, for apps like DEXes, more TVL means more liquidity. To see TVL by a chain, select DeFi and then Chains on the left panel.
Filters to prevent common issues with TVL. These issues include counting TVL multiple times. This can occur when, for example, money is deposited into a liquidity pool and then into an auto-compounder.
To prevent this ensure ‘Double Count’ is unchecked.
Stablecoins
Stablecoins are cryptocurrencies that are pegged to the dollar or any other physical item with value, like Gold and Silver. TVL is that it’s highly recursive because when it goes up, more people invest in that chain. This causes TVL to go up even more. To see how much money is really flowing into a chain (from investors), you should check the stablecoin inflows.
To check stablecoin inflows, go to Stables and then to Chains.
Bridge Flows
DefiLlama also has a section to see comprehensive bridge flows for a more curated list of chains. To check bridge flows by a chain, go to Bridges and then to Chains.
The bridge flows show the activity of investors bridging funds from other chains to the chain you are researching.
DEX Volume
DEX volume is also another great statistic to find growing chains. It represents the volume traded on decentralized exchanges and shows a measure of the economic activity on that chain.
When volatile, DEX volume is high. DEX volume is better than transaction count because it takes into account how much money is being transacted.
To view DEX volume by chain on DefiLlama go to Volumes and then to Chains.
Sorting by weekly change, you will view the chains that have seen their volume grow the most in the past week.
Fees
To get a proper view of a DeFi chain’s fundamentals, you should also look at the total fees paid on that chain. High fees are not great for onboarding new users, but aggregate fees represent how willing users are to pay for using that chain.
To view Fees by chain, select Fees/Revenue and then filter the category to Chain and Rollup
Investors
Analyzing a chain’s investors is also important. The quality of a chain’s backers can tell you a lot, although with heavily VC-funded chains, watch out for predatory tokenomics.
If the VCs are respected entities in the space and the financial world, you might want to consider that blockchain for investment. Some great VCs in the crypto space include Coinbase, Binance, and 3AC
To view investors on DefiLlama, Go to Raises and then to Overview, and then search for a project.
Conclusion
Besides using DeFiLlama for analysing blockchains for investments, you can also use it for scanning other sectors such as NFTs and Metaverse. This is a just a quick overview for beginners to start with. DeFI investing requires deep comprehension of the blockchain to avoid falling into common pitfalls in the industry.
