Key Insights:
- Altcoin analysis on-chain involves monitoring actual usage based on wallet, transaction, and usage patterns.
- Holder growth and TVL trends are clear indicators of adoption beyond short-term market price actions.
- The DEX and CEX volume data show the development of liquidity and demand in various markets.
On-chain altcoin analysis is important for readers to understand what is happening on the blockchain, other than what is reflected on the price chart. It is mainly based on wallets, transactions, holders, and trade data to give readers an idea of the usage of the altcoin.
What On-Chain Data Means in Crypto
To analyze and evaluate projects, the on-chain altcoin analysis utilizes publicly available records from the blockchain. All activities, such as token transfers, wallet balances, and smart contracts, are recorded on the blockchain; therefore, all the information from the on-chain analysis is available for anyone to verify.
A wallet’s activity can be used to identify who owns tokens, how they are moving around the world, and the use of the tokens.
Transaction records give an indication of how often a token is being transacted, while holder records indicate how the supply of a token is distributed among all wallet holders. Volume records indicate the amount of dollar value transacted on the blockchain.
All these data points help distinguish between legitimate usage of a token and the hype surrounding it. As a result, those tokens that consistently demonstrate activity on the blockchain have a greater chance of demonstrating stable fundamentals than those that are driven primarily by speculation.
Active Addresses and Network Activity
The number of active addresses indicates how many different wallets transact with a particular token over a specific time frame, while an increase in the number of active addresses indicates greater demand.
Conversely, if the number of active addresses decreases, the demand for the asset may decrease.
Transaction activity is indicative of how often tokens are being sent and how often they are being utilized in smart contracts.
An increase in transaction volume indicates that there may be strong demand for an asset, or there is actual utility associated with the asset, while a decrease may indicate that there are limited use cases for the asset.
Several analysts use Twitter and/or other social networking sites to share charts that plot the growth of active addresses for various popular protocols.
This information can be used by market participants to determine the direction of user engagement, whether it is growing or slowing.
Token Holders and Supply Distribution
Information about token holders reflects the number of wallets that have an altcoin. With a wide base of token holders, it typically reduces the risk of manipulation.
If many tokens are held by a few wallets, then volatility can be created due to their ability to drive the price of the token up and down dramatically by transferring or selling tokens.
In performing blockchain analysis of altcoins, checking the top wallets using blockchain explorers is a common part of this process. Large wallets (commonly known as whales) can significantly affect the marketplace when they sell or transfer tokens.
In addition, the tracking of holder growth indicates whether new users are joining an ecosystem. If the number of holders is on the rise, then this can indicate a growing amount of interest and adoption of the community.
Total Value Locked and Protocol Usage
The amount of money that has been locked up in a DeFi protocol is called Total Value Locked (TVL). This is one way of measuring how much people are trusting the DeFi protocols and how much they are used by people.
When the TVL is going up, that means there are more people putting money into the protocol, and when the TVL goes down, that usually means people have pulled their money out of the protocol and probably don’t trust it anymore.
TVL trends can be used by analysts to compare protocols that are in the same sector.
Altcoin analysis on-chain uses TVL as a way to measure how active a protocol is. All projects that have had stable or rising TVL tend to have the highest levels of activity over time.
DEX and CEX Trading Volume
DEX trading volume reflects the total amount of trades on all decentralized exchanges. High DEX trading volume is usually an indicator of community-driven demand and may result from sudden spikes in activity due to new product launches or short-term speculative trading.
CEX trading volume indicates the volume of trading on centralized exchanges, where high CEX trading volume typically represents a greater degree of participation in the broader market and liquidity.
Comparison between DEX and CEX trade volumes allows users to see where most of the trading occurs. Conversely, DEX and CEX thin liquidity on either side may result in greater price volatility when large trades are executed in either venue.
Token Unlocks and Emission Schedules
Tokens that were previously locked up can be released back into circulation at once with a token unlocking.
This can happen in large amounts and also has the potential to impact trading activity due to the increase in available supply, which creates additional selling pressures if the token holder chooses to sell.
The emission schedules of new tokens indicate how many new tokens will be made available over time. Analysts will look at inflation rates to determine how much new supply will potentially be added over time.
One area often included in on-chain analysis of altcoins is determining the vesting schedules of team members and investors. When determining whether or not to invest in a token, market participants will often review the token’s public supply schedule(s).
Tools for On-Chain Altcoin Research
Etherscan, BscScan, and Solscan are examples of blockchain explorers that furnish transactional, wallet, and holder information, allowing users to review the raw activity that occurs on a blockchain.
Dexscreener affords real-time charts, liquidity information, and decentralized trade volume in order to monitor new tokens and liquidity pools.
Dune Analytics features dashboards built by analysts that depict protocol metrics as well as user trends. DefiLlama combines total value locked (TVL), token unlocks, and protocol rankings across all chains, aiding structured on-chain altcoin analysis for both novice and experienced users.
A Simple Framework to Analyze Altcoins
Analysis of altcoins typically starts with determining what the project is and reviewing its documentation. Analysts look for signs that the project has an operational product and provides regular public updates.
Next, analysts will track activity metrics, active wallets, and the number of transactions associated with these projects. Continued growth typically leads to a conclusion of organic adoption instead of a result of hype-induced short-term increases.
Analysts evaluate the distribution of tokens by looking at the number of holders. Analysts analyze whether a few wallets control the majority of the tokens. Liquidity and trading volume are evaluated on DEXs and CEXs.
Future supply changes are evaluated by looking at supply schedules, token unlocks, and emissions. In addition, metrics are compared against similar projects to assess how the token’s performance is relative to its peer group.
Final Thoughts
Using on-chain data to analyze altcoins allows for an organized method of research into blockchain technologies via publicly available information.
Impairing the use of wallets, transaction histories, distribution of token holders, total value locked (TVL) in liquidity providers, as well as volume metrics, allows for better insight into actual commerce performed on the network.
This method utilizes blockchain data to support research and provides a method of evaluative analysis of alternative crypto-assets using quantitative on-chain indicators, not only pricing movements.
