TVL: Total Value Locked

Total Value Locked aka TVL is the total amount of assets stacked in a particular DeFi protocols at any given points on time. It is used to measure performance of DeFi Protocols. It helps to evaluate health of a DeFi token and is used as a common metrics. A simple way to understand TVL is marketcap for cryptocurrencies. Just like marketcap provides information on valuation of a token, TVL provides information about the valuation of a Defi project, combining Lending, Borrowing, staking etc.

For example, as per the site, defillama, here is the list of total value locked in top chains including Ethereum, Binance chain, fantom etc.

How is TVL Ratio Calculated?

To calculate TVL ratio, simply divide the marketcap of any token with TVL of that protocol. TVL ratio gives an idea whether an asset is undervalued or overvalued. Generally if TVL ratio value is less than 1, the asset is undervalued and vice versa.

Is TVL a Good Metrics?

TVL includes all number of tokens in Defi activities; primarily lending, staking, and liquidity pools. At any given point in time, this metric helps investors understand valuation of the protocol in question. For. ex. if a protocol has very marketcap but its TVL is low, that means the protocol is overvalued.

Since, the data is available on-chain so all three functions mentioned above can be tracked anytime.

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Disclaimer

Sunil is a serial entrepreneur and has been working in blockchain and cryptocurrency space for 2 years now. Previously he co-founded Govt. of India supported startup InThinks and is currently Chief Editor at Coingape and CEO at SquadX, a fintech startup. He has published more than 100 articles on cryptocurrency and blockchain and has assisted a number of ICO's in their success. He has co-designed blockchain development industrial training and has hosted many interviews in past. Follow him on X at @sharmasunil8114 and reach out to him at sunil (at) coingape.com

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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