Key DeFi Indicators Every Investor Should Know

Token Balance Trends/Movement

Token holders are a critical indicator of the health of the DeFi ecosystem. When token balances increase and decrease, it indicates the movement of tokens. It is frequently a sign that volatility may be on the rise when token balances on exchanges experience significant changes. Whales may be hoarding the token if significant sums of money are withdrawn from centralized exchanges.

When analyzing a token’s balance movements, it’s important to keep in mind that the total supply doesn’t always indicate a large number of withdrawals from wallets. You also have to look at the balance movements of the token on the exchange. 

For example, let’s say a token has a total supply of 100 and there are 50 tokens in circulation. If the token is trading on an exchange and the price is $1, then the market capitalization is $50. Now, let’s say that 10 tokens are withdrawn from wallets and sent to the exchange. The total supply stays at 100, but now there are 60 tokens in circulation. The market capitalization increases to $60.However, if the price of the token decreases to $0.50 on the exchange, then the market capitalization would decrease to $30. 

In this case, even though more tokens were withdrawn from wallets, the overall value of the token decreased. This is why it’s important to look at both the total supply and balance movements when analyzing a token. By doing so, you can get a better understanding of how much demand there is for the token and whether or not it’s being traded at a fair price.

Inflation Rate

The inflation rate is a measure of how much money you lose from your investment over time. Inflation is the general increase in price levels or decrease in purchasing power across different goods, services, and currencies due to persistent economic growth (money supply).

The reason this metric is important for investors is that they need to know how much their investments will lose value over time before making an investment decision. The inflation rate is another statistic any DeFi investor should watch. Limited-supply assets may not provide good long-term returns. Some assets may be limited initially, but not for long. If new tokens are consistently created over time, the supply may increase. Inflation may not be terrible for investors, but too much might hurt returns. When examining other indicators, it’s necessary to account for inflation. 

LCX DeFi Terminal: How to Jump Right Into DeFi

LCX DeFi Terminal is a beginner-friendly DEX aggregator to get started with trading and the DeFi space. Fire Salamander offers a novel trading experience with Basic and Pro Swap modes, DEX graphing, and limit order features. With advanced charting graphs, users can seamlessly add indicators to ascertain their next move in the trading arena.

Get started with the LCX DeFi Terminal: https://defi.lcx.com/dashboard

Unique address count

Unique address count is another important DeFi indicator. The number of unique addresses that have participated in a DeFi project is a good indicator of the number of users who are actively trading on the platform.

If you have ever used an exchange or wallet, you will know how cumbersome it can be to check your account balance or make trades without having to manually type in all those numbers and letters – it’s easy to forget something! But with DeFi projects, this is no longer an issue because there’s already a built-in system for connecting wallets, checking balances, and making trades, which makes life much easier for both users.

Conclusion

When you have a solid grasp of these metrics, you will have a good idea of how well DeFi projects are doing and how they are developing over time. Keep this indicator guide handy and always make sure to evaluate thoroughly before trading any asset.