What is Total Value Locked?
- Total value locked (TVL) is the overall value of crypto assets deposited in a decentralized finance (DeFi) protocol – or in DeFi protocols generally. It has emerged as a key metric for gauging interest in that particular sector of the crypto industry.
- TVL includes all the coins deposited in all of the functions that DeFi protocols offer, including:
- Importantly, it doesn't reflect the yield that these deposits are expected to earn. It only means the current value of the deposits themselves.
- A project’s TVL doesn't only change when users make new deposits or withdraw their assets. It is constantly changing in line with the fluctuating dollar value of all those assets in the cryptocurrency market. Some or even all of a DeFi protocol's deposits may be denominated in its native token. When its native token appreciates in value, the protocol’s TVL grows in tandem.
- Investors can look at TVL when assessing whether a DeFi project’s native token is valued appropriately. The market cap of the token may be high or low relative to the TVL of the project. The more extreme the relationship, the more overvalued or undervalued the token may appear.