Total Value Locked (TVL) is the cumulative value of all assets staked or locked in a DeFi protocol, indicating its liquidity and health.
Total Value Locked (TVL) Meaning
Date: Jul 17, 2023 | Updated: Jul 19, 2023
Total value locked (TVL) is a metric that refers to the sum of assets that are staked or locked in a protocol.
What is Total Value Locked In DeFi Protocol?
TVL is a crucial metric in Decentralized Finance (DeFi). It reflects the aggregate value of assets staked or locked in a protocol. These assets are secured with smart contracts. TVL includes initial funds staked by investors and rewards from staking, lending, liquidity pools, and yield markets.
- TVL indicates a DeFi protocol’s health and performance.
- An increasing TVL suggests rising liquidity, popularity, and usability.
- A high TVL denotes a robust liquidity pool, attracting investors.
- A low TVL points to limited funds and lower investor yields.
How is TVL Calculated?
To calculate TVL:
- Sum the value of all assets locked within the platform.
- Convert these values to a standard unit, like USD.
- Add up the total value to find the protocol’s TVL.
Data aggregators track TVL across DeFi, offering a dashboard for monitoring the ecosystem’s growth.
The TVL ratio helps assess if a DeFi asset is undervalued or overvalued. A ratio above 1 indicates overvaluation, while below 1 suggests undervaluation.