DeFi’s Backroom, Part 2

3. On-chain analysis

Developing this skill is very important, as it will allow you to keep track of wallets looking for high returns. It is undoubtedly quite profitable, although it is a fairly overwhelming process until you have a certain number of flight hours that can only be achieved with time, audacity and perseverance.

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We know that in blockchain each transaction is recorded and stored on the network, we know that if the network is public we can check this transaction to see the data that is hidden behind it, whatever the nature of this transaction. Believe me, there are many things we can see in a transaction, from token holdings in a wallet, who is and how they are buying/selling tokens, deposits in a liquidity pool, NFT mining, and much more.

For example, in the following image we see an example of the information that we can extract when we access to consult an Etherscan channel:

  1. The status of the transaction
  2. The block in which it has been mined
  3. The timestamp
  4. What action was executed on the transaction
  5. The wallet that executed this transaction
  6. The counterpart, where did he go?
  7. What was done in that transaction and the tokens involved
  8. Gas paid.
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It seems like a lot of information, but I assure you that by searching for opportunities it is very basic and has rather little input. For a transaction to be a tool, it must have a context and give you more interesting data, this is where the work of a DEFI professional begins, who must identify and recognize the wallets that do what he is looking for, that obtain the results that he pursues and ultimately smell like money because he knows who is behind that transaction. 

When you experience the virtues of knowing if a fund or a whale is behind the purchase of a token, when they do it, if they give up liquidity in a pool, in which pool, what they are selling and when they do it, you will not go back to looking for miracles on You Tube.

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4. Build a Strategy

Think, think, think, think and think is the only strategy you have to follow before acting when you have the same position as a fund or a shark. Observation comes to the forefront looking for catalysts or circumstances that you may not be aware of, even becoming a bit incredulous of the information you have in front of you, such as participants, capital flow, protocols, etc…

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Make sure before trading that the entry you have researched is for a purchase transaction and not a shipment transaction, since different decisions have to be made when a purchase or shipment is made between wallets of the same user or entity. Focusing on DeFI, if you detect some movement that makes you arouse interest (opportunity alarm) first of all, investigate the project, the token and the source of yield (if you can’t identify the source of yield, the yield is you;).

Therefore build your investment thesis and strategy based on the context that each analyzed transaction brings within, whether it is a hot contract, whether the contract receives an allocation of tokens by allotment in an initial round, whether it receives the token from a centralized exchange, whether it is purchased through a decentralized exchange, or whether it receives the token through the use of a bridge. 

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To understand where the token that is managing a contract is coming from, it is 100% recommended that you start tagging those addresses that are able to consistently perform well over time.

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