What is total value locked (TVL) in crypto and why does it matter?

In 2022, Ethereum appeared as the largest network by DeFi TVL, accounting for over half of the total DeFi volume worldwide.

To give some perspective, the Ethereum DeFi network includes just under 500 protocols. It has a TVL of approximately $73 billion, with 64% of the market share, compared with BNB Smart Chain, which is the second-highest TVL at $8.74 billion in value at 7.7% of the market share, Avalanche with $5.21 billion and 4.5% of the market share and Solana with $4.19 billion and 3.68% of the market share.

It’s very easy to read a TVL crypto chart. It represents the TVL for the entire DeFi market is expressed in USD, with the percentage of movement in the last 24 hours and the crypto with higher dominance.

The total value locked metric across all chains clearly indicates that Ethereum is the network with the highest TVL. In essence, TVL is an excellent indicator for the DeFi area of cryptocurrency and probably the most utilized to assess the health and growth of the market. While TVL growth signals a positive outlook for the market, however, its reliability must be taken prudently, as it is nearly impossible to interpret the indicator with precision. 

Market volatility is one of the main variants that can highly affect the value of locked assets, starting with the price of ETH, whose platform is where most assets sit. The considerable increase in the price value of ETH inevitably affected the TVL of DeFi from 2020, but that means the total value locked can increase without any new users or capital coming into DeFi.

Furthermore, because of the nature of DeFi services, money can easily move around and be counted multiple times, thus miscalculating protocols’ liquidity capacity. As with every indicator, TVL is only an estimate of the market’s condition and because of its flaws and approximation, it should not determine an investor’s strategy.