Total Value Locked
Total value locked (TVL) is the market value, usually in US dollars, of the crypto assets users have deposited in a decentralised-finance protocol's smart contracts — lending collateral, exchange liquidity, vault deposits. It is DeFi's nearest equivalent to assets under management: a measure of deposits and trust, not of revenue or profit.
- Also known as
- TVL, DeFi TVL, Value locked
- Used at
- ranking DeFi protocols and blockchains, research by investors and token analysts, and protocols' own marketing
- Who measures it
- data aggregators such as DefiLlama, which computes each protocol's figure with open-source adapters that mostly read balances on-chain and update hourly
- What is excluded (DefiLlama's method)
- borrowed coins, the protocol's own governance tokens staked in it, tokens it mints itself, receipt tokens re-deposited elsewhere (flagged as double counting), native chain staking, and "unproductive" deposits such as points farming
- Scale
- DefiLlama's aggregate peaked at about $178bn in November 2021 and fell to about $36bn in October 2023, largely with token prices
- Limits
- TVL moves with the prices of the deposited tokens, can be bought with incentives, and says nothing about fees, revenue or the security of the contracts
How total value locked works in practice
TVL is calculated by reading the balances held in a protocol's contracts and multiplying each token by its market price. A lending market's TVL is the collateral and supplied assets in its contracts; a decentralised exchange's is the tokens in its liquidity pools. Because the figure is in dollars, TVL can halve without a single withdrawal when the market falls, so a change has to be split into price and flows before it means anything.
The number is also easy to manufacture. Liquidity-mining rewards pay depositors in the protocol's own token and attract capital that leaves when the rewards stop; receipt tokens from one protocol deposited in another count twice if added together; loops of deposit, borrow and re-deposit inflate balances without new capital. Aggregators strip out much of this, but protocols' own dashboards often quote the most flattering version.
Analysts therefore read TVL next to fees and revenue, the concentration of deposits in a few wallets, the share held in stablecoins against volatile tokens, and how much depends on current incentives.
For a buyer of a DeFi-related business, or an investor in a protocol's token, TVL plays the part AUM plays for an asset manager: a sign of trust and scale that is worth something only if it is sticky and earns fees. The diligence question is how much would stay if the rewards ended tomorrow.
Example
A lending protocol reports TVL of $600m: $250m of ether posted as collateral, $200m of stablecoins supplied to lenders, and $150m of a liquid-staking token that the issuing staking protocol also counts. Removing the double count leaves $450m. Over the next quarter ether falls 30%, cutting the collateral to $175m and the staking tokens to $105m without a single withdrawal. The protocol also halves its token rewards, and $120m of stablecoin deposits — 80% of it from four wallets — leaves within two weeks. Reported TVL falls to $360m. On the adjusted basis it falls from $450m to $255m: $75m of the drop is price and $120m is capital leaving. Fees fall only 10%, because the departed stablecoins had been farming rewards, not being borrowed.
Common mistakes
- Reading a rise in TVL as inflows when token prices did the work. - Adding protocols' figures together and counting the same deposits twice. - Treating TVL as revenue; deposits earn a protocol nothing unless they generate fees. - Ignoring how much of the balance sits in a few wallets that can leave in one transaction. - Quoting a protocol's self-reported number rather than an aggregator's documented method. - Forgetting that TVL bought with incentives disappears when the incentives stop.