> Blog > What is Total Value Locked (TVL) in Crypto?

Published October 3, 2022

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The rise of digital assets and decentralized finance (DeFi) has spurred the need for new ways to measure value in the space. While traditional indicators like market capitalizations and trading volumes are helpful, they don’t always tell the whole story when it comes to this new class of assets. 

One metric that has become increasingly important in recent years is Total Value Locked (TVL). TVL represents the total value of assets held in protocols or platforms that offer decentralized financial services. In other words, it’s a way to track the amount of value that is invested, or “locked up” in DeFi protocols. 

So what exactly is TVL and why does it matter? Let’s take a closer look. 

Why Total Value Locked Matters 

Total Value Locked is important because it provides a way to track the growth of the DeFi ecosystem. By tracking the total value of assets locked in DeFi protocols, we can get a better sense of how much value is actually being used to power these platforms and what sort of potential they have for future growth. 

In addition, TVL can be used as a way to gauge the health of individual protocols. For example, if a protocol’s TVL starts to decline, it could be an indication that users are losing confidence in the platform or that there are underlying issues that need to be addressed. 

When a protocol’s TVL is on the rise, however, it generally indicates that the platform is growing in popularity and usage. This can be a good sign for the future of the protocol and can attract more users and investors. 

Gauging Total Value Locked

There are a few different ways to measure TVL. The most common method is simply to add up the value of all of the crypto project’s that live within a blockchain’s ecosystem.

For example, MakerDAO, Aave, Uniswap, and others are all projects that live on the Ethereum blockchain. Each one of those projects holds value that’s been stored on the protocol by their userbases. To measure Ethereum’s TVL, you would add up the respective projects’ stored value, giving you the total value that’s locked up in Ethereum. According to DeFiLlama, Ethereum’s current TVL is just under $35 billion.

Another way to measure TVL is by taking the value of all the projects in a blockchain’s ecosystem and dividing it by the total supply of tokens for that blockchain. This gives you the TVL-to-token ratio, which can be helpful for comparing different protocols. 

Finally, you can also measure TVL as a percentage of the total market capitalization for all cryptocurrencies. This is known as the TVL-to-market cap ratio. 

visualization of how total value locked is determined by adding up various dApp values

Market Cap to Total Value Locked Ratio

One way to think about Total Value Locked as a way to track the “real” value of cryptocurrencies is in terms of the Market Cap to Total Value Locked (MC/TVL) ratio. This ratio represents the percentage of a cryptocurrency’s market cap that is actually being used in DeFi protocols. 

For example, let’s say a particular cryptocurrency has a market cap of $1 billion and a TVL of $500 million. In this case, the MC/TVL ratio would be 2. 

Generally speaking, the community considers a lower MC/TVL ratio is considered to be a good thing, which suggests that there is demand for the project’s service with assets locked in their dApp. This, however, does not inherently mean that a high MC/TVL ratio is a bad thing either. While it can indicate that there is lower demand for the protocol’s service relative to how much it is currently valued at, a high MC/TVL ratio for newer projects can also indicate that there is a lot of room to grow, as the market cap for the cryptocurrency has not caught up with the amount of activity and usage of the platform. Additionally, some protocols that offer high incentives to users to use their service with their native token often attract higher TVL, which contributes to a lower MC/TVL ratio. Of course, this is all contextual and depends on the fundamentals behind a given project. So be sure to consider all outstanding information to determine the standing of a project’s MC/TVL ratio. 

visual ratio comparison of total value

Understanding Total Value Locked

Total Value Locked is an important metric for tracking the growth of the DeFi ecosystem. It can also be used to gauge the health of individual protocols and compare different protocols. Ultimately, TVL represents the amount of real value being used to power decentralized applications and platforms, which makes it an essential metric for anyone interested in the future of the DeFi space.

One of the most popular online resources to track the TVL of crypto projects is DeFi Llama. DeFi Llama tracks hundreds of different blockchains as well as the projects that live within their ecosystems. Using DeFi Llama, you can find information on different protocol’s growth over time, TVL, MC/TVL ratios, and more, making it a helpful tool for better informed investment decisions

FTT DAO is a community of DeFi enthusiasts who believe that the future of finance is decentralized. We aim to provide the latest news and analysis on the DeFi space, as well as insights from leading experts in the field. 

If you’re interested in learning more about Total Value Locked or other key metrics in the DeFi space, be sure to check out the FTT DAO blog. To stay up-to-date with the latest FTT news and analysis from across the cryptocurrency industry, be sure to follow FTT DAO on Twitter.  

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