How to interpret TVL in DeFi.
7 March 2022 by Catherine Woods
Reading time 6 min
All cryptocurrency coins and tokens that are deposited, provided, staked, etc. represent a metric called Total Value Locked in DeFi ecosystems. Much attention is paid to this marker, which is explained by the high TVL meaning in crypto. Investors should understand the essence of Total Value Locked crypto in order to invest successfully.
In the context of DeFi, TVL is an important indicator as a summation of assets that are locked in protocols. For example, in DEX, TVL is gauged as the value of digital assets placed in smart contracts in an exchange transaction medium.
Now here are some numbers. At the time of writing, the Total Value Locked (USD) in DeFi has exceeded $75B. This is the number of assets currently secured in the smart contracts. Considering TVL by a chain, Ethereum has the largest share. There is TVL in assets, a number of tokenized coins. So the Total Value Locked (USD) in assets has overstepped $14B.
Crypto TVL meaning is the metric showing how the crypto space changes: increases (DeFi TVL chart goes up) or decreases (DeFi TVL chart goes down). It is for a complete simplification. But DeFi TVL growth does not always mean new user arrivals with new assets thanks to the popularity, reliability, and usability of a particular application. The rise may be based on the growth of token prices. It is also important to note that is not all. TVL does not consider how much each token is used by the DeFi application or the DeFi space overall. It means: TVL also depends on the number and cost of transactions.
In the crypto world, many DeFi platforms release native cryptocurrencies, for example, AAVE, CRV, COMP, UNI, for voting and management purposes, like changing the distribution of rewards, transforming UI, adjusting a dev fund, etc. So if investors need to know the overvalued or undervalued this digital asset is, then TVL in crypto helps a lot. Therefore, to find out the value of the digital asset, investors need to divide the market cap of the DeFi platform native (governance) token by TVL of the platform. Usually, if the ratio is over one, it indicates that the asset is overvalued. The platform with a lower ratio is better for investing.
The DeFi Watch shows TVL for each project.
On top of that, DeFi Locked Value is used to assess the overall health of the DeFi market. As a rule, it is viewed as relatively safe, without euphoria, when the ratio of DeFi market capitalization to TVL as a whole is from 0.5 to 2.5.
Furthermore, A popular indicator, such as a TVL of DeFi, is often used as a starting point for comparing two or more decentralized applications that have the same functions. Definitely, in the search for the highest TVL, crypto resources that display this metric are an essential tool.
Lastly, investors should check a TVL of the projects they are interested in to keep investments safe from scam projects. A platform with one or more audits, with a large TVL and a long enough track record, is a trustworthy project.
To summarize the above, DeFi Total Value Locked is the complete supply that a particular DeFi application provides, including such as platforms like Dex, Lending, Vault, and sectors like derivatives, and payments. Investors may deep dive into TVL: DeFi analytics tools help to explore the market situation in detail with this indicator, an indispensable part of the crypto world.
Did you know that you are able to extract data from API into Microsoft Excel using the in-built Power Query feature?
The DeFi sector is constantly evolving, including DeFi wallets. Choosing the right one can be a challenge. In this case, it is necessary to pay attention to answers to these questions: "How will the wallet be used?" and "What assets will be in the wallet?". Besides, the product's reputation is as critical as the convenience of use. A reliable wallet provides full safekeeping of the user's funds.
What about the DeFi Watch platform? At the time of writing, you can connect your MetaMask wallet. This browser wallet and app is one of the most popular DeFi wallets. Moreover, the DeFi Watch platform has a demo wallet that demonstrates data of investments and assets with detailed analysis for many tokens and pools. In plain English, it shows what you will get after connecting your personal wallet to the platform.
The DeFi Watch also supports the WalletConnect to bind a wallet to a DeFi application. Available options to connect the wallet may shift in the future because the platform is still evolving, and the team always keeps its nose to the wind.