There is no doubt that decentralized finance (DeFi) is rising. This relatively new economy sector has seen impressive growth in recent months and shows no signs of slowing down. Dan Schatt and Domenic Carosa, executives of DeFi startup Earnity, it is essential for buyers to learn the basics about the industry, especially since DeFi is moving at such an accelerated pace.
Below are the indicators that can be used to measure and compare DeFi protocols or products.
Total Value Locked
As the name implies, total value locked (TVL) is the aggregate amount of funds locked into a specific DeFi protocol. Simply put, it refers to all the liquidity in the liquidity pool of a particular marketplace. It is a key metric because it reflects users’ risk by participating in a DeFi protocol.
The price-to-sales ratio or P/S ratio is a financial metric that indicates the market value of a company’s stock relative to its revenue. In other words, it tells how much buyers are willing to pay for each dollar of a company’s sales. For DeFi protocols, this ratio can compare the current price with the expected future revenue stream.
Token Supply on Exchanges
Token supplies are the metric that measures the amount of a specific token that is held on cryptocurrency exchanges. Earnity’s Dan Schatt and Domenic Carosa want people to see these indicators because it gives insights into the selling pressure of a token. If the number of tokens held on exchanges decreases, it usually means that holders are Holding and not selling, which is generally a good sign for the token’s price.
Annual Percentage Yield
Annual percentage yield (APY) is the rate of return on a purchase, expressed as a percentage. In the context of DeFi protocols, APY measures the interest earned on deposited funds. It is important to note that APY can be different from the actual return because it does not consider the compounding effect.