TVL, or Total Value Locked, is a metric used to measure the amount of value that is currently being held in a particular decentralized finance (DeFi) protocol or application. It is a widely used metric in the DeFi space and is often used to gauge the health and popularity of a particular protocol or application.
What is Total Value Locked in Blockchain?
Total Value Locked is a measure of the total value of cryptocurrency or other digital assets that are being held in a particular DeFi protocol or application. It is calculated by taking the total value of all assets held within the protocol or application and dividing it by the total number of assets. For example, if a DeFi protocol has a total of 1,000 tokens, with each token valued at $100, the TVL would be $100,000.
TVL is typically expressed in terms of the US dollar, but it can also be expressed in other currencies or as a percentage of the total market value of all assets in the protocol or application.
How is TVL Calculated in DeFi space?
TVL can be calculated by taking the total value of all assets that are being held in the smart contract or DeFi protocol and converting them to a common denominator, typically the US dollar. For example, if a DeFi protocol allows users to deposit and earn interest on various cryptocurrencies such as Ethereum, Bitcoin, and Litecoin, the TVL would be the sum of the value of all these cryptocurrencies converted to dollars.
How is Total Value Locked used in the DeFi space?
TVL is used to gauge the health and popularity of a particular DeFi protocol or application. A high TVL indicates that a large amount of value is being held within the protocol or application, which may suggest that it is well-regarded and widely used. A low TVL, on the other hand, may indicate that the protocol or application is not as popular or is not being used as much.
Total Value Locked is often used as a benchmark for comparing different DeFi protocols or applications. For example, if one DeFi protocol has a TVL of $100 million and another has a TVL of $50 million, the first protocol may be considered more successful or popular.
Total Value Locked is also used to measure the liquidity of a particular DeFi protocol or application. A high TVL may indicate that there is a large amount of liquidity available, while a low TVL may suggest that there is less liquidity available.
TVL can be a useful metric for comparing the relative size and popularity of different DeFi protocols. For example, a protocol with a high TVL may indicate that it has a large number of users and a significant amount of assets being held within it. On the other hand, a protocol with a low TVL may suggest that it is less popular or trusted by users.
TVL can also be used to track the growth and development of a DeFi protocol over time. For example, if a protocol’s TVL is increasing rapidly, it may indicate that it is gaining in popularity and attracting new users. On the other hand, if a protocol’s TVL is decreasing, it may indicate that it is losing users or that the value of the assets being held within it is decreasing.
What factors can impact TVL?
There are several factors that can impact TVL in the DeFi space. Some of the main factors include:
- Popularity: A DeFi protocol or application that is widely used and well-regarded is likely to have a higher TVL than one that is less popular or less well-regarded.
- Liquidity: A DeFi protocol or application that has a high level of liquidity is likely to have a higher TVL than one that has less liquidity.
- Market conditions: The overall market conditions can impact TVL. For example, if the market is experiencing a bull run, the TVL of DeFi protocols and applications may increase, while a bear market may lead to a decrease in TVL.
- Interest rates: The interest rates offered by DeFi protocols and applications can also impact TVL. Higher interest rates may attract more users and increase TVL, while lower interest rates may lead to a decrease in TVL.
- Risk profile: The risk profile of a DeFi protocol or application can also impact TVL. Protocols or applications that are perceived as being lower risk may attract more users and have a higher TVL, while those that are perceived as being higher risk may have a lower TVL.
What are some factors that can affect a DeFi protocol’s TVL?
There are several factors that can impact a DeFi protocol’s TVL. Some of the most important ones include:
- Market conditions: The overall health of the cryptocurrency market can have a significant impact on a DeFi protocol’s TVL. For example, if the market is experiencing a bull run and the value of cryptocurrencies is rising, this may lead to an increase in the TVL of a DeFi protocol as more users deposit their assets within it. On the other hand, if the market is experiencing a bear trend and the value of cryptocurrencies is declining, this may lead to a decrease in the TVL of a DeFi protocol as users withdraw their assets or the value of the assets within the protocol decreases.
- User adoption: The number of users that a DeFi protocol has can also have a significant impact on its TVL. If a DeFi protocol is attracting a large number of new users and assets are being deposited within it, this can lead to an increase in its TVL. On the other hand, if a DeFi protocol is losing users or experiencing a decline in activity, this can lead to a decrease in its TVL.
- Product offerings: The types of products and services that a DeFi protocol offers can also impact its TVL. For example, a protocol that offers a wide range of financial products and services such as lending, borrowing, and trading may be more likely to attract users and increase its TVL. On the other hand, a protocol that only offers a limited range of products or services may be less likely to attract users and may experience a decline in its TVL.
Top 20 DeFi protocol’s by Total Value Locked – Updated January 2023
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