TVL, or Total Value Locked, is an indicator for measuring the success and growth of decentralized finance (DeFi) protocols. Focus on this metric and its importance in the blockchain and cryptocurrency ecosystem.
What is TVL?
The total locked valueor “Total Value Locked” for TVL in English, is a metric used to measure the amount of cryptocurrency that is allocated to a particular protocol, platform, or smart contract. This metric is often referred to by the acronym “TVL”, in reference to the English term.
First, TVL can be used to measure the popularity and adoption of a DeF protocoli. The more value locked into a protocol, the more popular and popular it is likely to be. Indeed, investors are more likely to use a protocol or platform if a large amount of cryptocurrency is invested in it. It may indicate a mark of trust from the crypto community.
Second, TVL can be used as a way to measure the liquidity of a protocol. The larger the value locked in a protocol, the more liquid it is likely to be. Indeed, the greater the value locked in a protocol, the more capital there is available for activities such as trading, lending and borrowing.
Third, TVL can be used as a means of measuring the overall health and stability of a particular DeFi platform. The larger the value locked in a protocol, the more stable and secure it is likely to be. In effect, it means there is more at stake for the people who use it, which can motivate them to act in the best interests of the protocol and ensure its long-term success.
Generally, TVL is an important metric for tracking the world of DeFi, because it helps to measure the popularity, liquidity and stability of a protocol. By monitoring the total locked value of a protocol or even a blockchain, it is possible to gain a better understanding of the state of the DeFi ecosystem and the relative success of the various platforms within it.
Here is an overview of the distribution of TVL on the Ethereum blockchain (December 13, 2022):
Figure 1 – Top 5 protocols with the largest TVL on the Ethereum blockchain
👉 What is decentralized finance (DeFi)?
The calculation of TVL ratios
The calculation of TVL ratios is a way to compare the relative strength of different protocols within a single blockchain, or across the entire decentralized finance ecosystem. This is usually done by dividing the total value locked (TVL) in a protocol by the total value locked across all protocols in a blockchain.
For example, if a protocol on the Ethereum blockchain has a TVL of $100 million and the total TVL of the entire DeFi ecosystem on that blockchain is $10 billion, then the TVL ratio of that protocol would be 1%.
TVL ratios can be useful for comparing the relative size and popularity of different DeFi protocols. For example, if 2 protocols from 2 different blockchains have the same TVL, but one of them has a much higher TVL ratio, it could be a sign that the latter protocol is used more.
There are a number of websites and tools that can be used to check the Total Value Locked (TVL) of projects and blockchains. Here are some of the most popular.
DefiLlama
DefiLlama is the reference platform to follow the evolution of decentralized finance protocols and their TVL. The latter offers a plethora of other very interesting tools free of charge to follow the evolution of the ecosystem: referencing of the best DeFi strategies, potential future token airdrops, bridges, liquidation history, etc.
This platform is often used to source articles whose subject relates to the TVL of protocols, which has proven itself with reliable and quickly updated data.
Dune Analytics
Dune Analytics is a platform that provides a range of data and analytical tools for the DeFi ecosystem. Its particularity comes from the fact that anyone can create their own dashboards using custom developed tools. For example, beyond tracking the TVL, it is possible with Dune Analytics to examine all protocol-related metrics, such as the number of connected wallets, the volume of transactions, the number of interactions with smart contracts, etc. .
DeFi Pulse
DeFi Pulse is a website that tracks the total locked value of most DeFi protocols. It also provides a series of other metrics and information about the DeFi ecosystem.
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Source: Figure 1: DefiLlama
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Editor-in-chief of Cryptoast, I discovered Bitcoin and blockchain technology in 2017. Since then, I have been striving to share quality content so that the sector becomes more democratic for everyone.
Clement Wardzala
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