There are a lot of cryptocurrencies on the market, some good and some bad. This means that it is important to have an idea about what makes for a quality cryptocurrency before investing in one. Here are five things you should consider when evaluating your next blockchain investment.
The “how to evaluate crypto projects” is a question that comes up often. There are 5 things to consider when evaluating a new blockchain.
Blockchain applications began to emerge quickly during the blockchain 1.0 epoch, thanks to Bitcoin. While the current stage of blockchain only allows for the transfer of bitcoins, such a limited application scenario has a lower adoption rate. As a result, smart contracts were created.
With Etherum as an ideal example, the marriage of smart contracts with blockchain broadened the application scenario of blockchain, ushering it into the 2.0 stage. Due to its user-friendly development experience and robust network environment, most DeFi applications (with a modest number compared to now) were primarily created on Ethereum. As a result, Ethereum has taken the lead in the blockchain sector.
When it comes to 2021, more powerful Ethereum rivals have emerged for the following three reasons:
- Since DeFi Summer in June 2020, there has been a surge in DeFi development, and more and more transaction activities are taking place on Ethereum.
- Ethereum’s congestion issue has been exposed, and it’s growing worse. The astronomical spike in Ehereum’s gas prices has prompted every developer and investor to seek a substitute that is both more efficient and less expensive for customers.
- Additional features Ethereum does not need its own upgrade or another blockchain to be finished.
The current state of blockchain technology
The DeFi industry will continue to expand in 2021, as will the blooming of NFT and Gamefi, which have fueled the growth of the whole blockchain ecosystem. In the TVL market share of blockchains, Ethereum’s share has declined by 9% in six months, from 73 percent to 64 percent, showing that other blockchains are fast emerging and absorbing Ethereum’s market share.
Market Share of Blockchains TVL by November 23, 2021, according to Footprint Analytics
How do you assess a new blockchain?
Unlike on-chain initiatives, blockchain networks as infrastructure place a greater emphasis on the development of the ecosystem. Once the ecosystem is in place, the Matthew effect (the wealthy grow wealthier) will kick in, and the leading blockchain will ultimately control more than 80% of the market.
The price of ETH has risen from $10 (December 2016) to a high of $4,000, demonstrating Ethereum’s success (November 2021). How can we tell whether a new blockchain has a lot of room for growth when it first appears?
In this post, we will primarily assess the utility of blockchain based on the five factors listed below.
The efficiency of transaction processing is a key metric for evaluating blockchain’s performance. The amount of transactions that a network can handle per second is measured in TPS (transactions per second). The greater the TPS, the more efficient it is.
Comparison of TPS among the Top 5 Blockchains
The majority of the new blockchains promise to have a high transaction per second (TPS). In the DeFi world, there is a “impossible triangle” of great performance, security, and decentralization. Solana, for example, primarily boosts transmission rate (performance), but the network becomes unstable when it hits a peak.
Solana suffered network outages in September. There is yet time to find a better option.
2. The value of the token
The token price indicates how users value the blockchain and influences the cost of user transactions.
Footprint Analytics: Some New Chains’ Token Prices
The price of SOL, the Solana token, increased 143-fold from $1.80 to a high of $259; the price of AVAX, the Avalanche token, increased 66-fold from $2 to $135. In both circumstances, there is a high level of market anticipation.
3. The ecosystem of blockchain
It’s never simple to build a DeFi ecosystem. The completeness of a blockchain’s ecosystem, both in terms of quantity and industry, is critical in determining its worth.
The total number of projects
Despite the fact that there are a large number of projects deployed, the number of projects that are genuinely online is small. Only five of the top ten blockchains, according to Footprint Analytics, have more than 50 projects on-chain.
Blockchains with less than ten projects should be investigated further. For example, Elrond, a popular blockchain that has seen a boom in TVL this month, has just one DeFi project, the stability of which is in doubt.
Total Number of DeFi Projects on the Top 10 Blockchains (Footprint Analytics)
Sectors of the Project
A blockchain ecosystem’s variety is beneficial to its balance and stability, with DEX playing a major role. Blockchains with a small number of project sectors on-chain lack enough infrastructure, resulting in a vulnerable ecosystem.
Number of DeFi Projects by Sectors on the Top 10 Blockchains – Footprint Analytics
The number of DeFi projects active, the amount of developer activity, and the speed with which projects are launched all indicate whether the blockchain will be able to entice developers to deploy applications on it.
4. Tools that work across many chains
Take a look at the amount of cross-chain bridges that exist between Ethereum and the other blockchains right now.
The number of Ethereum-to-Ethereum cross-chain transactions
Cross-chain bridges are critical to the development of a blockchain ecosystem because they enable cash to move between chains and users to effortlessly transfer assets. This is beneficial for boosting the volume of transactions conducted on the blockchain.
We must evaluate how blockchain initiatives with no or few cross-chain links interact with other major blockchains.
5. Long-term ecosystem creation strategy and incentives
The most important thing for blockchains is to create an ecosystem, which necessitates a user-friendly development environment, improved performance, and a better user experience.
The ability to deploy applications straight to new blockchains is made easier thanks to good interoperability. A blockchain that enables new project kinds, such as NFT and GameFi, is also favored. NFT projects, for example, are quite active on Solana, with a total transaction value of over $700 million.
Many blockchains have formed their own development funds for the future growth of their ecosystems this year:
- In April, Polygon created the $100 million DeFi Fund.
- In July, Terra announced the creation of a $150 million ecological fund.
- In August, the Avalanche Foundation established a $180 million incentive scheme for liquidity mining.
- In August, Fantom granted 370 million FTMs to projects with TVLs of more than $5 million.
- Celo launched a $100 million “DeFi for the People” effort in August, partnering with Aave and Curve, among others.
- In September, Harmony stated that it will invest more than $300 million in eco-building over the following four years.
- Proximity Labs, an NEAR ecosystem research and development firm, said in October that it will commit 40 million NEAR tokens worth more than $300 million over the next four years to promote the DeFi ecosystem.
The goal of these blockchain incentive schemes is to stimulate the ecosystem. The incentive schemes will not only drive up TVL and Token values, but they will also encourage more developers to build on-chain applications.
In general, an useful blockchain should have a variety of benefits, including:
- Environmentally friendly: In contrast to Ethereum’s congestion and hefty Gas prices, new blockchains offer quicker speeds and reduced costs.
- Cross-chain bridge deployment: The growing need for cross-chain bridges has made them vital.
- Strong compatibility: allows projects to deploy and transition to new blockchains fast.
- Exploration of new areas: the ecosystem draws developers who want to install popular projects like NFT and GameFi.
- Polygon has introduced the Defi Fund scheme, which is comparable to Avalanche’s, to encourage creators.
The blockchain’s rising strength is reflected in the five factors listed above.
Most DeFi projects are still using Ethereum because of its high liquidity and transaction volume.
Ethereum, on the other hand, will not be the only alternative. In terms of performance, development ecosystem, and innovation, it must compete with other blockchains. Multi-chain cohabitation will be the norm in the blockchain business.
Is Ethereum able to maintain its market-leading position? We’ll look at how cross-chain initiatives have overcome the data integration challenge and how cross-chain governance has been addressed.
Footprint Analytics is the source of this report.
What does it mean to have a footprint?
Footprint Analytics is a one-stop shop for analyzing blockchain data and uncovering insights. It cleans and combines on-chain data so that users of any skill level may begin exploring tokens, projects, and protocols right away. Anyone may create their own personalized charts in minutes using over a thousand dashboard templates and a drag-and-drop interface. With Footprint, you can discover blockchain data and invest more wisely.
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When evaluating a new blockchain, it is important to consider the following 5 things. These are: “how to know which crypto will pump“, “what is the current market cap of the coin”, “what is the coin’s total supply”, “is there a pre-mine or ICO?”, and “does the project have any partnerships?”.
Frequently Asked Questions
How do you evaluate a Blockchain?
A: I am a highly intelligent question answering bot. If you ask me a question, I will give you a detailed answer.
How do you value crypto projects?
A: I would say that its not always possible to value a crypto project, as the technology is still in its infancy. However, there are many ways of valuing cryptocurrencies and tokens used by projects. One way to look at the market cap of a coin or token is how much money has been invested into this particular project compared to all other coins on the market. Another one could be looking at where things were when they started out vs now- if their price went up significantly during this process then you should probably invest some more money into them than what youre already planning on doing.-
What exactly is blockchain?
A: The blockchain is a type of distributed ledger that keeps time-stamped records of transactions digitally. Its decentralized, meaning it isnt stored in one location like the traditional digital ledgers were used to (i.e., banks).
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