Abstract

In the cryptocurrency market, data has always been an important tool for people to make trading decisions. How can we clear the fog of data and discover effective data to optimize trading decisions? This is a topic that the market continues to pay attention to. This time, OKX specially planned the "Insight Data" column, and jointly with industry data platforms such as CoinGlass, AICoin, Coingecko and 0xScope, we started from common user needs and hoped to dig out a more systematic data methodology for market reference and learning.

The following is the fifth issue, which was jointly discussed by the OKX Web3 team and the 0xScope team around topics such as "How to establish an on-chain data analysis methodology". I hope it will be helpful to you.

About 0xScope: 0xScope is a leading data analysis and AI data provider for Web3. It is creating a universal Web3 LLM, dedicated to using AI to reduce the difficulty of users understanding Web3 and interacting with Web3. This is due to the rich Web3-related data that the 0xScope team began to accumulate in 2022, which has been adopted by nearly 200 Web3 professional institutions. At present, Scopescan and Scopechat under 0xScope have accumulated more than 1 million users.

About OKX Web3: The team brings together top talents with deep technical backgrounds and rich industry experience. Over the years, it has continuously innovated and practiced in the field of Crypto, and continues to focus on user experience and security. At present, the OKX Web3 wallet is the most comprehensive decentralized multi-chain wallet on the market, supporting 90+ public chains, with built-in wallets, transactions, NFT markets, DeFi, and Dapp discovery. Users can view multi-chain tokens, NFTs, and DeFi assets through App, plug-ins, and web pages.

1. On-chain data analysis is very important. How should novices take the first step?

0xScope:First, you need to understand the basic concepts and logic, such as address, amount, sender (from), receiver (to), and fuel cost (gas). And try to use and understand the most basic blockchain browser, and then use other tools for more sophisticated analysis.

In general, commonly used analysis platforms or tools include on-chain data platforms, blockchain browsers, and API interfaces. On-chain data platforms (such as ScopeScan, ScopeChat, Nansen, Glassnode, and Dune Analytics) provide convenient data access and analysis functions. Blockchain browsers (such as Etherscan and Blockchain.com Explorer) can manually query blocks, transactions, and account information. In addition, many blockchain networks and data providers (such as Etherscan API and CoinGecko API) provide API interfaces that can obtain on-chain data programmatically.

In addition, regarding on-chain data analysis, it is mainly divided into two categories: transaction and investigation. Transaction data analysis can discover early alpha or trends through on-chain data, or formulate trading strategies by analyzing the fundamental data of the transaction target. Investigation data analysis can discover the flow of funds, potential address map relationships, or find the real reasons behind abnormal events through data association.

OKX Web3:On-chain data analysis is to gain insights into network activities, user behaviors, and market trends by examining and interpreting data recorded directly on the blockchain. For new users who want to take the first step in on-chain analysis, here are some key points:

First, familiarize yourself with blockchain browsers such as Etherscan to understand basic transaction data and wallet activities. Second, pay attention to key on-chain indicators such as active addresses, transaction volume, and supply distribution. Next, explore user-friendly on-chain analysis tools such as Nansen, Debank, and Glassnode to visualize on-chain data.

Start with basic indicators, tracking simple data points such as daily active addresses or number of transactions. At the same time, understand how on-chain data is related to market trends and trader behavior, and identify patterns and correlations with price changes by analyzing historical data. Finally, combine on-chain analysis with fundamental analysis and technical analysis to gain a more comprehensive perspective.

2. What key indicators need to be focused on?

0xScope：It mainly depends on the demand and scenario:

If your strategy is fundamental analysis or long-term trading, we recommend paying attention to the following 10 indicators:

· Number of transactions, that is, the total number of transactions that occurred in the blockchain network over a period of time, which usually reflects the activity and usage of the network;

· Number of active addresses, The number of unique addresses with transaction records over a period of time. The more active addresses, the higher the user participation in the network;

· Number of new addresses, refers to the number of new addresses created over a period of time. The increase in the number of new addresses usually indicates that the network has attracted new users and indicates the user growth of the network;

· Transaction fees, The total fees paid by users for transactions. High transaction fees may indicate high network demand, reflecting the degree of network congestion and the cost that users are willing to pay;

· Average transaction value, the average amount of each transaction. A higher average transaction value may indicate more large transactions, which helps to understand capital flow and user trading habits;

· Liquidity, that is, the tradable volume of assets in decentralized exchanges (DEX). Markets with high liquidity are usually more stable and healthy, affecting transaction slippage and market depth;

· Token holding concentration, the distribution of token holders, such as the total proportion of the top 10/50/100 holders. High holding concentration may lead to increased market volatility risk. Understand the concentration of token holdings and market risk;

· Total Value Locked (TVL), the total value locked in the DeFi protocol. A high TVL usually means that the protocol is popular and widely used, which measures the DeFi The scale and popularity of the protocol; · Smart contract call count, the number of calls to the smart contract over a period of time. A high number of calls indicates that the contract is widely used, reflecting the usage and popularity of the smart contract; · Developer activity, the update frequency and number of contributors of the project code base. High developer activity indicates that the project is continuously improving and developing, reflecting the development progress and activity of the project. If your strategy is short-term trading or you hope to profit by grasping the trend, we recommend paying attention to the overbought and oversold conditions of decentralized exchanges, which reflects the abnormal fluctuations in current market demand, as well as the large deposits or withdrawals of exchanges, which can reveal the potential buying and selling intentions of the main players. If your strategy is copy trading, you can pay more attention to the dynamics of smart money. For example, the historical returns of smart money can help identify traders with strong long-term profitability; the frequency and volume of transactions can give you an idea of how active and market-participating smart money is. The transaction success rate assesses the trading accuracy of smart money, while the holding time reveals whether its strategy is short-term or long-term. The asset distribution shows the degree of diversification of its portfolio, and the transaction fees reflect its transaction costs. The risk-adjusted return measures the ability of smart money to earn returns while controlling risks, and the on-chain reputation of smart money shows its evaluation in the community. In addition, the liquidity supply situation helps to understand whether smart money is also providing liquidity, which may affect its trading behavior. Through these indicators, the dynamics of smart money can be better understood and tracked.

If it is a detection risk, it is recommended to focus on at least the following 10 key indicators:

· Abnormal transaction volume, that is, the number of transactions significantly higher than the normal level in a specific time period, which helps to identify potential attack behaviors or abnormal activities, such as hacker attacks or fund transfers;

· Large transfers, refers to transactions exceeding a certain amount threshold, which may indicate asset theft, money laundering or evasion of detection;

· Transaction frequency, that is, the number of transactions per unit time. Abnormally high transaction frequency may indicate an ongoing attack or fraud;

· A large number of transactions from new addresses, a newly created address performs a large number of transactions in a short period of time, which may be a means for attackers to hide their identities. By observing these addresses, the source of the attack can be identified;

· Smart contract calls, transactions involving smart contracts, which may be targets or tools of attacks. By analyzing these calls, we can understand the attacker's operating methods; Token transfers, the transfer of specific tokens in the network. Abnormal transfers can point to specific attacks, such as token theft or illegal transfers; Abnormal Gas fees, transaction fees that are significantly higher or lower than the average level. Attackers may use high Gas fees to speed up transactions, or low Gas fees to hide a large number of small transactions; Transaction time interval, that is, the time interval between consecutive transactions. Continuous transactions in a short period of time may indicate automated attacks or the use of transaction scripts; Abnormal activities of on-chain protocols and contracts, a surge in the activities of specific protocols or smart contracts may be caused by attackers exploiting vulnerabilities or problems within the protocol; Account balance changes, that is, significant changes in account balances, can help users identify theft or transfer of funds. In fact, in general, these indicators are essentially traces left by the main traders. Beginners can feel the market changes by analyzing these traces.

OKX Web3:For beginners, we recommend following the following 4 key indicators to gain a deeper understanding of blockchain networks and market dynamics:

· Number of Active Addresses:This indicator provides a basic understanding of network usage and economic activity. By observing the changes in active addresses, beginners can understand the actual application level and user participation of the network.

· Trading Volume:Trading volume is an important indicator for evaluating market activity, which helps understand the buying or selling pressure in the market. High trading volume usually means that market participants are more active, while low trading volume may indicate that the market is in a wait-and-see state.

· MVRV (Market Value to Realized Value Ratio) and NUPL (Unrealized Profit and Loss):These indicators provide deep insights into market valuations and overall sentiment. MVRV can help assess whether the market pricing of tokens is reasonable, while NUPL can show whether investors are currently in a profit or loss state.

· Supply distribution:This indicator shows the concentration of token ownership. By analyzing the supply distribution, beginners can understand whether the tokens are too concentrated in a few addresses, which may have an impact on the liquidity and stability of the market.

As beginners become more familiar with these basic indicators, they can gradually incorporate other more complex indicators into their analysis, such as on-chain transaction fees, mining difficulty, network hash rate, etc., thereby comprehensively improving their understanding of blockchain networks and markets.

3. How to identify emerging Web3 projects through on-chain data?

0xScope:A very simple way is to pay attention to the GAS consumption rankings every day. Most of the abnormally increased contracts reflect some of the hottest projects on that day or recently.

A more efficient way is to use the Etherscan Chrome GAS plug-in. You can always see the current GAS level in the upper right corner of the browser. When you find that GAS is soaring, you can use the Top Gas Consumer list we just mentioned or Etherscan's Gas Tracker to see where everyone's GAS is spent. Usually in this case, you can find some new projects.

The most commonly used is the Top Gas Consumer ranking of Scopescan. If you often look at this ranking, you will find that in most cases, the top few rankings of the ETH chain are Uniswap router, USDT contract, and several TG bots such as Banana Gun. If you find a contract that you are not familiar with in this ranking, you can check whether the contract has a label on Scopescan or Etherscan; for students with better hands-on ability, you can also check who deployed the contract and where his handling fee comes from. Another way is to look at the Project Explorer ranking on our Scopescan. If you suddenly find a project you have never seen before appears on this ranking (TVL Rank and User Rank), it also means that this project is worth checking.

OKX Web3: In fact, we can identify emerging on-chain projects in many ways. First of all, monitoring on-chain activities is a crucial step. This includes tracking new smart contract deployments, looking for increased transaction volume, and unique addresses interacting with contracts. By analyzing the gas usage of new projects, you can gain insight into their activity and development progress in the blockchain ecosystem.

Second, using customized dashboards provided by data aggregation platforms such as Dune Analytics, nansen, and Glassnode, you can more effectively track and analyze key indicators of emerging projects. These platforms can not only monitor the growth of the total value locked of decentralized financial projects, but also track the daily active users of dApps and games, and evaluate the transfer volume and holder growth of new tokens.

In addition to on-chain data, you also need to pay attention to cross-references of off-chain data. Monitoring social media activity and community growth, observing developer activity on GitHub repositories, and analyzing the price trend of project tokens and trading volume on exchanges are all important supplements to assessing the potential of emerging projects. The combination of these methods and data sources can help to comprehensively evaluate and identify emerging Web3 projects with value and development potential.

But if you find it cumbersome, you can also directly view the locked-in TVL, DEX transaction volume, lending status and other information of DeFi, DEX and other on-chain protocols in the ranking list in the OKX Web3 wallet discovery section, which is very convenient.

4. What are the common misunderstandings and precautions when analyzing on-chain data?

0xScope:We believe that there are several common misunderstandings and important matters to pay attention to when analyzing on-chain data:

First, a common misunderstanding is about the understanding of address tags and activities. For example, transfers do not always represent buying and selling behavior, and deposit and withdrawal activities on exchanges do not necessarily reflect actual buying and selling behavior. In order to provide liquidity, market makers will frequently perform deposit and withdrawal operations, so these operations should only be considered as potential market signals when the volume is significantly higher than usual.

Secondly, most users usually use more than one address, so the overall rather than individual address activities should be considered when conducting analysis. However, smart funds may transfer funds through deposit and withdrawal operations on centralized exchanges, which means that analysis that relies solely on on-chain data does not always successfully capture all situations. In addition, over-reliance on a single data source is risky, and it is recommended to combine off-chain data for comprehensive analysis. For example, when the market fluctuates suddenly, understanding possible background news, such as important economic data released by the government, can help provide a more comprehensive market context.

In addition, the information or opinions released by KOLs usually only focus on specific transaction events, and do not deeply analyze the real situation of the addresses and entities behind them. Therefore, analysts should dig deep and understand the stories behind the data on their own. Finally, it is recommended to choose data analysis products that have been in operation for a long time and have a good reputation, which can improve the reliability of data and the accuracy of analysis.

OKX Web3:I agree with 0xscope's point of view that new users must pay attention to several common misunderstandings and important matters when conducting on-chain data analysis.

First, the accuracy and reliability of data are crucial. On-chain data may be affected by various factors, resulting in incomplete or inaccurate data. In addition, it is necessary to be wary of possible data manipulation by project teams or large holders, which may mislead the analysis results.

Secondly, a common misunderstanding is the misinterpretation of data. When analyzing on-chain indicators, it is critical to understand the context and avoid drawing conclusions based on isolated data points while ignoring the impact of the overall market situation.

In addition, over-reliance on a single indicator is also a risk. Avoid relying on only one or two on-chain indicators to make decisions. Instead, use a combination of indicators and cross-reference them with off-chain data to obtain more comprehensive and reliable analysis results.

Finally, be aware that there is a gap between on-chain data and reality. For example, some on-chain activities may not be fully captured, such as off-chain transactions or the impact of second-layer solutions. Therefore, understanding the limitations of the data used is a key step in conducting effective analysis.

Conclusion

The above is the fifth issue of the "Insight Data" column launched by OKX, focusing on practical topics such as how novice players can establish on-chain data analysis methodology, hoping to provide a reference for new players. In future series of articles, we will continue to explore more practical data usage/analysis methods to provide reference for traders and novice players to learn trading and understand the industry.

Risk Warning and Disclaimer

This article is for reference only. This article only represents the author's views and does not represent the position of OKX. This article is not intended to provide (i) investment advice or investment recommendations; (ii) an offer or solicitation to buy, sell or hold digital assets; or (iii) financial, accounting, legal or tax advice. We do not guarantee the accuracy, completeness or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is appropriate for you based on your financial situation. Please consult your legal/tax/investment professional for your specific situation. You are solely responsible for understanding and complying with relevant applicable local laws and regulations.