Total Value Locked, TVL, is the dollar value of assets deposited in a DeFi protocol. People use it as a proxy for adoption, trust, and depth. Higher TVL usually means larger trades with less slippage and more lending capacity. It became the comparison metric in 2020-2021.
It is a noisy metric. If ETH drops 50%, ETH-heavy TVL halves with no withdrawals. Recursive deposits, borrow and redeposit, inflate the number. Liquidity mining attracts capital that leaves when incentives end. TVL is not revenue. A protocol with $1B TVL can earn less than one with $100M of active trading. Lending TVL, AMM TVL, and staking TVL measure different things.
Even with those flaws, TVL is still a directional read on scale and whether capital trusts the contracts. TVL became the primary metric for comparing DeFi protocols during the 2020-2021 growth era. However, TVL has major limitations as an evaluation metric.
It fluctuates with asset prices independent of actual deposits: if ETH drops 50%, protocols holding ETH see their TVL halve even without a single withdrawal. This creates misleading signals during market downturns.
TVL can be artificially inflated through recursive deposits, where borrowed assets are redeposited as collateral, and through liquidity mining programs that attract mercenary capital that leaves when incentives end. DefiLlama popularized TVL: the dollar value of assets sitting in a protocol. It is not the same as revenue or user profit.
Total Value Locked (TVL) Explorer
Explore how TVL changes with protocol growth, asset prices, and time. See how this key DeFi metric can be influenced by factors beyond actual adoption.