Metrics··1 min read
TVL explained: what it measures (and what it doesn't)
A practical guide to Total Value Locked, how it's calculated, and how to avoid common interpretation mistakes.
Key takeaways
- TVL is best treated as a liquidity and adoption proxy—not revenue.
- TVL can rise from price changes even if usage is flat.
- Compare TVL with fees, volume, and retention to reduce false signals.
Cite this definition
Total Value Locked (TVL) is the market value of assets deposited in a protocol's smart contracts at a point in time; it's a liquidity proxy, not a direct measure of revenue or profitability.
What TVL is capturing
TVL answers a straightforward question: how much capital is currently deposited inside the protocol's smart contracts? It's a snapshot of assets under management, denominated in dollars at current market prices.
For lending protocols, TVL includes both supplied collateral and borrowed assets. For DEXs, it's the liquidity in pools. For yield aggregators, it's the assets deposited for strategy execution. Each protocol type has slightly different accounting, but the core concept remains consistent.
TVL serves as a useful proxy for several things: user trust in the protocol's security, the depth of liquidity available for transactions, and the protocol's ability to generate fees from that capital. Higher TVL generally means more liquidity, tighter spreads, and better execution for users.
How TVL gets distorted
Some common distortions:
- Asset price moves: TVL can increase when token prices rise, even if deposits are unchanged.
- Double counting: composability can cause the same capital to show up in multiple places.
- Incentive-driven deposits: short-term emissions can pull in mercenary capital that leaves quickly.
How to use TVL responsibly
Pair TVL with:
- fees/revenue
- volumes
- user retention (where available)
- risk (smart contract, liquidity, governance)
See live data
Links open DefiLlama or other external sources.
FAQ
Is TVL the same as market cap?
No. Market cap is token price × circulating supply.
TVL is the value of assets deposited in a protocol's contracts.
Why can TVL go up while activity goes down?
TVL can rise from asset price appreciation or a small number of large depositors.
Activity metrics (like volume or transactions) can still fall at the same time.
Related Concepts
Understanding TVL requires context on protocol metrics. See the glossary for definitions of key terms.
- TVL vs revenue: Why the balance sheet metric differs from income statement metrics
- Protocol revenue: What protocols actually earn from activity
- Real yield: How to identify sustainable returns versus subsidized TVL
- Emissions vs revenue: Why high TVL with high emissions is often unsustainable
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