DeFi Tokens: How to Analyze and Choose the Right Investment

What Are DeFi Tokens?

DeFi tokens are digital assets used in decentralized finance (DeFi) platforms or protocols. DeFi is an ecosystem that allows users to carry out various financial activities such as lending, exchange, insurance, and others without the need for third parties such as banks or companies. DeFi runs on top of blockchains, such as Ethereum, which guarantees transparency, security, and efficiency.

DeFi tokens have various functions and benefits, depending on the platform or protocol that issued them. Some of the common functions of DeFi tokens are as follows:

Governance 

DeFi tokens can be used to give holders voting rights in making decisions regarding platforms or protocols. For example, UNI token holders can vote to determine fees, features, or other changes on Uniswap.

Reward 

DeFi tokens can be used to incentivize holders who participate in the platform or protocol. For example, AAVE token holders can earn interest on loans or deposits they make on Aave.

Utility

DeFi tokens can be used to access or use specific services within a platform or protocol. For example, YFI token holders can access automated investment strategies offered by Yearn Finance.

Payment 

DeFi tokens can be used to pay fees or transactions within a platform or protocol. For example, SUSHI token holders can pay lower exchange fees on SushiSwap.

DeFi tokens have the potential to provide great returns for savvy and cautious investors. However, DeFi tokens also come with high risks, such as price volatility, technical vulnerabilities, or fraud. Therefore, it is important to conduct an in-depth analysis before deciding to invest in DeFi tokens.

How to Analyze and Select DeFi Tokens

To analyze and choose the right DeFi token, there are several factors to consider, such as:

Community and Developer Activities 

One indicator of the health and credibility of a DeFi platform or protocol is the activity of the community and its developers. A platform or protocol that has an active community and competent developers tends to be more trustworthy and growing. You can view community and developer activity through a variety of sources, such as social media, forums, blogs, or analytics dashboards. For example, you can view the number of Twitter users, transactions, volume, or mentions of a DeFi platform or protocol through analytics dashboards such as Dune Analytics or Terminal Tokens.

Total Locked Value 

Total value locked (TVL) is a metric that measures the total value of assets stored or locked in a DeFi platform or protocol. TVL can show how popular and desirable a DeFi platform or protocol is. The higher the TVL, the more users trust and use the platform or protocol. You can view the TVL of a DeFi platform or protocol through a DeFi aggregator such as Defi Llama or [DappRadar].

Majority Token Holders 

The majority token holder is a person or entity that owns a large number of DeFi tokens. The majority token holder can influence the price, liquidity, and direction of a DeFi platform or protocol. You can see who is the majority token holder of a DeFi platform or protocol through on-chain analytics platforms such as [Etherscan] or [Artemis]. You should be careful if there are majority token holders who are not identified, as they can carry out market manipulation or sudden withdrawals of funds.

Benefits and Functions of Tokens 

The benefits and functions of tokens are the main reasons why people buy or store DeFi tokens. You must understand what are the benefits and functions of DeFi tokens that you are interested in, such as governance, rewards, utility, or payment. You should also compare the benefits and functions of that DeFi token with other similar or competing DeFi tokens. You can see the benefits and functions of DeFi tokens through the official website or technical documents of the platform or protocol that issued them.

Conclusion

DeFi tokens are digital assets used in decentralized finance (DeFi) platforms or protocols. DeFi tokens have various functions and benefits, depending on the platform or protocol that issued them.

DeFi tokens have the potential to provide great returns for savvy and cautious investors. However, DeFi tokens also come with high risks, such as price volatility, technical vulnerabilities, or fraud. Therefore, it is important to conduct an in-depth analysis before deciding to invest in DeFi tokens.

How to Buy Crypto on Bittime

You can buy and sell crypto assets in an easy and secure way through Bittime. Bittime is one of the best crypto applications in Indonesia that has been officially registered by Bappebti.

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. In addition, also make sure that you have enough balance by depositing some funds into the wallet. For your information, the minimum asset purchase at Bittime is Rp10,000. After that, then you can make a crypto asset purchase in the application.

Monitor the price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

Also Read:

What is DeFi?

What is Aave? DeFi Platform Pioneer

What is a Token Liquidity Provider on DeFi?

DISCLAIMER: This article is informational in nature and does not constitute an offer or solicitation to sell and buy any crypto asset. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices may change significantly from time to time and Bittime is not responsible for fluctuations in crypto asset exchange rates.