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'Total Value Locked’, Here’s What It Means in DeFi

'Total Value Locked’, Here’s What It Means in DeFi

The magnitude of the TVL is basically a metric that shows how popular a lending or swapping DeFi app is.

By Radhika Parashar | Updated: 12 August 2022 18:25 IST

'Total Value Locked’, Here’s What It Means in DeFi

Photo Credit: Pixabay/ Sergei Tokmakov

The Ethereum blockchain has the most amount of total value locked

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Highlights

TVL is considered an important metric for crypto investors
TVL reflects popularity of lending and swapping DeFi apps
Ethereum has most amount of TVL

The last few months, several cryptocurrencies have found themselves on the roller-coaster ride of the market. In the midst of this volatile period, several crypto assets saw a pull-out from their investments in decentralised finance (DefI). The total value held by any DeFi platform within its smart contracts is called the Total Value locked or TVL.

The magnitude of the TVL is basically a metric that shows how popular a lending or swapping DeFi app is, in-terms of gaining attention from active and monthly transacting users.

TVL is the amount of user funds deposited in a DeFi protocol. These funds could be vested in the project for several functions like staking, liquidity pools, or lending.

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The metric allows investors to understand which DeFi platforms are more lucrative for investments. The higher the TVL of a DeFi platform, the better it is considered.

While the market cap is indicative of the appreciation of a DeFi from active, passive investors – TVL denotes the popularity of a project with the number of active users. It is a good measure to evaluate the robustness of a project.

If someone wishes to measure the future potential of a DeFi project, then one needs to check its market cap. But if someone wishes to check the current scenario of a project, TVL is the indicator you want to consider.

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Industry body Nasdaq says that it's best to only use platforms with a TVL greater than $1 billion (roughly Rs. 7,969 crore) and audited by blockchain cybersecurity firms like CertiK.

The Ethereum blockchain has the most amount of total value locked in decentralised exchanges and lending protocols, as per CoinDCX.

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