I. WHAT IS ON-CHAIN DATA?
On-chain data refers to data stored on the blockchain, which can be understood as a series of blocks containing data that are linked together.
There are two main types of on-chain data:
Transaction data: This includes the amount of tokens transferred between wallets and the number of tokens held by wallets.
Block data: This includes verification time, gas fee, and rewards for miners and validators.
With the introduction of Smart Contracts, we can also see data interactions between wallets and smart contracts (e.g. trading on Dex exchanges, decentralized borrowing, minting NFTs, etc.).
II. WHY IS ON-CHAIN DATA ANALYSIS IMPORTANT?
On-chain data is tamper-proof, making it the most accurate and objective source of information about market trends. On-chain data also helps us to specifically track the behavior of market participants. This is especially important when tracking the activities of "whales" - those who own a lot of financial resources and information to manipulate the market. Therefore, tracking On-chain whales and taking reasonable actions may help us become the "few" winners in the market. In addition, data analysis can help us anticipate situations and make reasonable investment decisions.
Some notes on analyzing On-chain data:
Need knowledge and experience: On-chain analysis is quite in-depth and requires users to have fundamental knowledge and multidimensional perspectives to accurately evaluate and predict the collected information.
Combine with other analysis methods: On-chain analysis should be combined with other methods to gain a complete understanding of the market.
Cross-reference multiple sources of information: Currently, there are many tools that provide On-chain data, and there will be some tools that are not accurate. Therefore, it is necessary to compare and cross-check information from multiple sources to get the most accurate evaluation.
Use data from the project's website with caution: When analyzing a new chain project, there is very little data from third parties, mainly from the project itself. Therefore, sometimes the numbers that the project provides are NOT entirely accurate (due to typical reasons like Marketing), so people should also check those numbers on the Blockchain Explorer of various parties.
Regularly update: As market behaviors change constantly, information also needs to be updated regularly to act quickly.
Focus on behavior analysis: On-chain data is not something miraculous. Anyone can understand it with some time and effort. Therefore, the most important thing is still to analyze the behavior of whales from that data to derive insights.
On-chain indicators to pay attention to:
Total Value Locked (TVL): This is the number of assets being staked in a DeFi protocol. A high TVL volume in the network indicates that the project is popular among investors and has potential for future development.
Information on dev team, miner, investor wallets: Most of this information is public, so you can know the development team and whether investors are accumulating or dumping tokens. This information can help you decide whether or not to invest in the project. For coins that are mined like BTC, it is important to pay attention to the Miner's wallet because their buying/selling behavior can significantly impact the market.
Amount of tokens deposited/withdrawn on exchanges: When a token is continually pushed onto CEX exchanges, there may be a correction or a sell-off. Conversely, if the token is withdrawn a lot from the exchange to personal wallets, it is a positive signal.
Amount of stablecoin deposited/withdrawn: When stablecoins show signs of being minted and deposited on exchanges, it shows positive sentiment in the market and many investors are willing to buy. Conversely, if stablecoins are burned and withdrawn continuously, it shows that investor sentiment is negative.
Number of active wallet addresses: If the number of wallet addresses increases, it is a sign that many new investors are joining the market, and cryptocurrencies are being paid more attention to. Similarly, if a project has many wallet addresses storing its tokens, it shows positive signs. (Note that you should also consider the duration of holding those tokens in the wallet, because the longer the number of wallets holding those coins, the better). Conversely, if the number of active wallet addresses decreases sharply, the price may trend downward.
Amount of coins held by holders: On-chain analysis can check the period of time that an address has not transferred cryptocurrencies and the amount of cryptocurrency that investors hold. If the number of coins that investors hold increases, it may mean that the supply of that cryptocurrency on the market will decrease and will stimulate a price increase if demand is unchanged.
Token allocation level: This will tell you who mostly owns the coin/token. For example, if an asset has a few addresses holding a large percentage of the total tokens, it shows that it is easy to manipulate the price. Therefore, analyzing the ownership level of large token holders is also very important.
Track whale wallets, Smart money: Based on On-chain data, you can track wallets holding a large amount of assets (whales). See if they are selling or accumulating any coins, based on which you can make investment decisions for yourself.
III. SOME RELIABLE ON-CHAIN ANALYSIS TOOLS:
For those new to the market, I recommend paying attention to the following tools:
1/ Defillama:
This is the tool I recommend most for newbies to research. Defillama focuses on TVL, or the value of tokens locked into the protocol. An increase in TVL indicates that the project is receiving attention from the community and vice versa. Additionally, Defillma provides some basic data, such as the amount deposited/withdrawn from CEX exchanges.
2/ Token Terminal:
This website focuses on a project's basic financial metrics, with the most prominent being Revenue (the project's earnings). The higher the Revenue, the better the project (similar to stock analysis). There are other data points, such as Trading Volume, TVL, Fees, etc., that you can also refer to. Most of this data is intended for basic analysis of a project.
3/ Lunarcrush:
This is a tool for analyzing social data about tokens (such as the number of mentions on Twitter, which KOLs are talking about which token, etc.). Personally, when researching a project, I look at how many followers their Twitter account has, how recently tweets have been interacted with, and which KOLs are shilling the project!
4/ Crypto Slam:
This tool provides common data, such as Volume and Floor Price, for NFT collections. I also pay attention to Blockchain by NFT Sales Volume to see which ecosystem is attracting the most NFT money flow (for example, Solana had a pretty good NFT wave earlier this year when trading volume was second only to Ethereum).
ChainScans
ChainScans refer to ethscan, bscan, solscan, or layer2s, such as op or arbitrum. Each coin will have its own ChainScan. The parameters to pay attention to when checking ChainScan are transactions, total transactions, daily transactions. The blockchain with more users and transactions is generally better, and this is one of the factors to evaluate the project.
Additionally, I encourage newcomers to follow some dedicated onchain analysis teams to gain a more multidimensional perspective, such as: The Datafi, The DataNerd.
Advanced Tools. Once you have developed some skills in reading and understanding data on Blockchain, you will move to level 2, where you can check higher-level data, filter news, and analyze wallet behavior. Because On-chain data is visible to anyone with a tool, it is important to be cautious and avoid being deceived by sharks.
5/ Santiment:
Santiment is a platform that provides On-chain data for the entire crypto market. The data on Santiment has been cleaned, so it is relatively reliable. Santiment takes data from real-time sources, then pre-processes it to provide users with the most intuitive On-chain data with the easiest insights. In addition to On-chain data, Santiment also has some tools such as social tools for analyzing social news, which are closely related to daily price fluctuations.
6/ Watchers: This is a popular tool recently, and I have also written an article about how to use it.
7/ Arkham: The founder of Arkham has declared that this tool can surpass Nansen. Arkham combines many features that other tools do not have, and it is currently free. Some outstanding features include the ability to customize the amount of buy/sell value, customize and search within any time frame, which is extremely convenient!
8/ Nansen: This is the tool I use most often to analyze Smart Money's movements. Nansen provides quite a lot of data, so it is important to have the experience and methods to know where to look deep when analyzing projects, avoiding being overwhelmed and wasting time. In addition, to use it, you need more knowledge and experience than the previous three tools, including knowledge of smart contracts, block explorers, and defi.
9/ Dune Analytics: This is a tool that helps query On-chain data using SQL. To use it best, people will need a solid knowledge of SQL and a clear understanding of blockchain terms. However, if you do not want to code, you can also see the dashboard made by others, but you still need to be knowledgeable about blockchain and crypto to get insights.
10/ CryptoQuant: CryptoQuant is one of the popular On-chain analysis platforms, and it is quite easy to use. Personally, I find CryptoQuant and Glassnode to be tools specializing in analyzing BTC. In addition, CryptoQuant also provides countless other important On-chain data such as On-chain data about miners, long term holders, short term holders, and more. In short, everything On-chain about BTC is here!
11/ Glassnode: Glassnode has pioneered many new metrics such as SOPR, HODL Waves, Spent Output Age Bands, and more, which require a lot of research time. In the Workbench section, users can also calculate new metrics, but not to the extent of querying data as freely as with Dune.
