With the high performance of DeFi in 2020, the experts in the financial market are thinking of a new form of investment. The experts are also developing new ways to measure the performance of Blockchain preventing Bitcoin in this investment. If you are new to Crypto trading and investments then you must check bitcoin trading platform.
There are many ways to check the performance of investments. Along with those, TVL is a new indicator. Also, this indicator is very useful for you if the DeFi investment is what you want to make.
Everything About TVL
The TVL system assesses the value of all the assets. This measure is done on all those deposits which are present in the DeFi protocols and projects.
The assets of DeFi will provide you with interests and rewards as well. These are from the basic services like investing, staking, or the smart contracts that hold liquidity pools.
By using TVL for staking Crypto, the experts check the performances of the DeFi outlets that give rewards. The indicator of TVL shows the total amount of assets that are in the deposits of liquidity providers.
- This year, the value of TVL is around 2 Billion USD, whereas it was around 400 Million USD in 2020.
- The fame of TVL is increasing and with that, the value is rising as well.
- This indicator has become a very important measure for all the investors who want to check the health of the entire ecosystem and if it is good to invest in.
In general terms, TVL is the entire value that is captured in smart contracts. But, there are other conditions as well, that can affect the quality of the projects of DeFi.
Several other aspects can affect TVL, apart from deposits or withdrawals. Along with these, if the integrity of the fiat money changes, the TVL will change as well.
Also, the deposits of many projects may have denominations in the native token of the project itself. In this case, the price of TVL will change together. If the value of that token increases, the TVL will increase as well.
How Does TVL Matter
For the operation of the DeFi outlets, you need to deposit capital in the form of loan collateral. You can deposit the liquidity in the trading pools as well. TVL matters because it reflects the profits of DeFi apps and how useful those are for the investors and dealers.
- If all these platforms become famous, the liquidity also increases and more users start using them.
- Due to these factors, the chances of success of the projects increase.
- Higher TVL shows that the deposits in the protocols are more. With this, the participating investors earn more profits and rewards.
- But, a low TVL value means less money is available, and less benefit.
- The market share of the DeFi protocol can be identified through the analytics firms’ outlets such as DeFi Pulse.
- If you are a participant of DeFi, you can track TVL on Pulse. Also, the outlet keeps a check on the movement of the smart contracts.
- DefiLlama calculates the value by the extraction of the total amount of the combined chains.
Calculation of TVL
There are innumerable new protocols in the world of DeFi outlets, it is not easy to fix the exact value of the TVL for the whole market. Also, the determination of a safe outlet for DeFi is hard.
- You can select more secure protocols with the help of the TVL metric whose value is around 1 Billion USD.
- A high range of TVL is good because it reflects that the outlet is healthy and the developing team is strong.
- All such factors will increase the TVL and attract investors at the same time.
- If any DeFi protocol offers increasing amounts of yield, the analysts should think of raising the red alerts.
In the calculation of TVL, the three main aspects are,
- Calculating the supply of the project.
- The available amount of maximum circulation.
- Price at the recent times.
Calculating the TVL value is a straightforward process and is quite easy. Last year, the growth of TVL of the protocols of DeFi was very high. This year, Ethereum is the most common network and the largest as well. Also, more than half of the DeFi volume consists of Ethereum.