What is the total locked value (TVL)?
Total locked value (TVL) is a crucial metric in the world of cryptocurrency, reflecting the total value of the US dollar of Jalls active ingredients on a blockchain or a decentralized application (DAPP). This measure helps investors to assess the security of a project and the value perceived, similar to bank deposits. Understanding TVL is vital for anyone looking to invest in decentralized financing platforms.
Main to remember
- Total locked value (TVL) indicates the value of the US dollar of digital assets locked in a blockchain, reflecting the interest of investors and the value of the platform.
- The rise of decentralized financing platforms (DEFI) at the end of the 2010s led to the widespread use of TVL as a measure of the success of a platform.
- TVL is calculated by adding the values of cryptographic assets locked on a DEFI platform, offering an overview of the security and popularity of the project.
- Although a high TVL can report confidence in a platform, investors should study more to understand the true nature and the risks associated with the DEFI project.
- TVL can sometimes be misleading; It offers an instantaneous assets locked but does not take into account the actual user activity or the potential risks of a platform.
The evolution of the total locked value (TVL) in cryptocurrency
The cryptocurrency arrived in 2009 with the creation of Bitcoin, which was designed to be a currency between peers using the technology of the large digital book which would work outside the centralized control. The first projects focused on being a replacement currency for the financial system until the arrival of Ethereum in 2015, which has intelligent contract features and allowed developers to build permanent DAPPs on its network.
This led to a boom DEFI in 2020-2022, with a multitude of DAPPs offering digital financial services, such as loans, which are not based on traditional financial intermediaries such as brokerage houses, exchanges or banks.
To access a loan, users must pay digital assets or tokens, similar to a mortgage deposit. In cryptocurrency, this ice cube deposit is “locked” on this particular network, or always in circulation but not usable while it is dotted.
This has led to the creation of the term “total locked value”, which can give users an instantaneous of the importance of an application or a network according to the value of the marked assets locked on its chain.
Understand the calculation of the total locked value (TVL)
The total value locked on a chain is calculated by adding the total value of the digital assets locked on a specific DEFI platform or a specific DAPP. In this regard, digital assets are cryptocurrencies or stablecoins which are used as guarantee for loans or to add liquidity to a platform.
DEFI platforms can potentially provide their own data to investors to calculate their TVL. For example, if a DEFI platform said it had $ 1 billion in ether, $ 1 billion in bitcoin and $ 500 million locked, it would mean that it has $ 2.5 billion in digital active ingredients in TVL.
Advice
The most reliable cryptocurrencies and stables often constitute most of TVL.
Some investors use third -party analyzes like Defilma for TVL data. These platforms will use application programming interfaces (API) and other IT technologies to collect data from cryptographic applications; Users can simply look for the desired information on the site.
For example, by examining the rupture of the total assets on DEFI LLAMA on June 9, 2024, Ethereum was listed as the most important, with around 64.5 billion dollars. Tron had about 8.6 billion dollars of total locked value, and the BSC and Solana blockchains were the next two, with around $ 5.6 billion and $ 4.6 billion, respectively.
Insights TVL provides investors
TVL is crucial in crypto because it helps investors assess the risks and rewards of DEFI platforms. If a platform has a large amount of assets locked on its network, it gives the impression that it is a reliable secure platform by cryptographic investors.
This is similar to traditional banks, where investors analyze the level of deposits held by an institution. If a bank attracts deposits, it can earn money by lending or investing this money. The drop in deposits means that the bank lends less and earns less income.
The Boom DEFI from 2020 to 2022 has occurred because financial platforms have used their decentralized nature to provide significant annual percentage interest rate yields (APR) for milestone and loans. This also occurred at a time when world central banks pursued a collective monetary policy which was based on interest rates near zero to stimulate growth.
Important
High TVL does not guarantee security; Investors should seek the reputation of a project.
At a summit in December 2021, decentralized requests had a TVL of more than $ 179 billion. During the following months, a peak in technological actions reduced investors for risk and speculative capital was drawn from the cryptography sector. Central banks also carried out an aggressive cycle of the interest rate to combat inflation, and investors have moved to the security of government deposits. On October 23, 2023, the TVL in the cryptography sector was around $ 41 billion. It had increased by June 9, 2024 to around $ 109 billion.
Limits and risks of total value locked (TVL
TVL will only provide the total value of the active value locked in a platform; It does not highlight the activity levels. If a platform has a high TVL but of low levels of user activity, this can mean that a small number of investors represent TVL on this platform-generally, it is a red flag and would require more survey. Investors should also examine the data practices of third -party analysis platforms to ensure that all TVL figures are up to date.
The DEFI industry is not immune to the collapse of trusted institutions, as was obvious with the collapse of $ 60 billion in the Terra (Luna) loan protocol in 2022.
Fast
Some bad players artificially inflate TVL to draw attention to their projects.
This can make users more difficult for users to assess the true value of a project with precision, but it should not be a problem when evaluating the DEFI or DAPP projects with a strong reputation.
TVL is a practical measure to assess the quality of a project or a decentralized financing application, but it should not be the only measure used for an investment. Investors can show reasonable diligence in other areas, such as the experience of the founders, the platform governance model, the Tokenomics or the size of the platform community.
Is TVL good or bad?
Crypto fans use TVL to assess the interest of an application or a cryptocurrency platform. To this end, it is a good metric, but it should also be used with other measures in an analysis.
What is the total USD locked value?
The Total Value Located USD is the amount of the cryptocurrency locked in the DEFI applications in US dollars.
What is the locked verification of total value?
A total value locking verification refers to the verification of the total amount of a locked cryptocurrency. He can help you make investment decisions by indicating the liquidity of a cryptography, a perceived value of a project or an interest of investors in a project.
The bottom line
Total locked value (TVL) serves as a crucial indicator in the cryptocurrency industry, helping investors assess the security and popularity of decentralized financing platforms (DEFI). A platform with high TVL suggests strong investor confidence, similar to deposits in traditional banking. However, TVL should be used alongside other measures, as it does not keep user activity directly and can sometimes be artificially inflated. Investors are advised to make a deeper reasonable diligence, by examining the reputation and operational transparency of a platform, before making financial decisions. Be aware that the DEFI space can be unpredictable, with significant risks, as shown by past events such as the collapse of a terra.
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