Immerse yourself in decentralized funding: Evaluating DeFi blockchains


Decentralized funding (DeFi) is an organization that allows financial products to appear on a public blockchain network that is not controlled by the central bank or intermediary. DeFi systems, most of which are built into the Ethereum blockchain, aim to provide an autonomous and decentralized option for financial services controlled by banks and national or international management. If you are serious about crypto investing, you need to have a deep understanding of decentralized finance (DeFi). Simply put, DeFi is an umbrella term for financial applications driven by public blockchains.

The mental diagram (pictured above) shows the various features of DeFi. In the next few editions, I will take you through a DeFi Deep Dive and discuss the following issues:

  1. Evaluating DeFi blockchains
  2. Top 5 DeFi Assets
  3. The first 5 decentralized exchanges
  4. Top 5 Lending Sites

So, let’s get started first: Evaluating DeFi Blockchains.

Basic measurements

Locked total value (DVL) is the total amount of assets that are “locked” or protected by the DeFi blockchain or protocol.

Distribution is the number of coins / tokens in the hands of the public.

Market capital (Mcap) is calculated as the current price x cycle supply.

The Mcap / TVL ratio (MTR) is calculated by dividing the Mcap by the TVL.

Based on my research, I consider 3 as the best MTR for general blockchain. A blockchain’s MDR above 3 is overvalued and below 3 is undervalued.

Current measurements of the top 5 DeFi blockchains:

Blockchain TVL MTR Respect
Ethereum $ 169 billion 2.88 Underestimated
Accounting $ 18.57 billion 5.37 Overvalued
Solana $ 13.46 billion 4.44 Overvalued
Avalanche $ 12.46 billion 1.99 Underestimated
Terra $ 9.52 billion 1.69 Underestimated

Source: Defilama

Evaluating DeFi blockchains

Step 1: Multiply the blockchain TVL by 3. It is the best market capitalization for blockchain.

Step 2: Divide the market capitalization by the rotational distribution of the blockchain’s own token. This is the optimal price.

Let’s take an example.

As of November 26, 2021, Ethereum’s TVL was worth $ 169 billion (approximately Rs. 12,68,768 crore).

Ethereum’s best market capitalization is $ 169 x 3 = $ 507 billion (approximately Rs. 38,06,306 crore).

The circulation distribution of Ethereum’s native crypto is ETH 118,499,066.

ETH Best Price 507 Billion / 118,499,066 = $ 4278.5 (Approximately Rs. 3.2 lakhs).

At today’s price of $ 4,072 (approximately Rs. 3 lakhs), the ETH is slightly undervalued.

What’s next?

Now that you understand the basics, calculate the best prices for own tokens of Binance (BNB), Solana (SOL), Avalanche (AVAX) and Terra (LUNA).

This is the first in a series of articles exploring DeFi, and will be coming out next week.

Rohas Nagpal is the Future Money Playbook and Chief Blockchain Architect and author of the Rapt Asset Project. He is an amateur boxer and retired hacker. You can follow him on LinkedIn.

Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nishal Shetty and Weekend Investing Founder Alok Jain at Orbital, the Gadgets 360 podcast. Orbital makes Apple Podcasts, Google Podcasts, Spotify, Amazon Music and your podcasts available everywhere.

Cryptocurrency is an unrestricted digital currency, not a legal tender and subject to market risks. The information provided in the article does not refer to any financial advice, business advice or any other kind of advice or recommendation provided or approved by NDTV. NDTV will not be liable for any loss incurred on any investment based on any recommended recommendation, forecast or any other information contained in the article.


Leave a Comment