01 June 2022| ZebPay Trade-Desk
Aside from market cap, trading volume, total and circulating supply, Total Value Locked (TVL) is a cryptometric that is popular with DeFi investors. It is used to assess the total value of assets in US dollars or any fiat currency that are stored in all DeFi Protocols or in a single DeFi project. DeFi assets embody rewards and interest, returning from typical services like lending, staking and liquidity pools, provided within the type of good contracts. TVL in staking, for example, could be a notably helpful indicator for investors trying to support the DeFi platforms with the very best rewards. it’s the whole price secured in the DeFi staking protocols and represents the quantity of assets deposited by the liquidity providers.
In 2022, TVL has reached nearly $2 billion globally, growing from $400 million in the previous 2 years. With the increasing quality and value of DeFi in the crypto space, TVL has become a necessary metric for investors who wish to assess if the entire scheme or one protocol is healthy and price finance. Whereas TVL is just outlined because the total value of cryptos are secured in an exceedingly good contract. There are underlying conditions that will have an effect on the worth of DeFi projects.
Numerous components concur on TVL’s worth although deposits, withdrawals conjointly determine the quantity a protocol is really holding. The TVL also changes with the value of the edict currency or the native token. Some protocols’ deposits may be denominated within the project’s native token, therefore its TVL varies with its value. If a selected token grows in value, so will the protocol’s TVL, too.
When a DeFi platform’s TVL increases, so does an increase in liquidity, popularity, and ease of use. These factors contribute to the success of the project. A higher TVL means more capital is tied up in DeFi protocols and participants enjoy greater benefits and profits. A lower TVL implies less money availability, which leads to lower returns. The market share of the DeFi protocols can be easily ascertained via the platforms of analytics companies such as DeFi Pulse and DefiLlama, which provide data on the number of crypto assets locked in their respective smart contracts.DeFi participants tracking TVL on DeFi Pulse should be aware that the platform monitors smart contract movements of protocols on the Ethereum blockchain by only tracking the total balance of Ether (ETH) and ERC20 token mining. DefiLlama, on the other hand, calculates TVL by combining the total balance of all DeFi chains or extracting each individual platform separately.
However, participants might choose more responsible protocols that use a $1 billion TVL metric, that should be a secure bet. The next TVL is healthier because it should indicate a healthy and high demand platform with a powerful development team and a valuable use case. All of this could attract additional participants and investors and facilitate an increase in the TVL of the project. On the other hand, despite a lower TVL, if the DeFi protocols provide high returns, then one needs to raise a red flag
To calculate the TVL of a DeFi protocol, 3 main factors are considered:
- Calculations of the project’s supply
- The maximum amount of the circulation supply available
- The current price of the asset
It is simple to calculate the crypto TVL. First, the market cap of associate degree quality should be found by multiplying the DeFi project’ offer by its current price. Then dividing the capitalisation by the utmost outstanding provider provides the TVL. By dividing the full market capitalization of a blocked asset by the total blocked value, we tend to get the TVL magnitude relation. The TVL ratio will facilitate confirmation if a DeFi asset is undervalued or overvalued.When the ratio is a smaller amount than 1, the asset is often undervalued and it is a lot more enticing to investors. Once market cap exceeds TVL in crypto, the quality could also be overvalued, with very little to no area for growth.
In step with DefiLlama, as of early 2020, the combined TVL of all DeFi platforms was around $630 million. within the half-moon of 2022, it had already reached a price of over $172 billion. Over half of this was accounted for by one protocol, MakerDAO remained one in every of the foremost well-known protocols in conjunction with Curve and Aave. Curve is the crypto with the best TVL and market share with 9.7% and $17 billion TVL, followed by recreation facility with $15.4 billion TVL, Anchor at $12.6 billion and MakerDao at $11.5 billion. to grant some perspective, the Ethereum DeFi network includes slightly below five hundred protocols. it’s a TVL regarding $73 billion with a 64% market share compared to BNB good Chain, the second highest TVL value $8.74 billion with a 7.7% market share, Avalanche with 5, $21 billion and 4.5% market share and Solana with $4,190 million and 3.68% market share.
It is terribly simple to browse a TVL cryptograph. It represents the TVL for the whole DeFi market, expressed in USD, with the share of movement within the last twenty four hours and also the most dominant crypto asset. The total fastened price metric across all chains clearly shows that Ethereum is the network with the best TVL.Essentially, TVL is an excellent indicator for the DeFi crypto space and probably the most used to gauge the health and growth of the market. However, while TVL’s growth indicates a positive outlook for the market, its reliability should be viewed with caution as it is almost impossible to interpret the indicator accurately.
Market volatility is one of the main variants that can greatly affect the value of locked assets, starting with the price of ETH, on whose platform most of the assets are located. The significant increase in ETH price value has inevitably impacted DeFi’s TVL as of 2020, but this means that the total value locked can increase without attracting new users or capital to DeFi. Also, because of the character of DeFi services, cash may be effortlessly moved and counted more than one times, leading to a misjudgment of the protocols’ liquidity capacity. As with all indicators, the TVL is also an estimate of marketplace situations and need to no longer dictate an investor’s approach because of its blunders and approximation.
Disclaimer: This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation, or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness, or reliability of the information, opinions, or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptocurrencies viz. Bitcoin, Bitcoin Cash, Ethereum, etc. are very speculative and are subject to market risks. The analysis by the Author is for informational purposes only and should not be treated as investment advice.