What is Total Value Locked?
Total Value Locked (TVL) is a popular metric for comparing decentralized finance (DeFi) protocols. This video explains the basics of TVL and what it means for the average DeFi user.
What does TVL mean?
TVL represents the value of all assets contained in a DeFi protocol. By counting all coins currently staked within a protocol, TVL reveals the total supply underlying the system.
By analyzing the associated value of staking assets within a protocol, one can gauge the interest people have in that particular sector of the DeFi ecosystem. TVL reveals the total value of all coins invested in the protocol at the moment, without considering the potential annualized future percentage returns.
This focus on the present makes this metric a tangible and robust data point to analyze a real-time protocol. TVL can also serve as an indicator of the entire DeFi ecosystem. Analysts simply treat the entire DeFi world as one giant protocol, and then measure the total value of the assets present.
TVL ratios can also be used to examine by some investors whether an asset is currently undervalued. But some analysts disagree with this method of comparison.
How do you calculate TVL rates?
To truly understand the meaning of TVL rates, you need to understand how this indicator is calculated. By learning about the specific factors that determine a protocol’s total value and TVL ratio, you’ll better understand what TVL actually measures and what the numbers say about the service in question.
Calculating the TVL of DeFi protocols requires measuring metrics across different product categories. Each DeFi protocol or service operates according to its own particular structures, and these differences in turn change how TVL can be calculated.
Understanding how each protocol calculates the value held (or locked) in its application then allows analysts to compare and measure TVL across DeFi. And some investors use this metric to compare the quality of competitive apps against each other.
That’s the basics of TVL.