Overview
TVL is one of the most widely used metrics to gauge the health and popularity of a DeFi protocol or an entire blockchain ecosystem. It represents the total dollar value of all assets (tokens, stablecoins, etc.) currently held within the protocol's smart contracts.
What it Indicates
- Trust: A high TVL suggests that many users trust the protocol with their capital.
- Liquidity: Higher TVL generally means better liquidity and less slippage for traders.
- Adoption: Growth in TVL over time indicates increasing adoption of the platform.
Limitations
TVL can be inflated by 'double counting' (e.g., assets deposited in one protocol being used as collateral in another).