Total Value Locked: What TVL Means In DeFi

Total locked value (TVL) has become an important metric for assessing decentralized finance (DeFi) protocols. Many of today’s traders use this simple measure to understand a system’s strength and potential. This article will explain what TVL is, how it relates to the DeFi ecosystem, and how it’s calculated. Once you understand what this essential metric says about a protocol, you’ll be able to make it a key factor in your most important crypto decisions.

What Is Total Value Locked (TVL)?

TVL is the value of all the assets contained within a DeFi protocol. It has become a key metric for appraising DeFi projects because it provides a useful measure of a protocol’s general health.

By counting all the coins currently staked within a protocol, TVL reveals the total supply underlying the system. This supply corresponds to the capital locked within the system, and it directly reflects the potential proceeds available for investors from involvement in the protocol.

You can also use the TVL to determine another key factor about a protocol, the TVL ratio. This can show you whether an asset is currently being undervalued, a vital piece of information for any crypto investor.