What does the total value locked mean?
Since the heyday of decentralized finance (DeFi) in 2020, financial market professionals have embraced a new type of investment and sought ways to measure its performance. Along with market cap, trading volume, and total and outstanding supply, Value Locked (TVL) is a cryptographic indicator popular with DeFi investors to assess the total value of assets in US dollars or any amount in fiat currency Across all DeFi protocols or a single DeFi
project, DeFi assets include rewards and interest derived from specific services such as lending, staking, and liquidity pools, delivered in the form of smart contracts. Participating in TVL, for example, is a particularly useful indicator for investors looking to support the DeFi platforms with the highest rewards. It is the total value locked in the DeFi staking protocols and represents the number of assets pledged by liquidity providers.
By 2022, TVL will have reached nearly $2 billion globally, up from $400 million in the previous two years. With the growing popularity and value of DeFi in cryptocurrency, TVL has become an essential metric for investors looking to assess whether the entire ecosystem or a single protocol is healthy and worth investing in. While TVL is defined as the total value of cryptocurrency locked in a smart contract, underlying conditions can affect the value of DeFi projects. Several elements tally in TVL value except for deposits, withdrawals, and the amount, that a protocol has. The TVL also changes with the value of the fiat currency or native token.
Some protocols’ buckets may be denominated in the project’s native token, so their TVL varies with their value. As a given token increases in value, so does the protocol’s TVL.
Why does TVL matter in DeFi?
For DeFi platforms to work, they must deposit capital as collateral for loans or liquidity in trading pools. TVL is important because it shows the impact of capital on returns and the usability of DeFi applications for traders and investors. When a DeFi platform’s TVL increases, it is followed by an increase in liquidity, popularity, and ease of use. These factors give the success of the project. Higher TVL means more capital is tied up in DeFi protocols, and participants enjoy greater benefits and profits from a lower TVL implies less availability of money, which leads to lower returns.
The market share of DeFi protocols is easily ascertained via the platforms of analytics companies such as DeFi Pulse and DefiLlama, which provide data on the number of crypto assets locked in their respective smart contracts. DeFi participants tracking TVL on DeFi Pulse should be aware that the platform monitors protocol smart-contract movements on the Ethereum blockchain by only reporting the total balance of Ether (ETH) and ERC -20 tokens mines. DefiLlama, on the other hand, calculates the TVL by combining the total balance of all DeFi chain tokens or extracting each platform separately.
Which crypto has the highest TVL?
Due to Devi’s extraordinary growth in 2020, the combined TVL of all DeFi protocols increased rapidly and sharply by the end of 2021. At the beginning of 2020, the combined TVL of all DeFi platforms was around $630 million, according to DefiLlama. In the first quarter of 2022, it had already reached a value of more than $172 billion. More than half of that went to one protocol, MakerDAO, which continued to be one of the most well-known protocols alongside Curve and Aave. The curve is the crypto with the highest TVL and market share at 9.7% and $17 billion TVL, followed by Lido with $15.4 billion TVL, Anchor with $12.6 billion, and MakerDao with $11.5 billion.
Which crypto has the highest TVL?
Due to Devi’s extraordinary growth in 2020, the combined TVL of all DeFi protocols increased rapidly and sharply by the end of 2021. At the beginning of 2020, the combined TVL of all DeFi platforms was around $630 million, according to DefiLlama. In the first quarter of 2022, it had already reached a value of more than $172 billion. More than half of that went to one protocol, MakerDAO, which continued to be one of the most well-known protocols alongside Curve and Aave. The curve is the crypto with the highest TVL and market share at 9.7% market share and $17 billion TVL, followed by Lido with $15.4 billion TVL, Anchor with $12.6 billion, and MakerDao with $11.5 billion.
Largest network by DeFi TVL
In 2022, Ethereum emerged as the largest DeFi TVL network, accounting for more than half of the total DeFi volume globally. To give some perspective, the Ethereum DeFi network includes just under 500 protocols. It has a TVL of about $73 billion with 64% of the market share, compared to BNB Smart Chain, the second-highest TVL at $8.74 billion with a 7.7% market share, Avalanche at $21 billion and 4.5% market share, and Solana at $4.19 billion and 3.68% market share. It is very easy to read a TVL cryptograph.
Represents the TVL for the entire DeFi market, expressed in USD, with the percentage of movement in the last 24 hours and the cryptocurrency with the greatest dominance.
The metric of the total value locked across all chains clearly shows that Ethereum is the network with the highest TVL. In essence, TVL is an excellent indicator for the DeFi cryptocurrency space and probably the most widely used to gauge the health and growth of the market. However, while TVL growth indicates a positive outlook for the market, its reliability should be viewed cautiously as it is almost impossible to interpret the indicator accurately. Market volatility is one of the most important variables that can greatly affect the value of locked assets, starting with the price of ETH, on whose platform most of the assets reside. The significant increase in the value of ETH price inevitably impacted DeFi TVL as of 2020, but this means that the total value locked can increase without new users or capital entering DeFi.
Also, due to the nature of DeFi services, money can be easily moved and counted multiple times, miscalculating the protocols’ liquidity capacity. Like all indicators, TVL is only an estimate of market conditions and should not dictate an investor’s strategy due to its error and approximation.