Over the past few months, several cryptocurrencies have been on the market rollercoaster. In the midst of this volatile period, several crypto assets have seen a pullback from their Decentralized Finance (DefI) investments. The total value held by any DeFi platform within its smart contracts is called Total Locked Value or TVL.
TVL magnitude is basically a metric that shows how popular a given DeFi lending or exchange application is, in terms of attracting attention from active users and users making monthly transactions.
TVL is the amount of user funds deposited into a DeFi protocol. These funds can be invested in the project for several functions such as staking, liquidity pools or loans.
The indicator allows investors to understand which DeFi platforms are more profitable for investment. The higher the TVL of a DeFi platform, the better it is considered.
While market capitalization is indicative of the appreciation of DeFi by active, passive investors – TVL indicates the popularity of a project with the number of active users. This is a good measure to assess the sustainability of a project.
If one wishes to gauge the future potential of a DeFi project, then one must check its market cap. But if one wants to check the current scenario of a project, TVL is the indicator you want to look at.
Industry body Nasdaq says it’s best to only use platforms with a TVL above $1 billion (roughly Rs. 7,969 crore) and audited by blockchain cybersecurity firms like CertiK.
The Ethereum blockchain has the most total value locked in decentralized exchanges and lending protocols, according to CoinDCX.