What is Total Value Locked and How Does it Affect Crypto?

• Total Value Locked (TVL) is the overall value of crypto assets deposited in decentralized finance (DeFi).
• The highest Total Value Locked (TVL)  is the highest curve with 9.7% portion of the market share and $17 billion TVL.

What does Total Value Locked Mean?

Total Value Locked (TVL) is a term where TVL is used to measure the total value of digital assets that are locked or staked in a particular decentralized finance (DeFi) platform or distributed application (DApp). The higher the TVL, the better. It simply means that it is more trustworthy.

In a decentralized finance system, you are the owner of your assets with no interference from government bodies. The decentralized finance () peaked in 2020 during the pandemic  when banks were bankrupt and people had no access to their own money. 

Other than market capitalization, trading volume, and total circulating supply, Total Value Locked (TVL) is an indicator that is popular among decentralized finance (DeFi) investors to assess the overall value of assets.

Why Does Total Value Locked Matter in DeFi?

To run a decentralized finance system smoothly, a required capital is to be deposited as loan collateral or liquidity in trading pools. Total Value Locked (TVL) matters because it indicates the capital’s impact on decentralized finance profits and usability for traders and investors.

When the Total Value Locked of a decentralized finance platform rises, it is followed by an increase in liquidity, popularity, and usability. These points contribute to the project’s success. A higher Total Value Locked (TVL) means more money is locked in decentralized finance platforms and the participants are enjoying more considerable benefits. On the other hand, a lower Total Value Locked (TVL) means lower availability of money which results in lower yields.

The Decentralized Finance (DeFi) protocol’s market shares can be easily identified through analytical firm platforms like DeFi Pulse and DefiLlama. They provide data on the number of crypto assets locked in their respective smart contracts.

Decentralized Finance participants who track down Total Value Locked (TVL) on the Ethereum blockchain  by extracting the total balance of Ether (ETH) and ERC-20 tokens. DefiLlama, on the other hand, calculates the Total Value Locked (TVL) by extracting the total balance of all the Decentralized Finance (DeFi) chains combined together or individually.

How is Total Value Locked (TVL) Calculated?

The process of calculating Total Value Locked (TVL) generally involves adding up the digital assets currently locked in a specific decentralized finance protocol or smart contract.These assets could include cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), stablecoins like USDT, USDC,andBUSD, or other tokens that are being used as collateral for loans to provide the platform with liquidity.

For example, if a decentralized finance system platform is calculating its own value and has $15 million worth of ETH, $8 million worth of USDT, and $3 million worth of other ERC-20 tokens locked in its smart contract, then its Total Value Locked (TVL) would stand at $26 million.

Here are some examples of Total Value Locked (TVL) as posted by the DefiLlama on May 31, 2023. The values given below are more likely to be different on another day because crypto assets in the Decentralized Finance ecosystem can be highly volatile.

• Ethereum: $27.37b
• Tron: $5.61b
• BSC: $4.4b
• Arbitrum: $2.32b
• Polygon: $1.01b