Day 12 of 31 days crypto/defi terminologies challenge
TVL- Total Value Locked
The Importance of TVL in the course of defi research cannot be overemphasized
A short thread🧵
Total Value Locked(TVL): is the overall value of crypto assets deposited in a decentralized finance (DeFi) protocol generally
TVL includes all the coins deposited in all of the functions that DeFi protocols offer, including:
- Staking
- Lending
- Liquidity pools
-Importantly, it doesn't reflect the yield these deposits are expected to earn.
It only means the current value of the deposits themselves
Does TVL change over time?
Yes, it does, and here is why;
A project’s TVL doesn't only change when users make new deposits or withdraw their assets.
It is constantly changing in line with the fluctuating dollar value of all those assets in the cryptocurrency market.
Why does TVL matter in defi
For defi platforms to function, they require capital to be deposited as loan collateral or liquidity in trading pools, which requires that it be locked up.
During your research, when the TVL of a defi protocol increases.
An increase in liquidity, popularity, and usability follows it.
A higher TVL means more capital is locked in the defi protocol, with participants enjoying the considerable benefit
A lower TVL means lower availability of money, also resulting in lower yields.
There are three main factors to be taken into consideration while Calculating TVL,
They are:
- The projects supply.
- Maximum circulating supply available.
- The current price.
• That's all for today.
• Kindly follow @0xTosyn for more educational contents.
#happynewyear2023 #31daysofdefiterms
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