Given the challenges involved in working with blockchain data, it may be tempting to focus on market data from centralized exchanges to power investment decisions. However, market data does not provide visibility into decentralized exchanges (DEX), lending platforms, prediction markets, NFTs, or DAOs that make up the fast-growing decentralized, blockchain-based ecosystem.
Blockchain data also provides visibility into network data, transactions, contracts, events, and logs for every digital asset. It allows you to get full transparency into every input and the resultant effects and market impact for every protocol in real-time and historically. As trading volume across decentralized exchanges and the DeFi ecosystem continues to grow, the need for blockchain data will only increase.
What activities is blockchain data needed for?
Here are some of the pre- and post-trade activities that cannot be engaged in without blockchain (on-chain) fundamental data:
Development and backtesting of algorithmic trading strategies
The bottom line is that if you are going to be doing any algorithmic trading on DEXs, you must have on-chain data to develop and backtest your algorithms. Using both on-chain data and price movement market data, you can build a crypto alpha generation platform to develop quantitative financial models or trading strategies that generate consistent alpha, or absolute returns on DEXs.
Identification of arbitrage opportunities
Blockchain data is needed to identify arbitrage opportunities and manage risks like slippage, price movement, and transfer fees across decentralized exchanges. DeFi arbitrage opportunities can exist across multiple decentralized exchanges as well as in liquidity pools below them.
Development and backtesting of liquidity provider/market maker models
Decentralized exchanges provide unique opportunities to provide liquidity for market makers. By participating in DEXs, liquidity providers can earn fees, rewards and other incentives. Context across DEXs, pools, and centralized exchanges is critical for maintaining a comprehensive vantage point. To operate effectively and efficiently, a liquidity provider needs blockchain data to understand LP positions, % of pool, fees earned and fees earned and unclaimed, protocol incentives, and impermanent loss.
Development of original research on digital assets
Research analysts need blockchain data to be able to effectively generate digital asset investment ideas, and make recommendations to traders. They need on-chain data to answer questions like:
- How many participants are there are in a particular decentralized exchange?
- What is the transaction volume?
- Who is providing the liquidity?
- Who held what asset at what price and for how long did they hold it? What else did they hold?
- When they sold an asset, what did they buy?
- When a smart contract was deployed, who interacted with it?
As you enter the digital asset class and your quants develop algorithmic trading, arbitrage, lending and market making bots on DEXs trying to generate returns, you’ll need to understand total exposure to volatility and other factors, and you'll need on-chain data to do so.
Blockchain data is critical for maintaining tax and regulatory compliance. Without blockchain data, the full historical activity required for accounting, tax, and compliance purposes wouldn't be available.
How to get the blockchain data needed for success?
The best approach to get the blockchain data you need is to partner with a digital asset data provider. Working with a partner instead of attempting to build a massive data infrastructure and acquiring the technical expertise to turn raw blockchain into actionable information will allow you to focus on your core business, and bring your digital asset products to market much faster.
Why partner with Amberdata?
Our highly available and scalable data infrastructure connects to all of the blockchains and markets that matter today, allowing a comprehensive view into decentralized exchanges, DeFi dApps, NFTs, DAOs, and more. Our platform provides real-time and historical transparency into decentralized exchanges, as well as on-chain data from the most active cryptocurrency networks and protocols. We’ve built our data sets with institutional use cases in mind, providing the easy to consume formats and reliability you receive with traditional asset classes.
Our data solutions support all pre- and post-trade functions. You can track pending transactions, wallet balances over time across various blockchain networks, as well as market cap and total value locked. You can create analytics dashboards with fundamental data to track network health and understand DeFi data like liquidity and lending rates. For fund accounting and administration, you’ll know what was in a wallet at any time and what it was worth in any currency.
Request a demo to learn more about our platform and why Amberdata has been chosen as the trusted data provider by some of the largest financial institutions entering the digital asset class.