Now that the markets have quieted down after this week’s tumult, it’s time to get back to some quantitative and fundamental analysis. I spend my Friday’s summarizing the week’s events to my partners and researching new projects. An underutilized tool is on-chain data. The term ‘on-chain’ refers to transactions that occur on the base layer of the Bitcoin or Ethereum (or any) blockchain. Each transaction contains metadata around which wallets and smart contracts were involved, the amount of tokens/USD that moved, and when it occurred. Many conclusions can be derived from on-chain metrics and I’m sharing some information with the community that might be useful in your research.
First, I admittedly am not an on-chain analysis expert. My favorite on-chain analysts on Twitter are:
CryptoQuant - Excellent at tracking token flows between wallets and centralized exchanges
Willy Woo - Excellent on-chain Bitcoin metrics
Lex Moskovski - Excellent at distilling information pertinent for macro crypto and DeFi uses
Nick Chong - Excellent at highly detailed on-chain analytics pertaining to specific wallets and projects
One of my favorite, and highly under-appreciated, on-chain metrics resources is Dune Analytics. Dune Analytics is a database that can be queried and aggregated to create beautiful and readable charts to track a multitude of metrics. Most of the charts are created by users and shared with the community, for free. It’s incredibly valuable data and a source of crypto market alpha if you know where to look.
Here’s a practical example for an investment idea using @hagaetc’s DEX Dashboard on Dune Analytics.
0x Protocol (ZRX)
0x Protocol (ZRX) is a liquidity aggregator and API that is integrated with many different decentralized exchanges on Ethereum to help traders find the best prices. You’ve likely used 0x without knowing it, and the below graphic shows the 0x DeFi Ecosystem is vast!
Dune Analytics DEX Metrics Dashboard shows Uniswap is by far and away the largest volume decentralized exchange.
ZRX volume is also way ahead of Bancor and Synthetix, two projects that have higher market caps. In recent weeks, ZRX price has been lagging volume significantly. 0x has set consecutive weekly records for trading volume.
I created this chart on Dune to demonstrate 0x protocol’s increasing volume, which matches the increase seen on Uniswap and Sushiswap. 0x is #3 in terms of volume.
Uniswap does not yet have a fee capture mechanism for the $UNI token, while $ZRX does. Staked $ZRX earns a share of trading fees paid in $ETH. In addition, the 1 billion ZRX tokens will be fully vested in July and will have no further emissions. Any early investor sell pressure will abate and ZRX tokens will be staked to earn a share of trading fees, in ETH.
Comparing with Uniswap, the ZRX/UNI chart has bled for a few months with the Uni V3 release hype and Uniswap’s impressive volume. Uniswap’s volume is 5X 0x, but it’s fully diluted market cap is 27X! That seems a bit unbalanced. As Uniswap deploys on different layer 2s, volume will continue to increase, however 0x has the ability to aggregate liquidity for new chains as well.
ETH Ratio
For those of you who follow and know me, I love to use the ETH ratio as a metric and basis for trading in DeFi because ETH is the base trading asset for many projects on decentralized exchanges. Currently, the ZRX/ETH ratio near all time bottom and appears to be a good entry.
This is not investment advice, and I am not holding any ZRX positions. It will be interesting to watch whether this bullish thesis plays out in the coming weeks.