What is Total Value Locked (TVL)?
Total Value Locked (TVL) is a metric used to measure the amount of capital that has been “locked” in a cryptocurrency network or protocol. It is calculated by multiplying the total number of tokens held in an asset or system by their current market value on exchanges. TVL can be used to gauge the popularity and size of a particular blockchain project, as it indicates how much money investors have put into it.
The TVL metric was first developed for DeFi protocols such as Uniswap and Compound but has since become popular with other projects including Bitcoin and Ethereum. The higher the total value locked, the more users are believed to be using a given protocol and investing in its associated assets. This can provide insight into whether an investment opportunity should be taken advantage of or not, depending on user sentiment around it at any given time.
For example, if there is high TVL across multiple exchanges for one asset, then this could indicate that there is strong user demand for that asset – making it potentially worth investing in compared to others with lower levels of liquidity and/or investor interest behind them. Conversely, if the level of TVL falls drastically over time then this may suggest waning interest from investors which would make it less profitable to invest in that asset going forward.
