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What does a locked value mean?

Since decentralized finance (DeFi) boomed in 2020, financial market experts have come to terms with the new type of investment and are looking at ways to measure its performance.

Aside from market capitalization, trading volume and full and circulating offers, total locked key (TVL) is one of the most popular crypto indicators among DeFi investors to check the total value of assets - in US dollars and any fiat currencies - invested in all DeFi . protocols or in one DeFi project.

DeFi assets include prizes and interest, ranging from regular services such as borrowing, staking and fundraising pools, provided in the form of smart contracts. TVL hosting, for example, is a useful guide especially for investors who want to support DeFi platforms with very high rewards. It is the total amount locked in DeFi staking contracts and represents the amount of assets deposited by financial providers.

By 2022, TVL has reached nearly $ 2 billion worldwide, growing from $ 400 million over the past two years. With the growing popularity and value of DeFi in the cryptocurrency space, TVL has become an important metrics for investors who want to test whether every single ecosystem or legal system is healthy and worth investing in.

Although TVL is simply defined as the total amount of cryptocurrency locked in a smart contract, there are underlying circumstances that could affect the value of DeFi projects.

Various factors agree on the value of TVL without deposits, withdrawals and the amount of protocol actually held. TVL also exchanges for the value of fiat money or a native token. Other contract deposits may be included in the project's native token, so its TVL varies by its value. If a certain token grows in value, so does the TVL protocol, too.


Why is TVL important for DeFi?

For DeFi platforms to work, they need a lot of money to be included as collateral for loans or cash in commercial pools. TVL is important because it shows the impact of big money on the profitability of DeFi applications and the usefulness of traders and investors.

When the TVL DeFi platform rises, it is followed by an increase in liquidity, popularity and usability. These factors contribute to the success of the project. Higher TVL means more money is locked into DeFi protocols, with participants enjoying greater benefits and benefits. Low TVL means lower revenue, leading to lower yields.

The market share of DeFi contracts can be easily seen through analytical forums such as DeFi Pulse and DefiLlama, which provide data on the value of crypto assets locked into their smart contracts.

DeFi participants who follow TVL on DeFi Pulse should be aware that the platform monitors smart protocol contract protocols on the Ethereum blockchain only by issuing the full balance of Ether (ETH) and ERC-20 tokens. DefiLlama, on the other hand, calculates TVL by releasing the total balance of all DeFi chains integrated or each platform separately.


How is crypto TVL calculated?

Given the endless new protocols from the DeFi space, it can be a challenge to establish a straightforward TVL for the entire market and determine that a specific DeFi platform is the safest way for end users.

However, participants may opt for more established contracts using the $ 1 billion TVL metrics, which should be a sufficiently secure prospect. Higher TVL is better, as it should reflect the much-needed healthy stage with a strong team of developers and a significant use case. Everything that should attract more stakeholders and investors, has contributed to the growth of the TVL project.

On the other hand, a red notification should be raised when DeFi agreements with low TVL offer higher yields. This may be a promotion, for example, for new forums seeking to gain market share, but it may also be scams because participants have little or no confidence in their assets.

Three key factors are considered in calculating the TVL DeFi protocol:

It is correct to calculate the crypto TVL. First, the property market limit should be obtained by doubling the supply of the DeFi project at the current price. Then, separating the market cap with a high rotating offer, TVL is exposed.

When we divide the total market capitalization of a locked property with the total locked value, we obtain a TVL rating. The TVL rating can help determine whether DeFi's legacy is less important or more important. If the ratio is less than 1, the asset is generally underestimated and is very attractive to investors. When the market limit exceeds TVL over crypto, the assets may be significantly reduced, leaving little room for growth.

Source: cointelegraphy

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