Total Value Locked ( TVL ) has become a central indicator in the crypto ecosystem, whether for DeFi or blockchains in general. This indicator measures the total amount of assets locked in a project, whether on decentralized financial protocols or within the native mechanisms of a blockchain. It allows us to quantify the interest and trust that users and investors place in an ecosystem. This article aims to analyze in depth what TVL , how it is calculated, and why it is essential for assessing the robustness of crypto projects.
Table of Contents
What is TVL in crypto?
Total Value Locked ( TVL ) represents the total value of assets locked in a crypto project or blockchain. It is a key metric for assessing the health and adoption of a project within the DeFi ecosystem. TVL TVL different types of funds, each with a specific role in decentralized protocols.
The TVL is usually expressed in dollars, but it can also be valued in the project's native cryptocurrency (for example, in ETH for Ethereum ). This approach allows for a better understanding of the TVL , independent of market price fluctuations.
How is the TVL calculated?
Total Value Locked ( TVL ) is calculated by adding up the value of all assets locked in a project or blockchain. Several elements are taken into account to obtain this figure, including staking , decentralized exchange (DEX) pools , and smart contracts used for financial instruments such as lending and borrowing.
Staking : This is the process by which users lock their cryptocurrencies to participate in validating transactions on a blockchain, as in the case of blockchains using Proof of Stake (PoS) staking funds are included in the TVL ).
Decentralized exchanges (DEXs) : Users can deposit their cryptocurrencies into liquidity pools on decentralized exchanges like Uniswap , PancakeSwap, or Drift . This liquidity allows other users to trade cryptocurrencies directly without intermediaries. In return, liquidity providers earn a share of the transaction fees, and their deposits increase the TVL .
Smart contracts : These autonomous programs execute transactions automatically as soon as predefined conditions are met. They are used in financial instruments such as lending and borrowing . For example, a user can deposit cryptocurrencies as collateral in a smart contract on a platform like Aave or Compound , and then borrow other assets in exchange. As long as the conditions are met, the contract automatically manages the process, including repayment and the release of collateral.
A concrete example: Imagine a user deposits $100,000 worth of Ethereum into a liquidity pool on Uniswap . These funds will be used by other users to exchange Ethereum Ethereum other cryptocurrencies. Simultaneously, this user can receive liquidity tokens in return, which can then be reinvested in other DeFi protocols yield farming strategies .
- Collateral for stablecoin : Some platforms allow users to deposit cryptocurrencies as collateral to issue stablecoins stablecoin cryptocurrencies whose value is generally pegged to the US dollar). For example, on MakerDAO , users can lock ETH in a smart contract to obtain DAI , a stablecoin . This collateral is included in the TVL , as these funds are locked within the protocol.
In summary, TVL includes all funds that are blocked or committed in these different mechanisms, enabling the generation of returns or facilitating transactions.
Therefore, when you purchase NEAR and store it in your personal NEAR wallet, this value is not included in the Total Value Locked ( TVL ). TVL represents only funds locked in smart contracts on decentralized finance (DeFi) platforms. It measures the value of assets committed to DeFi protocols, such as lending platforms, liquidity pools, or stakingservices, where funds are actually used or locked for specific activities.
Therefore, if your NEAR tokens are simply stored in your personal wallet, they are not counted towards the TVL , as they are not actively participating in DeFi contracts or protocols on the NEAR blockchain. For your NEAR tokens to be included in the TVL , you would need to deposit them into decentralized applications ( DApp ) or protocols such as staking , decentralized exchanges (DEXs), or lending platforms .
Want to dive into the world of cryptocurrencies but don't know where to start? We've created a clear, illustrated, and educational that walks you through the process step by step with accessible explanations and detailed screenshots.
Divided into two main parts , this guide will teach you how to use a centralized exchange to buy your first assets, and then how to manage a decentralized wallet to secure and hold your crypto independently.
What you will learn:
✔ Buying your first cryptocurrencies – A detailed tutorial to get started on a centralized exchange platform.
✔ Securing your transactions – Best practices for buying, selling, and trading cryptocurrencies while minimizing risk.
✔ Understanding stablecoins stablecoin Their usefulness, differences, and how to use them to stabilize your funds during periods of volatility.
✔ Mastering a decentralized wallet ( DeFi ) – Learn how to manage your assets without intermediaries and interact directly with the blockchain.
✔ Transacting via a decentralized wallet – A practical guide to trading cryptocurrencies independently.
✔ Exploring decentralized finance (DeFi) – Discover advanced concepts like staking and NFTs .
📥 Download your free guide by filling out the form below:
Why is TVL a key indicator for investors?
(VAL TVL is a key indicator for investors because it allows them to assess the health of a protocol, its ability to attract capital , and the trust . Indeed, a TVL reflects strong adoption, meaning that many users are locking up their funds in the protocol, whether for activities like staking , liquidity pools , or lending and borrowing via smart contracts. This demonstrates that the project offers attractive financial products and encourages investors to allocate their assets to it.
However, it's important to note that evaluating TVL TVL dollars can sometimes be misleading. A large portion of the funds locked in a protocol are cryptocurrencies , whose value fluctuates significantly relative to stablecoin . Therefore, a drop in TVL USD may not reflect a true decrease in the amount of cryptocurrencies locked, but simply a fluctuation in the price of the underlying assets. To obtain a true health check of the protocol , it may be more relevant to evaluate TVL in the native currency , such as ETH for Ethereum Ethereum SOL for Solana Solana This allows for an analysis of the protocol's performance independently of market price fluctuations speculation by investors who buy the token without locking it in the protocol.
In summary, the evolution of TVL is a crucial indicator for monitoring investor confidence , the financial stability of a project, and its ability to offer attractive return opportunities , while taking into account the natural fluctuations of the cryptocurrency market.
TVL and market capitalization: not always a direct link with the value of cryptocurrencies
TVL and its market capitalization are not always directly correlated. Indeed, a protocol with a high TVL does not necessarily imply a high market capitalization . Some projects attract significant funds locked in their smart contracts, but purchasing their token remains unattractive to investors, leading to a relatively low market capitalization. This can be explained by value capture : if the token does not have a central role or a clear utility within the protocol, investors may not feel compelled to buy it, even if a large amount of funds are locked in the project.
Conversely, some projects with a low TVL can achieve a high market capitalization due to intense speculation surrounding their token. This typically occurs when investors bet on promises of future development or partnerships , rather than the actual value of the funds locked in the protocol.
Furthermore, the different roles of tokens within protocols can affect investor incentives. Some tokens are essential for participating in specific activities , such as staking or governance, while others may have a more peripheral function, which influences their market demand. For example, a protocol that requires users to buy and hold its token to access certain features or to earn rewards may see its market capitalization increase, even if its TVL remains modest. Conversely, a protocol that does not directly link its token to core activities may have a TVL without its market capitalization following the same trajectory.
Thus, although TVL can be a good indicator of a project's health , it is essential not to confuse this figure with market capitalization , as the dynamics between the two depend on multiple factors related to value capture and the roles assigned to the token in the protocol.
Liquidity Providing and Yield Farming: Their impact on TVL in crypto
These two DeFi mechanisms are directly linked to TVL , as they depend on funds locked in smart contracts.
Liquidity Providing
Liquidity providing DEX platforms , such as Uniswap , Drift or DYDX .
These DeFi protocols rely heavily on user liquidity. The more liquidity there is, the higher the value TVL , and the more attractive the returns offered. These funds allow users to conduct transactions on the platform, and in return, liquidity providers are rewarded with a share of the transaction fees and the platform's native tokens.
Yield Farming
Yield farming , on the other hand, involves using liquidity already deposited in DEXs, which is then reinvested in different DeFi protocols to generate higher returns. Users thus receive rewards in the form of additional tokens. In practice, yield farming often involves funds being locked in multiple protocols simultaneously, which contributes to increasing the TVL of the ecosystem.
These mechanisms allow investors to hold assets while generating capital gains .
Factors influencing TVL in crypto
Several factors can influence the TVL Total Value Added) of a project, apart from market fluctuations:
Cryptocurrency price fluctuations : Since TVL is generally calculated in US dollars, a drop in cryptocurrency prices can lower TVL , even if the amount of locked assets remains constant. Therefore, it's useful to track TVL in both fiat currency and native cryptocurrencies for a clear overview.
Incentives : Incentives are rewards offered to users for locking their funds in a protocol. These can include high yields, additional tokens, or benefits such as transaction fee discounts. These incentives are essential for maintaining or increasing the Total Value Lock (TVL) TVL as they encourage users to lock their funds for extended periods.
Network effect : The more users a project attracts, the more its TVL tends to grow. This snowball effect strengthens the project's credibility and attracts new participants.
Wash Trading: a trap for TVL
Wash trading is a common practice in some DeFi protocols and exchanges. It involves making artificial trades between accounts controlled by the same person or entity to inflate trading volumes and, potentially, TVL ). This creates an impression of increased liquidity or popularity, misleading investors about the true health of a project.
How to spot wash trading?
Wash trading can be detected by observing repetitive patterns in trading volumes, or abnormally similar buy and sell orders executed in very short periods. In some cases, analytics platforms like Nansen or Glassnode monitor these suspicious activities to warn users.
Comparison of TVL between blockchains: Ethereum vs challengers
Ethereum : the leader in TVL
Ethereum remains the dominant blockchain for TVL thanks to its large ecosystem of DAppand DeFi protocols. However, in 2024, TVL growth on Ethereum stabilized, while emerging blockchains experienced rapid growth.
Solana, Sui, Aptos and Base: rapidly expanding challengers
In 2024, Solana , Sui, and Aptos stood out due to rapid growth in their TVL . Solana , thanks to its ability to process a large number of transactions at low cost, is attracting a growing number of projects and users, with its TVL increasing from $330 million in October 2023 to $5.6 billion in October 2024 , corresponding to a variation from 14 million to 39 million SOLs locked in the protocol.
More information about the rewards can be found here.
Conclusion
Total Value Locked ( TVL ) is a key indicator for assessing the health and stability of projects within the crypto ecosystem, whether DeFi or blockchain. It's crucial to analyze not only the raw TVL value TVL but also its evolution over time, the incentives offered, and practices like wash trading. With challengers like Solana , Sui, and Aptos, the future of their TVL looks promising, although the Ethereum continues to dominate.
FAQs about TVL in crypto
1. What is TVL in crypto?
Total Value Locked ( TVL ) represents the total value of assets locked in smart contracts or staking for a crypto project, whether on blockchains or DeFi protocols. It measures user engagement and interest in a project, thus reflecting its popularity and financial stability.
2. What is the difference between the TVL of a blockchain and that of a DeFi protocol?
The TVL of a blockchain measures the assets locked in the native mechanism (such as staking) to secure the network and participate in governance. For a DeFi protocol, the TVL represents the funds locked in smart contracts used to lend, exchange, or generate returns, as in DEXs or lending platforms.
3. How do yield farming and liquidity providing affect TVL ?
Liquidity providing contributes to TVL by allowing users to deposit cryptocurrencies into liquidity pools to facilitate transactions on DEXs, thereby increasing TVL . Yield farming then uses this liquidity to reinvest in other DeFi protocols, further increasing TVL by generating additional returns.
4. How to protect yourself against wash trading in DeFi projects?
Wash trading TVL data by artificially creating high trading volumes. To avoid this, it's advisable to use blockchain analysis tools like Nansen or Glassnode , which detect suspicious patterns of repetitive transactions. It's also important to verify the legitimacy of a project's trading volumes before investing.
5. What is an incentive in a DeFi project and how does it impact TVL ?
Incentives incentives offered to users to lock their funds in a DeFi project, typically in the form of yields, bonus tokens, or benefits such as transaction fee discounts. These incentives attract more liquidity, thereby increasing the TVL ).
Cryptocurrency investments are risky. Crypternon investment advice .
Some links in this article are affiliate links, which means that if you purchase a product or sign up through these links, we will receive a commission from our partner. These commissions do not incur any additional cost to you as a user, and some partnerships allow you to access promotions.
AMF Recommendations. There is no guaranteed high return; a product with high potential returns implies high risk. This risk must be commensurate with your investment goals, your investment horizon, and your ability to lose some of your savings. Do not invest if you are not prepared to lose all or part of your capital .
To learn more, read our Legal Notices , Privacy Policy and Terms of Use .
Yoann
Trained as an engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future, I am participating in its democratization by developing Crypternon.
