Total Value Locked

Overview

Total Value Locked (TVL) has quickly become one of the most tracked metrics for the DeFi space. This indicator monitors the aggregate dollar amount currently deposited into DeFi protocols’ smart contracts. As some DeFi protocols such as lending have liquidity withdrawn from activities such as borrowing, TVL subtracts the amount borrowed to obtain the aggregate “cash” held by DeFi protocols. Therefore:

TVL = liquidity supplied - liquidity withdrawn

💡 How can I use it?

Total value locked is a great metric to track supply-side adoption of DeFi protocols. Since most protocols do not have liquidity withdrawn (aside from lending protocols), the total value locked ends up being close to the total liquidity supplied to DeFi protocols. However, it is worth noting this fact when comparing TVL across lending protocols.

Growth in TVL shows that users are more confident depositing their capital into DeFi. It does not necessarily mean, though, that more people are using DeFi protocols as it could be simply whales making larger deposits. That being said, the growth in value locked is still beneficial for DeFi users as it makes these applications run more efficiently. For instance, decentralized exchanges (DEXes) have lower price slippage when they have greater liquidity and therefore higher value locked.