what does tvl stand for

What Does TVL Stand For? Does It Matter?

What Does TVL Stand For?

In the cryptocurrency space, TVL stands for Total Value Locked.  TVL or total value locked refers to the number of tokens (money) locked in a specific protocol.

You can think of a protocol as a program on top of a blockchain that serves a specific purpose. AAVE is an example of one of the most popular protocols that allow users to borrow and lend crypto assets. Lido is another example of a protocol where TVL is used to mint stETH tokens. TVL usually refers to tokens locked up in a staking contract or tokens locked as collateral in a lending protocol.

lido tvl example

How Can You Use TVL In Your Analysis?

TVL is a great way to judge how much traction a new project is gaining. People deciding to lock up their tokens in a specific protocol shows that the protocol is building trust and respect in the market. If people are making a choice to put money in a certain protocol, there’s likely a reason or catalyst behind the influx of funds.

There are two ways to look at TVL. You can look at the total value in United States dollars (or any fiat currency), or you can look at the total number of tokens locked in the protocol.

TVL measured in fiat currencies will rise and fall with the markets. During down periods in the market, if you see the total number of tokens increasing in a protocol, you can reasonably assume the protocol is gaining traction, even if the USD value isn’t increasing.

what does TVL stand for
A Snapshot Of Total Value Locked Across All Chains According To DefiLlama

How To Check TVL:

You can check TVL using different crypto websites listed below.

You can also check TVL by learning how to read contract pages. On Ethereum, you have EtherScan, which lists all contracts and transactions on the Ethereum blockchain. On Avalanche, you have SnowTrace, which does the same thing for all contracts and transactions on Avalanche. By finding the smart contract you want to analyze on your page, you can see directly from the blockchain how much TVL is currently in the protocol.

how to check tvl
A snapshot of the sJoe contract page on SnowTrace. The highlighted area shows how many tokens are currently locked in the sJoe contract.

You’ll need to use the above technique when researching new projects that haven’t been picked up by the aggregator websites yet. This technique becomes more difficult when researching larger protocols that keep their assets divided across multiple contracts

How Is TVL Calculated?

TVL is the sum of all assets locked in a protocol. Any DeFi protocol that offers staking, lending, borrowing, or any other financial service gets users to lock their tokens to use the protocol.

“Locked” is a tricky word because it can mean a few different things. In most cases, TVL isn’t strictly “locked” – users are free to withdraw or deposit as they want.

In other cases, certain people (early investors, people involved in a seed round, etc.) may be holding a bunch of tokens that they can’t sell until a specific date (vesting period).

Some people refer to TVL as a vanity metric for this exact reason. It doesn’t matter how much money a protocol has locked up if no one can sell. When using TVL in your analysis, it’s important to understand how people can interact with the funds in the protocol – this will give you a better insight into the protocol’s health and potential. Understanding how TVL can fluctuate can prevent you from bagholding tokens that are slowly bleeding out.

total tvl in crypto since 2019 according to defillama

TVL can also increase and decrease based on certain catalysts. If a protocol announces there’s a potential for an airdrop for users of their protocol, TVL will rapidly increase. The rapid increase in TVL doesn’t necessarily speak to the quality of the project or its ability to attract and maintain long-term users. When a catalyst sparks an influx of TVL, the tokens in the protocol can decrease just as quickly. Paying attention to the current narratives in crypto can help you determine if an influx of TVL is genuine or not.

Market Cap/TVL Ratio Definition

You can divide the current market capitalization of an asset by its current TVL to get the market cap/TVL ratio. A ratio above 1 happens when a protocol has a TVL higher than it’s current market cap. The ratio will go under 1 when the current TVL is lower than the current market cap. A positive (above 1) market cap/TVL ratio is usually associated with a healthy project. When a project is attracting so much TVL that the TVL surpasses the market cap, it implies the asset is undervalued. The reverse is also true: when the TVL falls under the current market cap – it’s a sign the project is overvalued.

what is tvl
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