Deep Dive Into Decentralised Finance: Valuing DeFi Blockchains


Decentralised Finance (DeFi) is a system that permits monetary merchandise to look on a public blockchain community which isn’t regulated by a central financial institution or middleman. DeFi programs, majority of that are constructed on the Ethereum blockchain, purpose to supply an autonomous and decentralised choice for monetary providers which might be in any other case regulated by banks and nationwide or worldwide administration. If you’re severe about crypto investing, you need to have a deep understanding of decentralised finance (DeFi). Merely put, DeFi is an umbrella time period for monetary functions powered by public blockchains.

The mindmap (pictured above) reveals the varied points of DeFi. Over the subsequent few editions, I’ll take you thru a DeFi Deep Dive and focus on the next points:

  1. Valuing DeFi Blockchains
  2. The highest 5 DeFi Property
  3. The highest 5 Decentralized Exchanges
  4. The highest 5 Lending platforms

So, let’s begin with the primary: Valuing DeFi Blockchains.

Table of Contents

Fundamental metrics

Complete Worth Locked (TVL) is the full quantity of property “locked” or secured in a DeFi blockchain or protocol.

Circulating Provide is the variety of cash/tokens in public palms.

Market capitalization (Mcap) is calculated because the Present Value x Circulating Provide.

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

Primarily based on my analysis, I think about 3 to be the perfect MTR for a public blockchain. If a blockchain’s MTR is above 3, it’s overvalued and whether it is beneath 3, it’s undervalued.

The present metrics of the highest 5 DeFi blockchains are:

Blockchain TVL MTR Worth
Ethereum $169 billion 2.88 Undervalued
Binance $18.57 billion 5.37 Overvalued
Solana $13.46 billion 4.44 Overvalued
Avalanche $12.46 billion 1.99 Undervalued
Terra $9.52 billion 1.69 Undervalued

Supply: DefiLlama

Valuing DeFi Blockchains

Step 1: Multiply the TVL of the Blockchain by 3. That is the perfect market capitalization of the blockchain.

Step 2: Divide the market capitalization by the circulating provide of the native token of the blockchain. That is the perfect worth.

Let’s take an instance.

The TVL of Ethereum is $169 billion (roughly Rs.12,68,768 crore) as of November 26, 2021.

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

The circulating provide of Ethereum’s native crypto is ETH 118,499,066.

ETH best worth could be 507 billion / 118,499,066 = $4278.5 (roughly Rs. 3.2 lakh).

At at this time’s worth of $4,072 (roughly Rs. 3 lakh), ETH is barely undervalued.

What subsequent?

Now that you’ve understood the fundamentals, calculate the perfect costs for the native tokens of Binance (BNB), Solana (SOL), Avalanche (AVAX), and Terra (LUNA).

That is the primary in a sequence of articles exploring DeFi, with extra to return subsequent week.

Rohas Nagpal is the writer of the Future Cash Playbook and Chief Blockchain Architect on the Wrapped Asset Venture. He’s additionally an newbie boxer and a retired hacker. You’ll be able to observe him on LinkedIn.

Considering cryptocurrency? We focus on all issues crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Devices 360 podcast. Orbital is obtainable on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

Cryptocurrency is an unregulated digital foreign money, not a authorized tender and topic to market dangers. The knowledge supplied within the article isn’t meant to be and doesn’t represent monetary recommendation, buying and selling recommendation or every other recommendation or advice of any kind supplied or endorsed by NDTV. NDTV shall not be liable for any loss arising from any funding primarily based on any perceived advice, forecast or every other data contained within the article.


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