The decentralized finance (DeFi) market is one of the most exciting and volatile cryptocurrency sectors outside of Bitcoin (BTC). In 2020, the DeFi sector experienced a bull market that saw the total value locked (TVL) in decentralized finance protocols from $1 billion to over $100 billion. However, the DeFi market is also prone to major corrections. In 2021, the DeFi market experienced a correction that saw TVL drop from $100 billion to $40 billion.
Despite the volatility of the DeFi market, there are ways for traders to know when this niche sector is starting to show sustained momentum. Three of the most important metrics to look at are TVL, platform fee revenue, and the number of non-null wallets holding tokens.
Let’s dig a little deeper to explore how these metrics can be used to assess the health of the DeFi sector.
Increase the total amount locked
TVL is one of the most used metrics to measure the overall health of the DeFi ecosystem. TVL represents the total amount of crypto assets locked in DeFi protocols. If TVL increases, it suggests increasing demand and usage for DeFi services, which may indicate a bull market.
Although the current TVL is slightly below the 2023 peak set on April 15 at $52.9 billion, it has increased since the beginning of the year. Since January 1, the TVL of the entire crypto market has increased by $7 billion, surpassing $45 billion.
More commission income indicates more usage and interest
Protocol fees measure the amount of payment revenue blockchains receive to complete transactions. Layer 1 blockchains are an important part of the DeFi ecosystem, allowing the construction of decentralized applications (DApps) where users can interact without a centralized intermediary.
If layer 1 fees are rising, it suggests that there is growing interest in DeFi and that merchants are using DApps to interact with blockchains. Over the past 30 days, the top 16 layer 1 blockchains by market capitalization have shown a positive increase in fees. Total payments collected in the last 30 days for Ether (ETH) exceeded $2.2 billion annually.
Adding non-null DeFi wallet addresses
The number of non-null addresses is a good indicator of the number of people actively participating in cryptocurrencies. If the number of non-null addresses increases, it suggests that there is increasing demand, which can be a sign of a bull market.
Non-null addresses are usually a reliable indicator of demand, as users tend to hold a crypto token if they believe it will appreciate in value or actively use a protocol. Setting aside statistics from the crypto market as a whole to focus on DeFi tokens, the number of non-null addresses reached an all-time high on November 8 with 1.1 million addresses. Looking at November 8, 2020, there were 267,180 non-null wallet addresses.
The DeFi market has recovered and improved since the Terra Luna implosion, but it is also volatile, so it is important to carefully consider chain metrics and other macro factors to help identify in bull markets.
By looking at these metrics, traders can better understand the overall health of the DeFi market and possibly get early signals about the emergence of a new bull market.
This article does not constitute investment advice or recommendations. Every investment and trading move involves risks, and readers should do their own research when making decisions.
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