TVL (Total Value Locked)
What is TVL (Total Value Locked) in crypto?
TVL (Total Value Locked) is a key metric that shows the total value of assets locked inside decentralized finance (DeFi) protocols. It represents the total amount of cryptocurrencies deposited in smart contracts for purposes like lending, staking, liquidity providing, or yield farming.
TVL helps investors and users measure the size, health, and adoption of a DeFi platform or blockchain ecosystem.
How is TVL calculated?
TVL is calculated by summing up the value of all crypto assets locked in a protocol, expressed in USD or another fiat currency equivalent. These assets can be:
Staked tokens
Supplied liquidity in pools
Collateral in lending platforms
The formula is:
TVL = Total units of each token locked × Current market price of each token
Why is TVL important in DeFi?
Measures protocol popularity and trust – Higher TVL means more users and confidence in the protocol.
Liquidity indicator – Shows how much capital is available for trades, loans, or staking.
Benchmark for competition – TVL rankings help compare different DeFi platforms.
Investment indicator – High and growing TVL can attract investors and developers.
Types of platforms where TVL is used
Platform Type | Example Platforms | Purpose |
|---|---|---|
Lending platforms | Aave, Compound | Borrowing and lending crypto assets |
Decentralized exchanges (DEX) | Uniswap, Curve, PancakeSwap | Liquidity provision for trading |
Staking platforms | Lido, Rocket Pool | Staking of ETH and other tokens |
Yield farming protocols | Yearn Finance, Beefy Finance | Automated yield optimization |
Cross-chain bridges | Multichain, Wormhole | Moving assets between blockchains |
How to analyze TVL trends?
Rising TVL – Signals growing user adoption and trust.
Falling TVL – May indicate loss of user confidence, outflows, or market downturn.
Comparing TVL across platforms – Helps investors identify leading and emerging protocols.
TVL to market cap ratio – Used to assess if a DeFi token is overvalued or undervalued.
Limitations of TVL as a metric
Does not show profitability – High TVL doesn't mean the protocol generates high revenue.
Affected by token prices – A drop in token price lowers TVL even if users don’t withdraw funds.
Can be manipulated – Short-term incentives (e.g., liquidity mining) can temporarily inflate TVL.
Conclusion
TVL is a fundamental metric to understand DeFi protocol size and liquidity, but it should be used along with other indicators like revenue, active users, and security. Analyzing TVL trends helps investors make smarter decisions and assess the real health of a platform.
