Which DeFi Metrics Are Useful in a Bear Market?

The growth of DeFi is a major influence over the web3 ecosystem. As a matter of fact, it is one of the popular tools for encouraging the adoption of blockchain technology. At the same time, it is also important to note that bear markets are a major threat to cryptocurrency and DeFi markets. You might search for answers to “What is bear market DeFi?” and its implications for understanding their impact. 

Crypto and DeFi bear markets could reduce portfolio value. Most important of all, bear markets also have the tendency to last longer than the expectations of users. However, the good thing for investors in the bear market is the opportunity for re-focusing and spending time on research for projects that could gain momentum in bullish markets. 

The continuous development of the DeFi and crypto market leads to the inevitable occurrence of bear markets. The bear market definition finance systems put forward in the 2022-23 market indicate the negative impact of bear markets. With the formidable price drops in major cryptocurrencies, such as Ethereum and Bitcoin, bear markets can lead to losses for investors.

On the other hand, it is also important to know that the downward trends would reach the lowest point before the bull market begins. Experienced crypto investors could monitor the important metrics and indicators that can guide them toward the next Bull Run. Let us learn more about the top DeFi metrics that can help investors in a bear market.

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What is the Necessity of DeFi Metrics in Bear Markets?

The importance of DeFi metrics in bear market could help in understanding their role in driving investors toward better decisions. Metrics could help investors and analysts identify the beginning of a robust and effective cycle. The common highlights that determine the effectiveness of DeFi projects in bear markets include technical factors, on-chain activity, and supply dynamics. On top of it, the profit/loss metrics could also provide a detailed impression of the effectiveness of DeFi projects.

The technical aspects of a DeFi project point towards its performance according to popular technical benchmarking tools. On the other hand, on-chain activity could showcase the positive trends in network utilization and on-chain activity. Furthermore, supply dynamics could also help in identifying the saturation of coin supply in the ownership of long-term owners. The bear market for DeFi has been characterized by radical drops in prices of native tokens of DeFi projects. In addition, it is also important to learn about the metrics for DeFi market that can help in identifying when the next bull market would happen.

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Top DeFi Metrics for Bear Market

The primary aim for using DeFi metrics in a bear market is the opportunity to invest in the right projects that could perform well in bullish market conditions. What are the best DeFi metrics in bear market conditions? Here is an outline of the top DeFi metrics that could help you through a bear market.

top defi metrics in bear market

  • Use Case of the DeFi Solution 

The DeFi sector has many projects that promise huge returns and feature protocols with multiple gimmicks. However, only a few projects have successfully delivered products that have high demand and deliver effective utility. One of the most important bear market definition finance sector has put forward is the impression of failing projects. On the other hand, you can use the most important metric for DeFi projects to determine their effectiveness in bear markets. Irrespective of the market conditions, DeFi solutions can withstand the downward trends if they have a proven utility.

You should determine whether the DeFi project has some form of utility. It is important to look for DeFi projects that solve a pressing concern. DeFi projects with a proven utility could stand the test of time in any market condition and could prepare for long-term survival. 

The next metric required for evaluating DeFi solutions in a bear market is the exchange inflows. The flow of native DeFi tokens transferred on exchanges can provide a clear impression of investor sentiment. You can find answers to “What is bear market DeFi?” by checking how the native tokens perform on different exchanges. The increasing inflows would mean that investors want to sell their tokens due to bearish sentiment. On the other hand, declining exchange inflows could imply that asset holders want long-term storage, thereby suggesting that the bear market is declining.

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  • Competitive Advantage of the Project

The utility of a DeFi project is not the only thing that would guarantee its survival in a bear market. However, the best way to understand bear market for DeFi would involve a study of the unique advantages delivered by the project. It is important to find out how the protocol performs in comparison to other projects which offer solutions for the same problem.

Does the DeFi project offer simpler or better solutions than competitors? For example, DeFi oracles have become one of the common entries among new protocols in the DeFi market. However, users are likely to choose the oldest and most prominently integrated Oracle solution or Chainlink, which is one of the strongest competitors. 

The list of indicators for checking the performance of DeFi projects in bear market also includes cash reserves. Every DeFi project must have a treasury that could help it survive the downward trends in the bear market. Cash reserves are an important metric for DeFi projects, which provide yield on locked assets that can encourage liquidity. 

The DeFi metrics in bear market would also point to the role of cash reserves for obtaining adequate liquidity for surviving an extended bear market. You should look for a DeFi project that has a massive treasury featuring different types of assets such as Bitcoin, Ether, and other stablecoins such as Tether and USD Coin.

The massive, diversified, and well-funded treasury could help in pulling the DeFi projects through tough times. DeFi projects should learn when they should take profits and should not use one token for majority of the protocol’s treasury. 

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One of the most prominent techniques for determining the effectiveness of DeFi projects in a bear market is the roadmap. A DeFi project does not have a chance at success just because it has a clear roadmap. You should know that past performance does not provide an indicator of future results. 

However, a DeFi project must consistently follow its roadmap and meet important deadlines. The performance of a DeFi project in fulfilling its roadmap could help you identify how it can endure tough times. You could use tools for monitoring the frequency of developer activity on DeFi protocols. If the project does not maintain consistency in fulfilling the roadmap deadlines, then it might be a rug-pull project.

You can find extreme levels of volatility in a bear market for DeFi and crypto projects. Prices go on a downward trend, and volatility reaches peak levels during the bear market. Stabilization and decline of volatility readings in a bear market would imply that the bear market is gradually easing. In addition, it also provides a trusted indicator that shows how markets are embracing support mechanisms to facilitate recovery.

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The most crucial metric in the domain of DeFi points to the sentiment about the project in a market. You can use large-scale surveys to learn more about the inclination of investors and experts about DeFi projects. Sentiments that could indicate fear point at the downward trends, and improvement in optimism could support recovery from bear markets.

  • On-Chain Transaction Value 

The outline of best DeFi metrics in bear market would point at the on-chain transaction value. With the total USD value of transactions on a DeFi solution, you can monitor the token velocity and overall network usage. Growth of on-chain transaction values following a bear market shows that the project has been performing effectively for organic adoption.

The social sentiment around a DeFi project would also serve as an important metric for bear markets. Investor psychology also plays a major role in defining the way a DeFi market works in bear conditions. You can track social media posts and communities to obtain insights about crowd sentiment for DeFi projects. It is important to check whether the social sentiment about a DeFi project can shift from fear and anticipation towards optimistic trends.

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The trading volume of DeFi projects also serves as a prominent DeFi metrics in bear market with an impression of its effectiveness. Higher trading volumes indicate that the project has been gaining engagement. On the other hand, it also implies that market participants have been showcasing interest in the DeFi project. DeFi projects with stronger trading activity could imply more conviction.

On the other hand, unstable trading volume could imply that the project has been falling prey to the bear market. It is also important to review the bear market for DeFi projects on the basis of derivatives activity. An increase in derivatives trading activity could imply that the DeFi project has prepared for the end of a bear market.

You can also refer to miner capitulation as an important metric for DeFi projects during a bear market. For example, Bitcoin miners could stop their operations when they face a decline in profitability. Therefore, all-time lows for hash rate and rebound in mining activity suggest that miners look forward to the situation of recovery. 

The most important metric for a bear market definition finance projects could show in a time of recovery is the influx of capital. You should notice that on-chain analysis provides an estimate of the evaluation of realized profit and loss. It is a difference in the value of coins at disposal, as compared to the value during the time of acquisition.

The ratio of realized profit to loss can offer oscillator tracking to prove whether the aggregate volume of realized profits can surpass the volume of realized losses. The ratio of realized profit to loss could help in identifying larger macro shifts in the profitability of DeFi markets. In addition, the volatility of markets could lead to false positives. However, they can be accounted for in the large-scale shifts in the DeFi market. 

  • Foundation for DeFi Success

The foundation for a DeFi project also serves as a crucial metric in bear markets. A DeFi project could establish a robust foundation for a bear market when a larger volume of supply should be exchanged at lower prices. The trend implies the expulsion of sellers alongside an equal influx of new accumulation demand. One of the earliest indicators, such as macro trend reversal in strong foundations, emerges in the form of sharp changes in the percentage of the total supply in profit. Interestingly, the trend is triggered by a relatively small increase in pricing.   

  • Confidence of New Investors

The most important addition among the best DeFi metrics in bear market points to confidence of new investors in the recovery trend. Observation of the spending patterns of new investors could help in showcasing the confidence of new investors in DeFi projects. One of the practical methods for evaluating the metric for confidence of new investors is the comparison between the values of unrealized profits in newly acquired and HODLed coins and the profit realized from spent coins. In simple words, the metric would evaluate the difference between cost basis of short-term holders that are spending and the ones that are holding.

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Conclusion 

The bear market in the DeFi sector has created an environment of uncertainty for investors. However, comprehensive research and careful selection of DeFi metrics in bear market could help in finding the ideal ways to navigate the DeFi market. It is important to look for the DeFi projects that have been gaining the attention of new investors, have a clear roadmap, and fulfill important deadlines.

In addition, you must also look at the metrics such as trading volume and on-chain transaction volume. On top of it, you can also utilize metrics such as social sentiment and market sentiment for DeFi projects in bear markets. Learn more about DeFi and find out the best practices for finding your way through a bear market scenario.

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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!

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