Tuesday, June 6, 2023

Total Value Locked (TVL)

by Hideo Nakamura
Total Value Locked (TVL)

Total Value Locked (TVL) is a metric used to measure the value of assets locked in various blockchain-based protocols. TVL has become increasingly popular as a yardstick for measuring the size, scope and success of decentralized finance (DeFi) projects. It is an important indicator of activity on blockchains, providing an estimate of total capital held within DeFi applications.

The concept was first introduced in early 2018 by Andre Cronje, founder and CEO of Yearn Finance (YFI). He proposed using TVL to measure growth among Ethereum-based Decentralized Autonomous Organizations (DAOs). Since then, it has been adopted widely by different protocols including MakerDAO, Compound Finance and Uniswap.

TVL can be calculated from public data available on each protocol’s website or through specialized third-party tools such as DeFi Pulse and Defi Llama. The calculation typically involves taking the sum of all user deposits into smart contracts associated with a particular protocol —including digital currencies like Ether (ETH), stablecoins like USDC or DAI—and multiplying that number by its current market price at any given time. For example: if 10 ETH are deposited into a contract worth $500 each at the time of deposit, then the Total Value Locked would be equal to $5,000 ($500 x 10 ETH).

As discussed above, TVL provides insight into how much capital is being utilized by users on platforms leveraging blockchain technology —which can give investors greater confidence when assessing potential investments in these markets. In addition to this information being helpful for evaluating investment opportunities within DeFi projects themselves; it also serves as an indication that blockchain technologies are becoming mainstream and more widely accepted across financial sectors globally.

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