What is TVL (Total Value Locked)?

How much capital have users put into a DeFi app? TVL tries to answer that question by valuing the assets held in the app’s smart contracts. It can refer to a lending app, a liquidity pool or, in aggregate, the apps on an entire blockchain.

Think of a shared pool into which each participant puts different coins. To work out how much value it holds, we multiply the quantity of each coin by its price and add up the results. If a protocol hypothetically holds 100 ETH priced at $2,000 each and stablecoins worth $50,000, its TVL is $250,000.

If the price of ETH rises, TVL will rise too, even if nobody makes a new deposit. Likewise, a drop in TVL may be due to lower prices and not necessarily to users leaving.

Why it matters

TVL gives us an indication of the amount of capital being used in a protocol. On a decentralized exchange, this capital can support token swaps. In a lending app, it may consist of deposits available for lending or collateral for loans.

It is neither market cap nor trading volume. Market cap refers to the value of the tokens in circulation, while volume measures the trades over a period. We find TVL useful when it’s read together with user activity, revenue and how the app works, not in isolation.

What to watch out for

High TVL doesn’t mean guaranteed security. A protocol can attract a lot of capital and still have vulnerabilities in its code or depend on a few large depositors. Temporary rewards can also attract deposits that leave as soon as the incentives stop.

Tracking services don’t always count the same things. Deposits reused through other apps can lead to double counting when different TVL figures are added together. Also, “locked” doesn’t imply a mandatory lock-up period: the ability to withdraw depends on each protocol’s rules.