In this blog, we shall know about one of the important metrics used by investors in DeFi to evaluate a protocol, TVL. We shall also discuss other aspects related to it as well as some of the DeFi projects with the highest TVL.
Definition
In the world of decentralized finance, TVL or Total Value Locked of a platform can be said to be the sum of all the assets (usually in US dollars) that is deposited in the smart contracts of such DeFi platforms. The overall TVL of the DeFi industry is the sum of the values of assets in all individual DeFi platforms.
TVL can be an important factor indirectly impacting the popularity of a DeFi platform among its end users.
How to calculate TVL?
Depending on the use cases, TVL can be calculated differently. The examples of such popular use cases which might help you understand its concept better are listed below.
Dexes
In decentralized exchanges using liquidity pools, TVL is calculated by adding the value of the assets in their pools’ smart contract. In order-book type exchanges as well, TVL is calculated in a similar way.
Lending and borrowing protocols
For DeFi platforms providing the service of lending and borrowing, the TVL is calculated by adding the sums of all the assets deposited by both the lender and borrower (in the form of collateral) into the DeFi platform.
Derivatives platforms
In the case of protocols dealing with derivatives, TVL is calculated by finding the sum of the values of assets that the users deposit in its smart contract to generate synthetic assets like USD, gold, or cryptocurrencies.
Difference between Market Cap and TVL
In crypto, the market cap (short for market capitalization) of a DeFi platform at a given time is calculated by multiplying the current price of its individual token by the total number of its tokens in circulation.
Market cap helps to evaluate a DeFi platform by indicating its acceptance by the entire market (which also includes passive investors). Passive investors invest in a DeFi protocol without necessarily being an active user of that protocol. They can be considered stakeholders of that particular platform.
On the other hand, TVL reflects the level of participation by active users who transact on the platform regularly. TVL thus helps speculate the current acceptance of a particular DeFi protocol by the market.
The TVL data hence proves to be an important metric for determining the health of a DeFi protocol.
TVL ratio and its importance
For any DeFi protocol, the ratio of the value of its market cap to its TVL value is called its TVL ratio. This measure combines the statistics of the values of both the market cap and TVL.
A smaller TVL ratio indicates that a protocol might be undervalued and hence is potentially promising from an investment point of view. It helps investors figure out smaller but still promising DeFi projects.
How to check out the TVL value of Chains & Protocols
Following are some of the popular websites where you can check the TVL values along with other measures of the DeFi projects you are interested in.
DeFiPulse
DeFiPulse is one of the most popular websites used to speculate TVL value. Because of its slow pace to update new projects, the TVL show is lower than some of the other websites. Despite this, DeFiPulse is heavily relied upon by a majority of people in the DeFi space.
Defi Llama
Defi Llama is another such platform where one can speculate the TVL values along with other measures. It is very easy to switch between different categories of TVL data. It also has a section for speculating the TVL of NFT projects.
DeBank
DeBank is yet another website to check the TVL of the latest DeFi projects. It is updated regularly to include new projects as soon as possible. Apart from being user-friendly, the website is also very aesthetically pleasing which makes it even more popular.
Other popular websites include CoinGecko and EtherScan.
Top 5 blockchains with highest TVL value
The following data has been taken from Defi Llama showing the top blockchains with the highest TVL value.
- Ethereum- TVL value is $154.92 B and TVL ratio 3.02651
- Terra- TVL value is $18.95 B and TVL ratio 1.67537
- Binance Smart Chain- TVL value is $16.67 B and TVL ratio 5.34016
- Avalanche- TVL value is $12.54 B and TVL ratio 2.31544
- Solana- TVL value is $11.75 B and TVL ratio 4.71911
