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In decentralized finance (DeFi), Total Value Locked (TVL) refers to the total value of crypto assets deposited in a protocol’s smart contracts. It includes funds staked, supplied to liquidity pools, or otherwise locked for lending, borrowing, or other DeFi activities. TVL is typically expressed in USD and is a key metric for gauging protocol adoption and liquidity.
How Total Value Locked Works
- Users deposit assets (e.g., ETH, stablecoins) into a protocol.
- Assets are locked in smart contracts for specific functions like lending or liquidity provision.
- The combined value of all locked assets is calculated and converted to USD (or another reference currency).
- TVL fluctuates based on asset prices, user deposits, and withdrawals.
Example of Total Value Locked
A DeFi lending platform holds $500M worth of ETH, USDC, and DAI in its smart contracts — its TVL is $500M.
Why Total Value Locked Matters in DeFi
- Indicates a protocol’s liquidity and market trust.
- Serves as a benchmark for comparing DeFi platforms.
- Helps assess potential yield opportunities and risks.
- Reflects overall growth and adoption of the DeFi ecosystem.
