What is TVL (total value locked)?
TVL measures how much money is deposited in a DeFi protocol. Here is what it shows and what it cannot tell you.
TVL stands for total value locked. It is the total value of the crypto deposited in a decentralised finance, or DeFi, protocol’s smart contracts. People use it as a rough measure of how much a protocol is used and trusted.
Where the money sits
DeFi apps let you lend, borrow, trade and earn without a bank. To make that work, users put coins into smart contracts. A lending protocol holds deposits that others can borrow. A trading platform holds the coins in its liquidity pools. Add up everything held in those contracts, price it in dollars, and you have the TVL.
What a high TVL suggests
- Many people are willing to put money into the protocol.
- There is plenty of liquidity, so trades and loans work smoothly.
- The protocol has survived long enough to attract deposits.
What TVL does not tell you
- It moves with prices. TVL is measured in dollars, so it falls when the coins inside fall, even if no one withdraws.
- It can be counted twice. The same coins can be deposited in one protocol and then reused in another.
- It is not a safety rating. A large TVL does not mean the code has been audited well or that it cannot be hacked. Some of the biggest losses in DeFi have been from protocols with a lot of value locked.
- Incentives can inflate it. Protocols sometimes pay rewards to attract deposits, and the money can leave once the rewards end.
TVL is useful for comparing protocols in the same category, but it is only one number. Check audits, how long the protocol has run and who controls the contracts. For comparing whole coins, see market cap.