Even though it has flaws, the crypto industry has grown like never before, especially in decentralized finance (DeFi) and non-fungible tokens (NFTs). And, because the cryptosphere is constantly changing, savvy investors are always looking for indicators that can help them determine how profitable various crypto products are. Trading volume, market capitalization, and total value locked (TVL) are some of the indicators used to gauge the performance of the crypto market. TVL has become especially popular among DeFi investors when assessing the overall fiat value of assets deposited in a single project or across all DeFi protocols. But before we get into the significance of TVL in cryptocurrencies, let's take a moment to discuss what it is.
<h2>What Does Total Value Locked Mean?</h2>
TVL is simply defined as the total value of digital assets locked or staked in the smart contract of a DeFi protocol. It is a measure of the total funds that can be transacted, lent, or borrowed through a particular DeFi platform. TVL also demonstrates to market observers and potential investors the level of interest, activity, and value currently present in the DeFi protocol.

TVL is determined by taking the number of crypto tokens that have been staked in a particular DeFi project and multiplying that number by the token's current dollar value. On platforms that allow investors to stake more than one cryptocurrency, the total value locked of each crypto is calculated separately and then added together to arrive at the platform's TVL.

DeFi protocols are broadly divided into three main types: decentralized exchanges; lending and borrowing platforms; and yield optimization applications. Because of this, each kind of DeFi has its own way of defining TVL based on its core nature. For example, decentralized exchanges let users trade within a liquidity pool that holds the pairs of cryptocurrencies they want to buy or sell. For these platforms, TVL is measured as the total value held in all the crypto-pair pools within the protocol. When it comes to lending and borrowing platforms, TVL is calculated as the total value held in their lending and borrowing pools.

Lastly, regarding yield optimization protocols, which are basically automated asset managers that use complex algorithms to optimize investments across multiple lending and borrowing platforms, TVL is indicated as the total amount investors have lent to the yield optimization application.
<h2>Leading Protocols by TVL</h2>
According to the crypto analytics firm <a href="https://defillama.com/chains" target="_blank" rel="noopener">DefiLlama</a>, the overall TVL of all DeFi platforms at the start of 2020 was about $630 million. In the first quarter of 2022, this number had grown to more than $172 billion. More than 50 percent of that growth was in MakerDAO, which, along with Curve and Aave, is among the most important DeFi protocols.

Curve controls 9.7 percent of the market and has a TVL of $17 billion. It is followed by Lido, which has a TVL of $15.4 billion; Anchor, which has a TVL of $12.6 billion; and MakerDAO, which has a TVL of $11.5 billion. At this time, Ethereum is the most valuable network in terms of DeFi TVL, and it is responsible for more than half of the total volume of global DeFi transactions. The network comprises almost 500 DeFi projects and has about 64% of the market share overall.

BNB Smart Chain has the second-highest TVL with a 7.7 percent market share. It is followed by Avalanche, with a market share of 4.5 percent, and Solana, with a market share of 3.68 percent.
<h2>So, What is the Significance of TVL in the World of Cryptocurrencies?</h2>
DeFi platforms are powered by their own tokens, which can be deposited as collateral for loans or as liquidity in trading pools. TVL is vital because it is the best way to see how a token affects the profits and usability of a DeFi platform for investors, traders, and regular users.

When a DeFi project's TVL goes up, its token's popularity, liquidity, usability, and value usually go up as well. A higher TVL means that more capital is staked on a DeFi platform in the form of crypto tokens. This means that traders and investors get better returns from their digital assets. On the other hand, a low TVL means fewer funds will be available, meaning investors will get lower returns on their investments.

The level of TVL also signifies the number of active users on a DeFi platform and shows how popular a project is. Many crypto analysts believe that TVL is an excellent way to judge the strength of a cryptocurrency and the project it underpins. To know how a DeFi project will do in the future, you need to look at its market cap. But if you want to see how a project is going right now, the best way to do that is to look at the TVL.
<h2>Final Thoughts</h2>
While TVL is a valuable valuation metric, it can sometimes misrepresent the robustness of a DeFi protocol. Such misrepresentation can be caused by the fact that DeFi platforms are typically dominated by <a href="https://www.cryptoknowmics.com/news/only-whales-benefit-from-cryptocurrency-flaws-terra-lunas-case">whales</a> whose behaviors and financial activities disproportionately affect protocol measurements. TVL cannot show which users control which assets or percentages of a crypto's total value. As a result, potential investors may get a false sense of a project's health and activity, since one whale might be able to affect its value significantly. Also, whales are often encouraged to exaggerate the activity of a crypto project in order to attract new investors.

Nevertheless, the significance of TVL in cryptocurrencies shouldn't be underestimated and it should be paired with other criteria when deciding whether to invest in a platform.

Here's the Significance of Total Value Locked (TVL) in Cryptocurrencies

The significance of TVL in cryptocurrencies shouldn't be underestimated and it should be paired with other criteria while analyzing the worth of a platform.

Adam is an outgoing young lad who likes adventures and discovering new things.Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.

Here's the Significance of Total Value Locked (TVL) in Cryptocurrencies

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