What is Bitcoin? How does blockchain work? How to mine cryptocurrency? We are glad to help you answer these questions with our quick guides in Explained section.
rn","seo_description":"What is Bitcoin? How does blockchain work? How to mine cryptocurrency? We are glad to help you answer these questions with our quick guides in Explained section.","words_count": 716,"description":"DeFi participants must be aware of the total value locked (TVL) indicator.rnFind out here what it is, how it is calculated and why it matters in DeFi","author":"id": 1534,"title":"Emi Lacapra","url":"emi-lacapra","twitter":"","google_plus":"","photo":"","gender":"female","description":"Emilia Lacapra has been learning about cryptocurrency and blockchain since 2017. She first started as a small investor and soon became passionate about the industry, the technological innovation and the improvement that it could bring to the world. She believes Bitcoin is the natural currency of the internet. Emi has been an educational content writer in the crypto space for several years and aims at accurately delivering complex concepts.","facebook":"","email":"","linkedin":"","created_at":"2022-04-13 13: 40: 07","updated_at":"2022-04-23 16: 17: 03","deleted_at":null,"avatar":"https://cointelegraph.com/assets/img/icons/author_female.png","hash":"aHR0cHM6Ly9jb2ludGVsZWdyYXBoLmNvbS9hdXRob3JzL2VtaS1sYWNhcHJh","relativeUrl":"https://cointelegraph.com/authors/emi-lacapra","user_id": 1534,"language_id":1,"name":"Emi Lacapra","desc":"Emilia Lacapra has been learning about cryptocurrency and blockchain since 2017. She first started as a small investor and soon became passionate about the industry, the technological innovation and the improvement that it could bring to the world. She believes Bitcoin is the natural currency of the internet. Emi has been an educational content writer in the crypto space for several years and aims at accurately delivering complex concepts.","seo_title":"","seo_description":"","enabled":1,"show_in_authors":0,"show_in_experts":0,"category_id": 65,"audio":"https://s3.cointelegraph.com/audio/86800.c237ead8-8f71-475e-b6fa-9b56899cd4f0.mp3","tags": ["name":"Cryptocurrencies","uri":"/tags/cryptocurrencies","super":0,"page_title":"Cryptocurrencies News","name":"DeFi","uri":"/tags/defi","super":1,"page_title":"DeFi News"],"tag_title":"DeFi","date":"MAY 22, 2022","badge":"title":"Explained","label":"default","qty": 144,"stats_pixel":"Since decentralized finance (DeFi) boomed in 2020, financial market experts have come to terms with a new type of investment and have looked at ways to measure its performance.
nnOther than market capitalization, trading volume and total and circulating supply, total value locked (TVL) is one crypto indicator that is popular among DeFi investors to assess the overall value of assets – in United States dollar or any fiat currency – deposited across all DeFi protocols or in a single DeFi project.
nnDeFi assets include rewards and interest, coming from typical services such as lending, staking and liquidity pools, provided in the form of smart contracts. TVL in staking, for example, is a particularly useful indicator for investors looking to support the DeFi platforms with the highest rewards. It is the total value locked in the DeFi staking protocols and represents the amount of assets deposited by the liquidity providers.
nnIn 2022, TVL has reached nearly $2 billion globally, growing from $400 million in the previous two years. With the increasing popularity and value of DeFi in the cryptocurrency space, TVL has become an essential metric for investors who want to assess if the whole ecosystem or a single protocol is healthy and worth investing in.
nnWhile TVL is simply defined as the total value of cryptocurrency locked in a smart contract, there are underlying conditions that may affect the value of DeFi projects.
nnVarious elements concur on TVL’s worth other than deposits, withdrawals and the amount a protocol is actually holding. The TVL also changes with the value of the fiat currency or the native token. Some protocols’ deposits may be denominated in the project’s native token, so its TVL varies with its value. If a specific token grows in value, so does the protocol’s TVL, too.
nnnn","created_at":"2022-05-22 12:34:25","updated_at":"2022-05-23 09:39:56","sort":1,"translations":"id":3438,"explained_post_id":3445,"title_en":"What does the total value locked mean?","content_en":"Since decentralized finance (DeFi) boomed in 2020, financial market experts have come to terms with a new type of investment and have looked at ways to measure its performance.
nnOther than market capitalization, trading volume and total and circulating supply, total value locked (TVL) is one crypto indicator that is popular among DeFi investors to assess the overall value of assets – in United States dollar or any fiat currency – deposited across all DeFi protocols or in a single DeFi project.
nnDeFi assets include rewards and interest, coming from typical services such as lending, staking and liquidity pools, provided in the form of smart contracts. TVL in staking, for example, is a particularly useful indicator for investors looking to support the DeFi platforms with the highest rewards. It is the total value locked in the DeFi staking protocols and represents the amount of assets deposited by the liquidity providers.
nnIn 2022, TVL has reached nearly $2 billion globally, growing from $400 million in the previous two years. With the increasing popularity and value of DeFi in the cryptocurrency space, TVL has become an essential metric for investors who want to assess if the whole ecosystem or a single protocol is healthy and worth investing in.
nnWhile TVL is simply defined as the total value of cryptocurrency locked in a smart contract, there are underlying conditions that may affect the value of DeFi projects.
nnVarious elements concur on TVL’s worth other than deposits, withdrawals and the amount a protocol is actually holding. The TVL also changes with the value of the fiat currency or the native token. Some protocols’ deposits may be denominated in the project’s native token, so its TVL varies with its value. If a specific token grows in value, so does the protocol’s TVL, too.
nnnn","title_es":"","content_es":"nn","title_cn":"总锁定价值是什么意思？","content_cn":"自去中心化金融(DeFi)在2020年蓬勃发展以来，金融市场专家们已经适应了一种新的投资类型，并一直在寻找衡量其表现的方法。
nn除了市值、成交量和总流通量，总锁定价值(Total Value Locked，简称TVL)也是投资者对加密资产整体价值进行评估常用的指标——在所有DeFi协议或单个DeFi项目——以美元或者任何法币计价的总锁定价值。
nnDeFi的资产包括回报和利息，这些回报和利息来自以智能合约形式提供的典型服务，如贷款、质押和流动性池。例如，对于希望支持最高回报的DeFi平台的投资者来说，TVL在质押方面是一个特别有用的指标。它是锁定在DeFi质押协议中的总价值，代表流动性提供者存放的资产金额。
nn到2022年，TVL全球规模已从前两年的4亿美元增长至近20亿美元。随着DeFi在加密货币领域的日益普及和价值增长，对于想要评估整个生态系统或单一协议是否健康和值得投资的投资者来说，TVL已经成为一个必不可少的指标。
nn虽然TVL被简单地定义为锁定在智能合约中的加密货币的总价值，但有一些潜在的条件可能会影响DeFi项目的价值。
nn除了存款、取款和协议实际持有的金额之外，还有多种因素影响着TVL。TVL还随法定货币或本地代币的价值而变化。一些协议的存款可能以项目的原生代币计价，因此其TVL随其价值而变化。如果特定代币的价值增长，那么协议的TVL也会增长。
nnn","title_de":"","content_de":"nn","title_fr":"","content_fr":"nn","title_it":"","content_it":"nn","title_ar":"","content_ar":"nn","title_br":"","content_br":"nn","title_jp":"","content_jp":"nn","created_at":"2022-05-22 12:34:25","updated_at":"2022-05-23 09:39:56","title_kr":"","content_kr":"nn","title_tr":"","content_tr":"nn","id":3446,"post_id":86800,"title":"Why does TVL matter in DeFi?","content":"For DeFi platforms to function, they require capital to be deposited as loan collateral or liquidity in trading pools. TVL matters because it indicates the capital’s impact on DeFi applications’ profits and usability for traders and investors.
nnWhen the TVL of a DeFi platform rises, it is followed by an increase of liquidity, popularity and usability. These factors contribute to the project’s success. A higher TVL means more capital is locked in DeFi protocols, with participants enjoying more considerable benefits and proceeds. A lower TVL implies lower availability of money, resulting in lower yields.
nnDeFi protocols' market share can be easily identified through analytics firms’ platforms like DeFi Pulse and DefiLlama, which provide data on the amount of crypto assets locked in their respective smart contracts.
nnDeFi participants who track down TVL on DeFi Pulse must know that the platform monitors protocols’ smart contract movements on the Ethereum blockchain only by extracting the total balance of Ether (ETH) and ERC-20 tokens. DefiLlama, on the other hand, calculates the TVL by extracting the total balance of all of the DeFi chains combined or each individual platform separately.
nnnn","created_at":"2022-05-22 12:35:02","updated_at":"2022-05-23 09:39:56","sort":2,"translations":"id":3439,"explained_post_id":3446,"title_en":"Why does TVL matter in DeFi?","content_en":"For DeFi platforms to function, they require capital to be deposited as loan collateral or liquidity in trading pools. TVL matters because it indicates the capital’s impact on DeFi applications’ profits and usability for traders and investors.
nnWhen the TVL of a DeFi platform rises, it is followed by an increase of liquidity, popularity and usability. These factors contribute to the project’s success. A higher TVL means more capital is locked in DeFi protocols, with participants enjoying more considerable benefits and proceeds. A lower TVL implies lower availability of money, resulting in lower yields.
nnDeFi protocols' market share can be easily identified through analytics firms’ platforms like DeFi Pulse and DefiLlama, which provide data on the amount of crypto assets locked in their respective smart contracts.
nnDeFi participants who track down TVL on DeFi Pulse must know that the platform monitors protocols’ smart contract movements on the Ethereum blockchain only by extracting the total balance of Ether (ETH) and ERC-20 tokens. DefiLlama, on the other hand, calculates the TVL by extracting the total balance of all of the DeFi chains combined or each individual platform separately.
nnnn","title_es":"","content_es":"nn","title_cn":"为什么TVL在DeFi中很重要？","content_cn":"为了让DeFi平台运作起来，它们要求资金以贷款抵押品或流动性的形式存入交易池。TVL很重要，因为它表明了资本对交易者和投资者的DeFi应用程序的利润和可用性的影响。
nn当一个DeFi平台的TVL上升时，随之而来的是流动性、流行度和可用性的增加。这些因素促成项目的成功。更高的TVL意味着更多的资本被锁定在DeFi协议中，参与者可以享受更多可观的利益和收益。较低的TVL意味着较低的可用资金，导致较低的收益。
nn通过分析公司的平台，如DeFi Pulse和DefiLlama，可以很容易地确定DeFi协议的市场份额。这些平台提供智能合约中锁定的加密资产数量的数据。
nnDeFi Pulse平台仅通过提取ETH和ERC-20代币的总余额来监控协议在以太坊区块链上的智能合约移动。另一方面，DefiLlama通过提取所有合并的DeFi链的总余额或单独的每个平台来计算TVL。
nnn","title_de":"","content_de":"nn","title_fr":"","content_fr":"nn","title_it":"","content_it":"nn","title_ar":"","content_ar":"nn","title_br":"","content_br":"nn","title_jp":"","content_jp":"nn","created_at":"2022-05-22 12:35:02","updated_at":"2022-05-23 09:39:56","title_kr":"","content_kr":"nn","title_tr":"","content_tr":"nn","id":3447,"post_id":86800,"title":"How is crypto TVL calculated?","content":"Due to ceaseless new protocols emerging in the DeFi space, it may be challenging to establish the exact TVL of the overall market and determine if a specific DeFi platform is a safe option for end-users.
nnHowever, participants can opt for more established protocols using a TVL metric of $1 billion, which should be a secure enough prospect. A higher TVL is better, as it should indicate a healthy platform in high demand with a strong developers team and a valuable use case. All of which should attract more participants and investors, contributing to the project’s rise of the TVL.
nnOn the other hand, a red alert should be raised when DeFi protocols with lower TVL are offering high yields. These might well be promotions, for example, for new platforms that want to gain market shares, but could also be scams because little or no participants have trusted them with their assets.
nnThree main factors are considered to calculate a DeFi protocol’s TVL:
nn
It is straightforward to calculate the crypto TVL. First, the market cap of an asset has to be found by multiplying the DeFi project’s supply by the current price. Then, dividing the market cap by the maximum circulating supply, the TVL is revealed.
nnWhen dividing the total market cap of a locked asset by the total value locked, we obtain the TVL ratio. The TVL ratio can help determine if a DeFi asset is undervalued or overvalued. If the ratio is under 1, the asset is usually undervalued and more attractive to investors. When the market cap exceeds the TVL in crypto, the asset might be overvalued, leaving little to no room for growth.
nnnn","created_at":"2022-05-22 12:37:05","updated_at":"2022-05-23 09:39:56","sort":3,"translations":"id":3440,"explained_post_id":3447,"title_en":"How is crypto TVL calculated?","content_en":"Due to ceaseless new protocols emerging in the DeFi space, it may be challenging to establish the exact TVL of the overall market and determine if a specific DeFi platform is a safe option for end-users.
nnHowever, participants can opt for more established protocols using a TVL metric of $1 billion, which should be a secure enough prospect. A higher TVL is better, as it should indicate a healthy platform in high demand with a strong developers team and a valuable use case. All of which should attract more participants and investors, contributing to the project’s rise of the TVL.
nnOn the other hand, a red alert should be raised when DeFi protocols with lower TVL are offering high yields. These might well be promotions, for example, for new platforms that want to gain market shares, but could also be scams because little or no participants have trusted them with their assets.
nnThree main factors are considered to calculate a DeFi protocol’s TVL:
nn
It is straightforward to calculate the crypto TVL. First, the market cap of an asset has to be found by multiplying the DeFi project’s supply by the current price. Then, dividing the market cap by the maximum circulating supply, the TVL is revealed.
nnWhen dividing the total market cap of a locked asset by the total value locked, we obtain the TVL ratio. The TVL ratio can help determine if a DeFi asset is undervalued or overvalued. If the ratio is under 1, the asset is usually undervalued and more attractive to investors. When the market cap exceeds the TVL in crypto, the asset might be overvalued, leaving little to no room for growth.
nnnn","title_es":"","content_es":"nn","title_cn":"加密货币TVL如何计算？","content_cn":"由于在DeFi领域不断出现新的协议，建立整个市场的确切的TVL并确定一个特定的DeFi平台对终端用户来说是否安全，可能极具挑战性。
nn不过，参与者可以选择更成熟的协议，使用10亿美元的TVL指标，这应该是一个足够安全的数值。更高的TVL会更好，因为这代表更健康的平台，有更强大的开发团队和更有价值的用例。所有这些都将吸引更多的参与者和投资者，为TVL项目的崛起做出贡献。
nn另一方面，当具有较低TVL的DeFi协议提供高收益时，应该提高警惕。这可能是为了推广希望获得市场份额的新平台，但也很可能是骗局，因为很少或没有参与者信任他们的资产。
nn计算一个DeFi协议的TVL需要考虑三个主要因素:
nn
计算加密货币的TVL很简单。首先，通过将DeFi项目的供应量乘以当前价格来计算资产的总市值。然后，用总市值除以最大流通供应量，得出TVL。
nn使用被锁定的资产的总市值除以总锁定价值(TVL)，得出TVL比率。TVL比率可以帮助确定一个DeFi资产是被低估还是高估。如果该比率低于1，则该资产通常被低估，对投资者更具吸引力。如果大于1，也就是当加密货币的市值超过TVL时，资产可能被高估，几乎没有增长空间。
nnn","title_de":"","content_de":"nn","title_fr":"","content_fr":"nn","title_it":"","content_it":"nn","title_ar":"","content_ar":"nn","title_br":"","content_br":"nn","title_jp":"","content_jp":"nn","created_at":"2022-05-22 12:37:05","updated_at":"2022-05-23 09:39:56","title_kr":"","content_kr":"nn","title_tr":"","content_tr":"nn","id":3448,"post_id":86800,"title":"Which crypto has the highest TVL?","content":"Due to the exceptional growth of DeFi in 2020, the combined TVL of all DeFi protocols increased fast and considerably by the end of 2021.
nnAt the beginning of 2020, the combined TVL across all DeFi platforms was around $630 million, according to DefiLlama. In the first quarter of 2022, it had already reached over $172 billion in value.
nnMore than half of that was in one protocol, MakerDAO, which remained one of the most prominent protocols together with Curve and Aave. Curve is the crypto with the highest TVL and portion of the market with 9.7% of market share and $17 billion TVL, followed by Lido with a $15.4 billion TVL, Anchor at $12.6 billion and MakerDao at $11.5 billion.
nnnnnn","created_at":"2022-05-22 12:37:43","updated_at":"2022-05-23 09:39:56","sort":4,"translations":"id":3441,"explained_post_id":3448,"title_en":"Which crypto has the highest TVL?","content_en":"
Due to the exceptional growth of DeFi in 2020, the combined TVL of all DeFi protocols increased fast and considerably by the end of 2021.
nnAt the beginning of 2020, the combined TVL across all DeFi platforms was around $630 million, according to DefiLlama. In the first quarter of 2022, it had already reached over $172 billion in value.
nnMore than half of that was in one protocol, MakerDAO, which remained one of the most prominent protocols together with Curve and Aave. Curve is the crypto with the highest TVL and portion of the market with 9.7% of market share and $17 billion TVL, followed by Lido with a $15.4 billion TVL, Anchor at $12.6 billion and MakerDao at $11.5 billion.
nnnnnn","title_es":"","content_es":"nn","title_cn":"哪种加密货币的TVL最高?","content_cn":"
由于2020年DeFi异乎寻常的增长，到2021年底，所有DeFi协议的组合TVL都大幅快速增长。
nn根据DefiLlama的数据，2020年初，所有DeFi平台的总TVL约为6.3亿美元。在2022年第一季度，它的价值已经超过1720亿美元。
nn其中一半以上的数据由MakerDAO协议贡献。MakerDAO与Curve和Aave都是目前最优秀的协议。Curve是目前拥有最高TVL和市场份额的加密货币，市场份额为9.7%，TVL规模为170亿美元，其次是Lido, TVL规模为154亿美元，Anchor为126亿美元，MakerDao为115亿美元。
nnnnn","title_de":"","content_de":"nn","title_fr":"","content_fr":"nn","title_it":"","content_it":"nn","title_ar":"","content_ar":"nn","title_br":"","content_br":"nn","title_jp":"","content_jp":"nn","created_at":"2022-05-22 12:37:43","updated_at":"2022-05-23 09:39:56","title_kr":"","content_kr":"nn","title_tr":"","content_tr":"nn","id":3449,"post_id":86800,"title":"Largest network by DeFi TVL","content":"
In 2022, Ethereum appeared as the largest network by DeFi TVL, accounting for over half of the total DeFi volume worldwide.
nnTo give some perspective, the Ethereum DeFi network includes just under 500 protocols. It has a TVL of approximately $73 billion, with 64% of the market share, compared with BNB Smart Chain, which is the second-highest TVL at $8.74 billion in value at 7.7% of the market share, Avalanche with $5.21 billion and 4.5% of the market share and Solana with $4.19 billion and 3.68% of the market share.
nnIt’s very easy to read a TVL crypto chart. It represents the TVL for the entire DeFi market is expressed in USD, with the percentage of movement in the last 24 hours and the crypto with higher dominance.
nnThe total value locked metric across all chains clearly indicates that Ethereum is the network with the highest TVL. In essence, TVL is an excellent indicator for the DeFi area of cryptocurrency and probably the most utilized to assess the health and growth of the market. While TVL growth signals a positive outlook for the market, however, its reliability must be taken prudently, as it is nearly impossible to interpret the indicator with precision.
nnMarket volatility is one of the main variants that can highly affect the value of locked assets, starting with the price of ETH, whose platform is where most assets sit. The considerable increase in the price value of ETH inevitably affected the TVL of DeFi from 2020, but that means the total value locked can increase without any new users or capital coming into DeFi.
nnFurthermore, because of the nature of DeFi services, money can easily move around and be counted multiple times, thus miscalculating protocols’ liquidity capacity. As with every indicator, TVL is only an estimate of the market’s condition and because of its flaws and approximation, it should not determine an investor’s strategy.
nnnn","created_at":"2022-05-22 12:38:24","updated_at":"2022-05-23 09:39:56","sort":5,"translations":"id":3442,"explained_post_id":3449,"title_en":"Largest network by DeFi TVL","content_en":"In 2022, Ethereum appeared as the largest network by DeFi TVL, accounting for over half of the total DeFi volume worldwide.
nnTo give some perspective, the Ethereum DeFi network includes just under 500 protocols. It has a TVL of approximately $73 billion, with 64% of the market share, compared with BNB Smart Chain, which is the second-highest TVL at $8.74 billion in value at 7.7% of the market share, Avalanche with $5.21 billion and 4.5% of the market share and Solana with $4.19 billion and 3.68% of the market share.
nnIt’s very easy to read a TVL crypto chart. It represents the TVL for the entire DeFi market is expressed in USD, with the percentage of movement in the last 24 hours and the crypto with higher dominance.
nnThe total value locked metric across all chains clearly indicates that Ethereum is the network with the highest TVL. In essence, TVL is an excellent indicator for the DeFi area of cryptocurrency and probably the most utilized to assess the health and growth of the market. While TVL growth signals a positive outlook for the market, however, its reliability must be taken prudently, as it is nearly impossible to interpret the indicator with precision.
nnMarket volatility is one of the main variants that can highly affect the value of locked assets, starting with the price of ETH, whose platform is where most assets sit. The considerable increase in the price value of ETH inevitably affected the TVL of DeFi from 2020, but that means the total value locked can increase without any new users or capital coming into DeFi.
nnFurthermore, because of the nature of DeFi services, money can easily move around and be counted multiple times, thus miscalculating protocols’ liquidity capacity. As with every indicator, TVL is only an estimate of the market’s condition and because of its flaws and approximation, it should not determine an investor’s strategy.
nnnn","title_es":"","content_es":"nn","title_cn":"DeFi TVL最大的网络","content_cn":"2022年，以太坊成为DeFi TVL最大的网络，占全球DeFi总量的一半以上。
nn以太坊DeFi网络包括不到500个协议。以太坊DeFi网络TVL约730亿美元，拥有64%的市场份额。相比之下，币安智能链的TVL价值87.4亿美元，占据7.7%的市场份额。Avalanche 为52.1亿美元，占4.5%的市场份额。Solana为41.9亿美元，占3.68%的市场份额。
nn查看TVL图表很简单。图表显示整个DeFi市场按美元计价的TVL，在过去24小时内的移动百分比和具有更高主导地位的加密货币。
nn所有链上的TVL指标清楚地表明，以太坊是拥有最高TVL的网络。本质上，TVL是加密货币DeFi领域的一个很好的指标，可能是最适合用于评估市场健康和增长的指标。虽然TVL的增长预示着市场的乐观前景，但其可靠性必须谨慎对待，因为几乎不可能精确地解释这一指标。
nn市场波动是可能严重影响锁定资产价值的主要变量之一。首先是ETH的价格，大多数资产都位于ETH平台。自2020年以来，ETH价格的大幅上涨不可避免地影响了DeFi的TVL。这意味着，在没有任何新用户或资金进入DeFi的情况下，TVL可以增加。
nn此外，由于DeFi服务的性质，资金很容易流动并被多次计算，从而误判了协议的流动性能力。与所有指标一样，TVL只是对市场状况的估计，由于它只是一个近似值，有着明显的缺陷，投资者不能单凭TVL来决策。
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","leadfull":"","category_id":98,"category_url":"https://cointelegraph.com/category/expert-take","category_title":"Expert Take","author_url":"https://cointelegraph.com/authors/guest-authors","author_hash":"aHR0cHM6Ly9jb2ludGVsZWdyYXBoLmNvbS9hdXRob3JzL2d1ZXN0LWF1dGhvcnM=","author_title":"Guest Authors","author_img":"https://cointelegraph.com/assets/img/icons/author_male.jpg","date":"MAY 22, 2022","flash_date":"MAY 22, 2022","sponsored":false,"press_release":false,"sponsored_label":"Sponsored","explained":false,"badge":"title":"Expert Take","label":"info","published":"date":"2022-05-22 06:18:00.000000","timezone_type":3,"timezone":"Europe/London","stat_uniqs":6535,"rss_date":"Sun, 22 May 2022 06:18:00 +0100","publishedW3":"2022-05-22T06:18:00+01:00","show_referral":true,"isMagazine":false]" :shares=""facebook":"url":"https://www.facebook.com/sharer/sharer.php?u=%URL%","icon":"facebook","title":"Facebook","sizesAllowed": ["size":"lg","label":"Large devices","breakpoint":"> 1200px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"xxs","label":"Extra small devices","breakpoint":"< 480px"],"position":1,"status":true,"twitter":"url":"https://twitter.com/intent/tweet?text=%TEXT%","icon":"twitter","title":"Twitter","position":2,"status":true,"sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"telegram":"url":"https://t.me/share/url?url=%URL%&text=%TEXT%","icon":"telegram","title":"Telegram","position":3,"status":true,"sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"linkedin":"url":"https://www.linkedin.com/shareArticle?mini=true&url=%URL%&title=%TITLE%","icon":"linked-in","title":"LinkedIn","position":5,"status":true,"sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"copy":"url":"%URL%","icon":"copy","position":7,"title":"Copy Link","sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"status":true,"whatsapp":"url":"https://wa.me/?text=%TITLE% %URL%","icon":"whats-app","title":"Whatsapp","sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"position":6,"status":true,"reddit":"url":"https://www.reddit.com/submit?url=%URL%&title=%TITLE%","icon":"reddit","title":"Reddit","sizesAllowed": ["size":"xxs","label":"Extra small devices","breakpoint":"< 480px","size":"xs","label":"Smartphones","breakpoint":"> 480px","size":"sm","label":"Small tablets","breakpoint":"> 768px","size":"md","label":"Medium devices","breakpoint":"> 992px","size":"lg","label":"Large devices","breakpoint":"> 1200px"],"position":4,"status":true" is="ExplainedPostPage">Since decentralized finance (DeFi) boomed in 2020, financial market experts have come to terms with a new type of investment and have looked at ways to measure its performance.
Other than market capitalization, trading volume and total and circulating supply, total value locked (TVL) is one crypto indicator that is popular among DeFi investors to assess the overall value of assets – in United States dollar or any fiat currency – deposited across all DeFi protocols or in a single DeFi project.
DeFi assets include rewards and interest, coming from typical services such as lending, staking and liquidity pools, provided in the form of smart contracts. TVL in staking, for example, is a particularly useful indicator for investors looking to support the DeFi platforms with the highest rewards. It is the total value locked in the DeFi staking protocols and represents the amount of assets deposited by the liquidity providers.
In 2022, TVL has reached nearly $2 billion globally, growing from $400 million in the previous two years. With the increasing popularity and value of DeFi in the cryptocurrency space, TVL has become an essential metric for investors who want to assess if the whole ecosystem or a single protocol is healthy and worth investing in.
While TVL is simply defined as the total value of cryptocurrency locked in a smart contract, there are underlying conditions that may affect the value of DeFi projects.
Various elements concur on TVL’s worth other than deposits, withdrawals and the amount a protocol is actually holding. The TVL also changes with the value of the fiat currency or the native token. Some protocols’ deposits may be denominated in the project’s native token, so its TVL varies with its value. If a specific token grows in value, so does the protocol’s TVL, too.
For DeFi platforms to function, they require capital to be deposited as loan collateral or liquidity in trading pools. TVL matters because it indicates the capital’s impact on DeFi applications’ profits and usability for traders and investors.
When the TVL of a DeFi platform rises, it is followed by an increase of liquidity, popularity and usability. These factors contribute to the project’s success. A higher TVL means more capital is locked in DeFi protocols, with participants enjoying more considerable benefits and proceeds. A lower TVL implies lower availability of money, resulting in lower yields.
DeFi protocols' market share can be easily identified through analytics firms’ platforms like DeFi Pulse and DefiLlama, which provide data on the amount of crypto assets locked in their respective smart contracts.
DeFi participants who track down TVL on DeFi Pulse must know that the platform monitors protocols’ smart contract movements on the Ethereum blockchain only by extracting the total balance of Ether (ETH) and ERC-20 tokens. DefiLlama, on the other hand, calculates the TVL by extracting the total balance of all of the DeFi chains combined or each individual platform separately.
Due to ceaseless new protocols emerging in the DeFi space, it may be challenging to establish the exact TVL of the overall market and determine if a specific DeFi platform is a safe option for end-users.
However, participants can opt for more established protocols using a TVL metric of $1 billion, which should be a secure enough prospect. A higher TVL is better, as it should indicate a healthy platform in high demand with a strong developers team and a valuable use case. All of which should attract more participants and investors, contributing to the project’s rise of the TVL.
On the other hand, a red alert should be raised when DeFi protocols with lower TVL are offering high yields. These might well be promotions, for example, for new platforms that want to gain market shares, but could also be scams because little or no participants have trusted them with their assets.
Three main factors are considered to calculate a DeFi protocol’s TVL:
It is straightforward to calculate the crypto TVL. First, the market cap of an asset has to be found by multiplying the DeFi project’s supply by the current price. Then, dividing the market cap by the maximum circulating supply, the TVL is revealed.
When dividing the total market cap of a locked asset by the total value locked, we obtain the TVL ratio. The TVL ratio can help determine if a DeFi asset is undervalued or overvalued. If the ratio is under 1, the asset is usually undervalued and more attractive to investors. When the market cap exceeds the TVL in crypto, the asset might be overvalued, leaving little to no room for growth.
Due to the exceptional growth of DeFi in 2020, the combined TVL of all DeFi protocols increased fast and considerably by the end of 2021.
At the beginning of 2020, the combined TVL across all DeFi platforms was around $630 million, according to DefiLlama. In the first quarter of 2022, it had already reached over $172 billion in value.
More than half of that was in one protocol, MakerDAO, which remained one of the most prominent protocols together with Curve and Aave. Curve is the crypto with the highest TVL and portion of the market with 9.7% of market share and $17 billion TVL, followed by Lido with a $15.4 billion TVL, Anchor at $12.6 billion and MakerDao at $11.5 billion.
In 2022, Ethereum appeared as the largest network by DeFi TVL, accounting for over half of the total DeFi volume worldwide.
To give some perspective, the Ethereum DeFi network includes just under 500 protocols. It has a TVL of approximately $73 billion, with 64% of the market share, compared with BNB Smart Chain, which is the second-highest TVL at $8.74 billion in value at 7.7% of the market share, Avalanche with $5.21 billion and 4.5% of the market share and Solana with $4.19 billion and 3.68% of the market share.
It’s very easy to read a TVL crypto chart. It represents the TVL for the entire DeFi market is expressed in USD, with the percentage of movement in the last 24 hours and the crypto with higher dominance.
The total value locked metric across all chains clearly indicates that Ethereum is the network with the highest TVL. In essence, TVL is an excellent indicator for the DeFi area of cryptocurrency and probably the most utilized to assess the health and growth of the market. While TVL growth signals a positive outlook for the market, however, its reliability must be taken prudently, as it is nearly impossible to interpret the indicator with precision.
Market volatility is one of the main variants that can highly affect the value of locked assets, starting with the price of ETH, whose platform is where most assets sit. The considerable increase in the price value of ETH inevitably affected the TVL of DeFi from 2020, but that means the total value locked can increase without any new users or capital coming into DeFi.
Furthermore, because of the nature of DeFi services, money can easily move around and be counted multiple times, thus miscalculating protocols’ liquidity capacity. As with every indicator, TVL is only an estimate of the market’s condition and because of its flaws and approximation, it should not determine an investor’s strategy.
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