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TVL (Total Value Locked): What is it? and Where can you find it? - Smart Contract Metric

TVL (Total Value Locked): What is it?

TVL (Total Value Locked) represents the dollar value of cryptocurrency that is being staked (i.e. pledged) to a specific smart contract (or blockchain based protocol).  This is similar to deposits at a bank or AUM (assets under management) at a fund.  With smart contracts automating aspects of financial services, this measure shows how much that financial service is being used.

How do you use TVL?

TVL can be used to compare similar financial protocols.  For example, the Maker (MKR) protocol (the largest lending protocol) has just under $15 Billion USD locked.  This means that $15 Billion USD worth of cryptocurrency has been pledged to the protocol.  To make a relevant comparison, the Compound (COMP) protocol (another lending protocol) has just under $6 Billion USD locked.  By looking at TVL, it is clear that MKR has more than double the pledged assets COMP (so in the bank analogy, MKR lends more than double the amount COMP does).  Some crypto analysts only looking at Market Cap over TVL, just like how some stock analysts look at Price/Book Value to determine what can be argued as "cheaper".  
 
In the above example, the Market Cap of Maker is just under $1.5 Billion while just under $0.8 Billion.  Making the MCap/TVL for MKR = $15B/$1.5B ~=10 and for COMP = $6B/$0.8B ~= 7.5.  So looking at this metric alone MKR's Market Cap is about 10x its TVL while COMP's Market Cap is about 7.5 (making it cheaper on this metric).

Where can you find TVL?

Takeaways?

  • Crypto and DeFi are so new, so evaluating them will bring the need to find ways to help evaluate the value them.

  • TVL (Total Locked Value) is a new metric specific to financial protocols that is similar to measure the amount of deposits at a bank or AUM at a fund.


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