Deep Dive Into Decentralised Finance: Valuing DeFi Blockchains


Decentralized finance (DeFi) is a system that allows financial products to be displayed on a public blockchain network that is not regulated by a central bank or intermediary. DeFi systems, most of which are built on the Ethereum blockchain, aim to provide an autonomous and decentralized alternative to financial services that are otherwise regulated by banks and national or international administrations. If you are serious about crypto investing, you must have a deep understanding of Decentralized Finance (DeFi). Simply put, DeFi is an umbrella term for financial applications powered by public blockchains.

The mindmap (pictured above) shows the various aspects of DeFi. In the next few editions, I will walk you through DeFi Deep Dive and discuss the following issues:

  1. DeFi Blockchain Evaluation
  2. Top 5 DeFi Assets
  3. Top 5 Decentralized Exchanges
  4. Top 5 Lending Platforms

So, let’s start with the first: evaluating the DeFi blockchain.

basic metrics

Total Value Locked (TVL) is the total amount of assets “locked” or secured in the DeFi blockchain or protocol.

Circulating supply is the number of coins/tokens in the hands of the public.

Market capitalization (Mcap) is calculated as current price x circulating supply.

The mCap/TVL ratio (MTR) is calculated by dividing the mCap by the TVL.

Based on my research, I consider 3 to be the ideal MTR for a public blockchain. If the MTR of a blockchain is above 3, it is overvalued and if it is below 3, it is undervalued.

The current indicators of the top 5 DeFi blockchains are:

blockchain tv lines mtr value
Ethereum $169 billion 2.88 not evaluated properly
Binance $18.57 billion 5.37 more valuable
solana $13.46 billion 4.44 more valuable
Avalanche $12.46 billion 1.99 not evaluated properly
Earth $9.52 billion 1.69 not evaluated properly

Source: daphylama

DeFi Blockchain Evaluation

Phase 1: Multiply the blockchain’s TVL by 3. This is the ideal market capitalization of blockchain.

Phase 2: Divide the market capitalization by the circulating supply of the blockchain’s native token. This is the ideal price.

Let’s take an example.

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

The ideal market capitalization of Ethereum would be $169 x 3 = $507 billion (approximately Rs 38,06,306 crore).

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

The ideal price of ETH would be 507 billion / 118,499,066 = $4278.5 (approximately Rs.3.2 lakh).

At today’s price of $4,072 (approximately Rs 3 lakh), ETH is slightly undervalued.

what next?

Now that you understand the basics, let’s calculate ideal prices for the native tokens of Binance (BNB), Solana (SOL), Avalanche (AVAX) and Terra (LUNA).

This is the first in a series of articles exploring DeFi, with more to come next week.

Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. you can follow him on linkedin,

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