DeFi, DEXs and network activity
Lesson 9 of 12 in the course “Analytics”. Free, with animations and a quiz.
DeFi: money without a middleman
DeFi (decentralized finance) means blockchain apps with no bank or exchange in the middle: swaps on DEXs, lending, yield. The money in them is visible on-chain, and there are tools that count it all. Each question has its own tool: how much money (DefiLlama), what is trading (DexScreener, DEXTools), who actually uses it (DappRadar, LayerHub). For your own questions there is Dune.
Liquidity pools and LP tokens
On a DEX there is no seller on the other side. There is a liquidity pool: a pot of two coins, for example ETH and USDC (a stablecoin, 1 USDC ≈ $1). You put one coin in and a smart contract (a program on the blockchain) gives you the other. Liquidity is how much money sits in the pool. Whoever adds coins to the pool gets LP tokens, a receipt for their share. You will need this for the red flags.
DefiLlama: TVL and more
TVL (total value locked) is how many dollars sit in a protocol, meaning a DeFi app. On DefiLlama look at TVL by chain and protocol, yields and stablecoins: how many there are and on which chains. Example: TVL grew from $100M to $150M. Sounds like money flowing in. But the picture shows two possible reasons: new tokens arrived, or the old ones simply got more expensive.
DexScreener and DEXTools
DexScreener shows DEX pairs: price, volume, liquidity, new pairs. DEXTools gives charts, pools and token tracking. Example card: the TOKEN/WETH pair (WETH is ETH in token form), 6 hours old. Price $0.02, 24h volume $1.2M, liquidity $80K. Math: 1,200,000 / 80,000 = 15. Volume is 15 times the liquidity: it is hot, and the price is easy to push around.
Red flags of a new pair
Flag 1, thin liquidity: with $5K in the pool even a small sale knocks the price down. Flag 2, LP tokens not locked: the creator can pull the money out of the pool and the token becomes almost unsellable. Flag 3, concentration: if the top 10 wallets hold 70% of tokens, a couple of their sales decide the price. Rule of thumb: one flag is a reason for caution, three are a reason to walk away.
Dune, DappRadar, LayerHub
Dune: community dashboards and SQL queries. SQL is a language for asking a database questions, here the blockchain’s data. Start with a ready-made dashboard for the project: users, volume, fees. DappRadar: which dapps (apps on a blockchain) people actually use and how many active wallets they have. LayerHub: a web3 wallet’s activity, meaning how often and where it makes transactions.
The whole market: CryptoRank
Three numbers are enough to see the whole market; CryptoRank, for example, calculates them. Market cap: price × coins in circulation, added up across the market. BTC dominance: bitcoin's share of that total. Altseason index (0–100): what share of big altcoins is beating BTC. Above 75: most alts are stronger than BTC. Below 25: BTC is stronger. Example: index at 30 and dominance rising means no altseason yet.
Common mistakes
Mistake 1: trusting TVL growth. It can rise purely because of price. Example: a protocol holds 10M tokens at $10, so 10M × $10 = $100M. Price goes to $15 with the same number of tokens: TVL is $150M, yet zero new money came in. So compare TVL with token prices. Mistake 2: trusting a new pair’s volume without checking liquidity, LP tokens and holders.
Check yourself
- What actually happened?
Correct answer: A price effect: no new money came in. TVL = number of tokens × price. The number is the same, only the price rose, so the dollar TVL grows without a single new deposit. Compare TVL with token prices before you believe in an "inflow". - Your conclusion?
Correct answer: Three red flags, very high risk. Shallow liquidity means any sale crashes the price. Unlocked LP lets the creator pull money out of the pool. 80% in ten wallets means a couple of their sells decide the price. Three flags at once is a reason to walk past. - What does it mean?
Correct answer: Most big alts are beating BTC. Above 75: alts are broadly stronger than BTC; below 25: BTC is stronger. 82 means money is flowing actively into altcoins right now. It is a snapshot of what already happened, not a forecast: altseasons often end abruptly. - Where do you go?
Correct answer: Dune: your own SQL query on blockchain data. Dune stores blockchain data as tables. First look for a community dashboard, and if there is none, write your own SQL query, for example counting unique addresses per day. That is how you check a project's numbers instead of taking its word for it.