Total Value Locked (TVL)
Total Value Locked, or TVL, is the total value of crypto that users have locked in a DeFi protocol. It shows how much crypto is actively being used on a platform.
What is Total Value Locked (TVL)?
DeFi refers to financial services that use crypto instead of a traditional bank. For example, users can lend or borrow crypto, or make it available for trading.
The protocol uses the locked crypto. This usually happens through smart contracts: programs that automatically carry out agreements. The crypto still belongs to the user, but it can't be moved freely for a while.
TVL is usually shown in U.S. dollars. Its value changes when users deposit or withdraw crypto, but also when the price of that crypto rises or falls.
A simple TVL example
Imagine users deposit ETH on a platform where other people can borrow ETH. The lenders earn interest. All the ETH locked on the platform counts toward its TVL.
If the price of ETH rises, TVL in dollars can increase. This can happen even if no new users join and no additional ETH is deposited.
Why is TVL important in crypto?
TVL is a widely used metric in DeFi. A high TVL can mean that many users are using crypto in a protocol. On a decentralized crypto exchange, it can also point to higher liquidity. This can help transactions go more smoothly.
That's why DeFi news often reports that TVL is rising or falling. An increase can come from new deposits, but it can also result from higher crypto prices alone. So a drop doesn't automatically mean users are leaving.
TVL doesn't tell you everything. It doesn't directly show how active, profitable, or safe a protocol is. The same crypto can also sometimes be counted more than once. So always consider TVL alongside other information.
