Overview of Total Value Locked

We have seen that at the beginning of 2020, the Total Value Locked (TVL) index of the entire DeFi industry was only $ 600 million, but by 2022, this number has reached more than $ 200 billion according to Defillama website statistics. So what exactly is the TVL index? what does it mean in the DeFi economy? let’s find out below:

What is Total Value Locked?

Total value locked (TVL) is the total amount of crypto asset value locked in a DeFi smart contract. It represents the amount of assets currently held in a particular DeFi protocol such as Dexes, Lending and Borrowing, Staking, Derivatives, Synthetics,Insurance, Oracle…

The higher this TLV indicator, the greater the interest of investors, and will be trusted by investors and put the asset in that protocol.

Based on the current TVL index as of April 2022, we can see that the Dex segment is receiving the most attention from investors and currently accounts for the largest proportion in DeFi with over 67.8 billion dollars locked, followed by lending, bridge, Liquid Staking, Yield…

The formula for calculating TVL

+ Total Value Locked (TVL) = Total Token locked* Current Price

In addition to evaluating the potential for a DeFi project to be undervalued or overvalued, we often consider the ratio of the market capitalization to the TVL index, specifically:

TVL Ratio = Total Market Cap/TVL

We can see that the higher the ratio, the lower the value of the property, which is not always the case when looking at previous projects, but can also be seen as a way to evaluate project price.

Meaning of TLV in DeFi

– Based on DeFi’s total TVL index, we can see the level of investor interest in the DeFi sector, showing the potential and growth of the DeFi sector compared to the entire crypto market.

– Based on the TVL index of the chain networks, we can track which ecosystem is the most cash flow, see which network’s ecosystem investors are most interested in.

– Based on the TVL index of specific protocols in DeFi, we can see the flow of money between protocols in a particular ecosystem.

– Based on the TVL Ratio, we can see if its actual TVL ratio is undervalued compared to the market price.

–In addition, the TVL index on the Proof of stake blockchain reflects the security and privacy of the blockchain network, or how trusted users are when staking and delegating their tokens to the Validators.

->By monitoring the TVL index, we can timely capture information and find investment opportunities in the project in a more reasonable way.

Website to view the TVL

You can refer to some websites below to see the TVL index:

Defillama: is an aggregate of TLV data of many different ecosystems

Defipulse: is an aggregate of TLV data of the Ethereum ecosystem

Defistation: is an aggregate of TLV data of the Binance Smart Chain (BSC) ecosystem

Conclude

Total Value Locked (TVL) is a very important indicator for you to refer to before investing in a certain project, however, you should combine many other factors to be able to give an investment result better

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