Total Value Locked (TVL) is a metric used to measure the amount of money locked up in a particular cryptocurrency or other decentralized finance (DeFi) project. It is generally expressed as an aggregate dollar value, and can be used to gauge the health and size of a given project.
The most common use for TVL is to estimate how much capital has been invested into DeFi protocols like Uniswap, MakerDAO, Compound Finance, Synthetix, Aave and others. TVL can help provide insight into which projects are gaining traction and where investors are looking for yield opportunities.
To calculate TVL for any given protocol or project, one must first determine what type of asset it supports: stablecoins, cryptocurrencies such as Bitcoin or Etherium; tokens issued by the protocol itself; or some combination thereof. Once this has been determined then all assets held within that protocol need to be added together using current market values at the time of calculation in order to get an overall total value locked figure.
For example if we take Uniswap’s TVL on June 1st 2020 it was $622 million USD with around $443 million being ETH alone followed by DAI with $154 million worth of tokens being locked up inside its smart contracts. This means that almost three-quarters ($443/$622 = 71%) of total value locked was held in Ethereum while 28% was made up from Dai token holders staking their coins through Uniswap’s automated liquidity pools (ALPs). The remaining 0.7% came from other smaller amounts held in various currencies including USDC & WBTC etc., but not significant enough to affect the overall percentage breakdown significantly .
By tracking Total Value Locked over time investors can gain valuable insights about trends occurring within specific DeFi protocols – when there is more money ‘locked-in’ it indicates greater investor confidence which could lead them towards making better decisions regarding their own investments in those particular projects . Similarly monitoring decreases/withdrawals from these same protocols gives us clues about potential issues arising due lack of user trust hence alerting users accordingly before they make any ill-advised decision based purely on hype rather than actual fundamentals underpinning those projects i..e risk assessment levels etc..