Where Competitor Analysis Tools Create Clarity in DeFi Spaces

Decentralized finance (DeFi) protocols may be difficult to analyze solely from on-chain data; in fact, some apparent signals can be misleading. In these fast-moving markets, the support of a competitor analysis tool can generate insights from gathered data. With these verifiable signals, it is possible to navigate DeFi protocols within a context of clarity.

How a Competitor Analysis Tool Identifies Real Usage

In an on-chain environment like DeFi, it is important for businesses to understand the distinctions between real usage and noise. These distinctions are backed by evidence and definitions in traditional online spaces, but have yet to be solidified here. Still, there are a few usage patterns that point to real user engagement, applicable to both one’s own operations and those of the competition.

User activity tends to spike when incentives are introduced; when competitors share a space, incentives from one business could draw attention away from another. In a space challenged by sybil behavior, or the creation of multiple false accounts, the distinct behavior patterns of real users are important to note. Legitimate usage can, of course, be artificially inflated, whether by the company or a malicious actor. Generally, organizations can look to the following signals as signs of real usage:

• Activity: A business can account for unique active addresses and transactions from those accounts, as well as how many of those are repeat users. Each of these points contributes to retention over time; a well-established account is more likely to be genuine, though there is no guarantee.
• Liquidity: Within a space like DeFi, organizations can gather data on the depth and concentration of a user’s interests. It may be an expected pattern in a particular market for a user to exit quickly during volatility, or it may be that a quick exit identifies fabricated usage.
• Throughput: In economic terms, the fees generated by user transactions versus emissions and incentives identify the sustainability of an account’s actions. If some or all of a user’s actions are sustainable, or the opposite is true, this may indicate real or false usage.

Gathering this kind of data for an individual DeFi organization is undoubtedly valuable, but it is unlikely to provide a complete picture. Competitor analysis processes can help businesses to identify outlier activity, how other organizations respond to abnormal user behavior, and solidify the norm or real user engagement. After all, economic behavior could vary wildly from one service to the next.

DeFi Protocol Analytics With a Competitor Analysis Tool

Within the DeFi space, a robust protocol for each fee serves to define a business’s durability. Fee protocols for swaps, borrowing, liquidation, and other revenue generation must be transparent and high-quality, or it could place an operation at risk. Generally, gross fees should contribute to a net protocol revenue, which is then distributed among limited partners, treasury, and token holders.

Achieving a careful balance is one of the most challenging aspects of DeFi. If fees rise while liquidity becomes more concentrated, protocols may be more fragile. On the other hand, if revenue is dominated by short-lived incentives, traction may not last after emissions fall. Finding the right dynamic can be difficult, but it could be made easier with the support of competitor analysis.

For example, a competitor analysis process could identify the systems employed by other market leaders; with this data, an organization can implement methodologies that work and discard elements that introduce fragility or short-term focus. Indeed, a business may look to competitors and identify aspects of its own methodologies that fall short of the most effective approach in the space.

Using a Competitor Analysis Tool for a Repeatable Evaluation Workflow

To support an effective DeFi protocol, there are a few steps one can take to make the process flow more smoothly. These include:

• Identifying a Core Product: Whether a decentralized exchange (DEX), a lending platform, derivatives, or a real-world asset (RWA) platform, a business must identify its core product or offering before getting started. At the same time, it is important to determine that product’s primary risk.
• Check Adoption Metrics: Before focusing on price narratives, a business must understand how activity and retention drive adoption. This dynamic drives long-term growth.
• Liquidity Quality and Revenue Sustainability: Depth, concentration, and stress behavior each determine the quality of liquidity within DeFi. At the same time, the sustainability of revenue generation is defined by dynamics between fees and incentives, as well as net and gross income.

Navigating DeFi With a Competitor Analysis Tool

Establishing DeFi protocols relies on data-driven insights, but relying solely on insights from one’s own operations poses a challenge. To this end, competitor analysis solutions aim to help businesses refine their approach by considering what works for other enterprises. From user activity to protocol definition, this kind of analysis could positively impact future growth.