Have you heard that cryptocurrency is a DeFi ecosystem? DeFi is the short form of decentralized finance. This means that it is not regulated or backed up by a central authority. There are some benefits as well as risks that are associated with this type of system. As an investor or trader, it is important to have some guiding indicators, which will help you in making your decision.
Here are some of the essential DeFi indicators that you need to give your attention to if you are in the cryptocurrency markets:
Total Value Locked
This is a common term that you will come across when trading in cryptocurrencies. Just as the name implies, TVL is a term that refers to the tokens that are locked in a particular decentralized finance protocol. In simpler terms, this will be all the funds that have been placed in the liquidity pool in a cryptocurrency exchange. In most cases, the Total Value Locked is expressed in USD or ETH. So why is TVL important? This is a crucial indicator that investors can use to determine projects that are undervalued. You can use this information to compare the market share value of different DeFi protocols.
Token Supply on Exchanges
Keeping an eye on the token supply on exchanges is a critical thing for any investor. It is important to monitor this indicator. As you may be aware, most traders depend on centralized exchanges to sell crypto tokens. The liquidity value of decentralized exchanges is lower than that of centralized exchanges. Buying tokens on CEX is easier and convenient but selling may pose a challenge. Monitoring the token supply on exchanges is imperative as you will easily tell which DeFi exchanges have a higher liquidity value.
You need to know the value of your stock as an investor and the P/S ratio is the best indicator to measure this. This is a great strategy that allows you to compare the stock and the revenue of the company. At the end of it all, you will know if a coin or token is overvalued or undervalued before trading on British Bitcoin Profit. If you establish that the price-to-sales ratio is lower, then there is a very high chance that the stock is undervalued. This is crucial knowledge for any investor in the cryptocurrency markets.
Another vital indicator that you cannot afford to ignore is the inflation rate. If you are investing in a decentralized finance system, it is paramount to have indicators that show projections on the returns on investment. There are assets that may have a limited supply but this does not amount to an increase in their value. While inflation is not a very bad thing, when there is a very high inflation rate, you may not get the expected returns. In addition to other metrics and data, pay attention to the rate of inflation before making an investment.
There are assets that have a tendency to promise great returns, while others actually get to give you incredible returns. As an investor, it is important to tell the difference as there are some assets that may have their prices increased for a short while, but this does not last for a long period. Determining the actual value of cryptocurrencies is important as you will know what you are actually investing in.
Decentralized Finance can have some pleasant as well as ugly surprises for you. There are a lot of uncertainties and this increases the risk levels. When you are investing in cryptocurrencies, it is important to have indicators that you can rely on to make your investment decisions. We believe that the ones we have shared in this post will be of great help in addition to other metrics.