Velocity - Technical
ValentinApr 08, 2020
Velocity is a metric which estimates the average frequency at which the
tokens change hands during some period of time. It mimics to a large extent the
Money Velocity metric.
å In order to understand how we
compute this metric, let's see an example in which Alice, Bob and Charlie
exchange tokens. Let's assume that Alice gives Bob 10 tokens at block 1 and Bob
gives Charlie 10 tokens at block 2. The total transaction volume which is
generated for block 1 and 2 is , but we can easily see that the
same 10 tokens have been transacted, so the amount of tokens being in
circulation is actually . We can say that the
Token Velocity for blocks 1
and 2 is , which means that the transacted tokens have changes
hands twice during these blocks.
In order to understand how all this can be tracked, you should read the article about the token age consumed.
In order to define this metric formally we need to establish some definitions:
- - amount of tokens going out of address at block
- - amount of tokens going out of all addresses in block
- - the set of all blocks produced during day . For ETH these are usually 5760 blocks
We also need a metric to measure the amount of tokens that are in circulation for a given day. To compute this we will use the metric describe here: https://community.santiment.net/t/the-transaction-stack/36/2?u=valentin. In this article we have a definition for , let's not specify the as this is something which we assume is fixed. Let's define the token circulation for a given day, as the circulation in the last block of the day:
Now we can define the
Token Velocity at day as:
Which is the total token volume divided by the amount of tokens in circulation during that day. A similar approach can be taken if we want to compute the metric on a weekly or monthly basis.