How to Compare DeFi Protocols – DL News

Whether you’re a crypto trader looking for an edge, a researcher looking at the shiniest new DeFi primitives, or even a journalist looking for a scoop, to easily know DeFi protocols compare, is a must-have in any analyst’s arsenal. While different people may have different motivations for analyzing protocols, the need for an easy-to-navigate way to compare them remains constant. This is where data aggregators like DefiLlama are essential. This article will explain how to use DefiLlama for all your protocol comparison needs.

Uniswap vs Curve Finance: A Tale of Two DEXs

Most DeFi investors and traders know to always keep a certain adage in mind: DYOR, or “Do your own research.” Any researcher worth their salt usually starts with a question – a hypothesis they want to test.

A possible research question could be something like: “How did Uniswap perform against Curve after the 2022 FTX crash?” Uniswap and Curve Finance are quite different in how they operate, but as decentralized exchanges they are both fighting for the same market share across metrics such as total value closed (TVL) and trading volume. Answering this question can therefore give us better insight into how these protocols are used and their place in DeFi.

We will use this question as an example to help illustrate how to use DefiLlama to compare DeFi protocols.

This research question has several components:

First: “How did Uniswap do?” This poses a number of problems. What measure defines “tariff?” Could this be a change in TVL, or perhaps a change in trading volumes on the protocol? The answer may require a combination of several criteria. “After the 2022 FTX Crash.” This phrase deals with an event in time – the 2022 FTX crash – so a researcher will probably want to draw charts to see how their chosen statistics behaved before, during and after the event.

With any research question, there are usually at least two parts to consider:

The object studied (the independent variable). This is the “FTX crash.” The thing changed by the object (the dependent variable). It could be “TVL in Uniswap and Curve”.

The role of metrics in protocol research

Users can track many different metrics on DefiLlama that can help answer research questions like those about Uniswap and Curve. Here are some of the most useful:

Total Value Locked (TVL) is a metric that tracks how much crypto is locked up in a DeFi protocol’s smart contracts. Tracking TVL can be complicated by things like strike, double counting and native driving licences. Read our previous article on calculating TVL for more information.

Market capitalization, or market cap, is a measure of the total market value of a protocol’s native token. It is calculated by multiplying the amount of a protocol’s token in circulation by its price. For example, if Curve has 1,000,000 tokens in circulation at a price of $5 per token, it will have a market cap of $5,000,000.

Fully diluted valuation (FDV) is similar to market capitalization, but takes into account tokens that are not yet in circulation. This includes tokens that have yet to be distributed, such as reserved strike rewards or locked-in tokens purchased by institutional investors.

Liquidity represents the availability of funds, or the amount of tokens locked up to enable trading. The more liquidity a token has, the less a trade will affect its price.

Other popular metrics include signing price, fees earned, annual revenue, assets in play, assets loaned, returns, funding increases, and more. For certain protocols, DefiLlama includes data on governance proposals, major market events and token unlock schedules.

How to compare protocols on DefiLlama

The fastest way to assess a protocol is to find it right on the DefiLlama home page. Scroll down to see a list of protocols ordered by TVL. The criteria by which the protocols are ranked can be changed by clicking the top of any of the columns. To see more about an individual protocol, click on its name.

Within an individual protocol’s page, several of the previously mentioned metrics become available. TVL appears prominently in the upper left corner, and below that are several metrics that vary depending on the protocol. Generally, the page will at least display TVL, market cap and token price. DefiLlama developers add other metrics based on the information contributors provide them.

Click any of the metrics at the top to add them to the chart. Note that metrics like TVL can be viewed either in USD or the native asset of the blockchain the protocol resides on. Changing it can affect the story you see.

If you see a significant decline in USD value, but the native asset remains relatively stable, this provides a clue. This stability indicates that the protocol has not really suffered a “loss in TVL”. Instead, it was simply influenced by broader market dynamics.

Conversely, if the native asset shows a significant decline while the USD value remains consistent, it indicates that the protocol may be facing inherent challenges or issues separate from general market trends.

This reverse scenario highlights the importance of evaluating both metrics to obtain a comprehensive view of a protocol’s health.

Another feature that appears on the charts of some protocols is a visual marker for major market events.

Scroll down from the chart to see a series of tabs with more information, including links to relevant news posts from DL News. As with the metrics section above, the amount of data found here will depend on the protocol.

DefiLlama has also added a “Comparison” section to the site, allowing users to select multiple protocols at once and plot their respective TVL figures on a single graph. At this time, TVL is the only metric that can be displayed in this way.

Displaying Curve (orange) and all versions of Uniswap (pink) simultaneously, we can see that Curve was hit much harder around the FTX crash of 2022, and even more so during the Terra/Luna crash earlier in the year. This is just one example of how to develop a research question and tackle it with DefiLlama. As DefiLlama’s comparison function improves, it will become easier than ever to draw research conclusions from multiple protocols. Now sit down and use the power of comparison!

Next steps

Choose two protocols from the same DeFi sector, and compare their TVLs on DefiLlama. Learn about DeFi trading volumes and how to track them.