This article takes a look into on-chain analytics, its use cases, the big players, and DexGuru's role in the space.
DexGuru at its core is a tool for analytics so that traders can have the maximum amount of information before entering into a position. For this reason, we figured why not dive into analytics as there is so much to learn. Once again, this article is a followup from a webinar that you can view below.
On-Chain vs Off-Chain Data
There are two data types in the crypto world: on-chain data and off-chain data.
Off-chain transactions are not (or at least not entirely) executed and recorded on the blockchain. Centralized exchanges like Binance or Coinbase sometimes provide data publicly or privately, all being off-chain as it is not visible on a public ledger. If you were to analyze the blockchain solely, deposit and withdrawal transactions are verifiable, and the remainder of the data needs to be trusted. As an analyst, relying on data that may be faulty is not the best practice. Thus any distortion in provided data can lead us to wrong investing decisions.
On the other hand, on-chain, every transaction is recorded on the blockchain and publicly available. Any buy, sell, staked tokens or smart contract activity can be read and analyzed, and we can be sure that it’s valid data. All of this valuable information is stored in a raw format, leading us to the main challenge in on-chain analytics - analyzing the information field at our disposal.
On-chain data can be broadly classified into three distinct categories:
- Transaction data (e.g. sending and receiving address, transferred amount, remaining value for a certain address)
- Block data (e.g. timestamps, miner fees, rewards)
- Smart contract code (i.e. coded execution logic on a Blockchain)
It’s great to have access to all this data, but what can it be used for? We’ve specified five effective use cases for on-chain analytics.
- Cryptocurrency Investment Analysis
As we know, cryptocurrencies are the base monetary assets of their blockchains and can make for great investments. Buying Ether or Bitcoin years ago could have resulted in life-changing gains, but how could you possibly analyze the network? One way is using on-chain analytics. There are many factors to consider, including miners, stakers, block values and economic incentives, which can be challenging to understand without looking at on-chain.
For example, the Bitcoin network is secured by miners, and in return, miners receive block rewards and transaction fees to provide security to the network. A critical metric for Bitcoin blockchain analytics is the changes in miner incentives. A change in miner incentives could trigger a change in your investment thesis, making on-chain data extremely helpful.
- Token Performance Monitoring
Unlike cryptocurrencies which are native assets for blockchains, tokens are created using scripting or smart contracts. Tokens accrue value based on the protocol’s design with economic systems inside and outside the blockchain. Understanding the protocol design and usage is critical when investing in these tokens. Blockchain token analytics helps you track the usage of the protocols and whereabouts of the tokens. Metrics like active addresses, total transactions, and the on-chain volume can help you decide whether or not to enter into an investment.
Decentralized finance (DeFi) is the ecosystem of blockchain-native financial instruments that includes lending, staking, liquidity mining and more. Smart contract protocols enable these financial instruments. When analyzing the health of DeFi protocols, it’s essential to review the metrics related to specific protocol design.
For example, Uniswap, a decentralized exchange (DEX) protocol, can be analyzed using metrics like total exchange volume and average transaction size.
Another example is Compound, a lending protocol. Metrics, like total borrowers, lenders, and volume, can help you understand the growth of the protocols and evaluate your investment decisions.
- Macro Trends
Blockchain analytics can also help you understand macro trends in the crypto industry. By analyzing the metrics like active addresses, transaction volume, and asset distribution, you can follow the overall health and growth of the crypto ecosystem.
- Blockchain Research
Blockchain technology is still in the nascent stage and an exciting area of research from both technical and economic aspects. Blockchain analytics provide valuable insights into crypto networks and help researchers understand them better.
- Market Sentiment
Also known as crypto investor sentiment, crypto market sentiment can be described as investors’ overall attitude regarding the cryptocurrency market. This psychology of market players can reflect on the general price trend. Market sentiment drives the supply and demand, resulting in the price movement in the cryptocurrency market.
Market sentiment utilizes investors’ moods and feelings toward an asset to speculate on the price movements of cryptocurrencies. The market sentiment is bullish when prices are rising and bearish when the market prices are dropping. Investors combine market sentiment indicators with other analysis methods to polish their entry and exit points.
Technical analysts and day traders rely on market sentiment, which sways their technical indicators due to short-term price fluctuations resulting from crypto market sentiment.
Builders in the Field of Analytics
The rise of on-chain data analytics projects started in 2020, along with the well-known “DeFi Summer.” Since then, the market has been developing rapidly - as of April 2022, at least two companies (Nansen and Dune) have more than a $1B valuation.
The market can be separated into three major domains:
On-chain Data Analytics Platforms: These platforms allow users to leverage millions of on-chain data points and create dedicated dashboards and graphs. Such products are oriented toward advanced and professional users since they may require coding and programming skills to create dashboards but provide almost unlimited capabilities in data analysis.
Charting for Permissionless Markets: These platforms provide various pre-defined sets of charts on trading pairs and simple market analytics. Projects are aimed at casual traders who are looking for basic market information.
API Data Providers: These are dedicated solutions for developers and professional/institutional traders. Projects offer API access to market and on-chain data points for use in automated platforms and B2B solutions. There is no graphic interface for end-user making coding skills a must.
All three market sections are crucial to the growth and development of on-chain data. The two unicorns mentioned are both on-chain data analytics platforms with a heavy focus on advanced and professional users. They are usually the first to occupy any market - crypto included. Let’s look a bit more into these companies.
Dune Analytics is one of the leading data analytics platforms and enables users to create and share analysis of Ethereum data. Smart contract data is converted to a human-readable format that can be queried with SQL.
It offers many tools to query, extract, and visualize vast amounts of data from the blockchain.
Dune Analytics provides the ability to create various dashboards with SQL queries. The service can be used for the project and token analysis.
Dune Analytics has hit a valuation of $1 billion with its recent Series B round.
Another unicorn company in analytics is Nansen.
Nansen is an analytics platform for Ethereum, which combines on-chain data with a massive and constantly growing database containing millions of wallet labels. Crypto investors use Nansen to discover opportunities, perform due diligence and defend their portfolios with our real-time dashboards and alerts.
Of course, our favorite analytics platform of them all is DexGuru. DexGuru tackles a different market segment than Nansen and Dune, focusing on charting for permissionless markets. These markets are occupied by retail and casual traders and will fill out more as the industry progresses, leaving DexGuru on a growth path.
- A simple & easy to use interface to interact, browse & filter Token TX data
- Data support for 8 prominent chains along with trading capabilities on 7 of them
- Token Profile to insights into token activity & holdings distribution
- Trader Profile to deep dive and analyze wallet balances & activities
- Multi-Charting functionality
Also the platform provides information on market and liquidity activity, price alerts and public API. You can use our API to find out information about tokens’ prices, trading pairs, traders, AMMs, on-chain transactions, and more. Check our Gitbook with developers’ documentation.