Total value locked (TVL)

When people compare DeFi protocols, the first number they reach for is usually TVL. It is easy to calculate, easy to chart and easy to rank. It is also easy to misread.

How TVL is measured

A data provider reads the balances of a protocol's smart contracts, multiplies each asset by its current market price and adds up the result. Trackers such as DeFiLlama publish TVL by protocol, by chain and over time, with open methods that show which contracts are counted. Methods differ in the details. For a lending market, some count everything supplied and others subtract what has been borrowed; for a liquidity pool, TVL is the value of the tokens in the pool.

TVL also leaves out things a balance sheet would include. Borrowed assets, tokens a protocol issues itself and assets staked for governance may be shown separately or not at all, depending on the tracker's settings. When a protocol quotes a TVL figure, check which of these it counts.

A simple example

A protocol holds 100 million dollars of ETH and 50 million dollars of dollar tokens, so its TVL is 150 million dollars. If ETH falls by a fifth overnight, TVL drops to 130 million dollars even though not a single user left. TVL moves with prices as much as with activity, which is why a chart of it in a volatile market is partly a chart of the market itself.

Why TVL double-counts

Composability lets the same dollar appear in several places. Supply 1,000 dollar tokens to a vault and receive vault shares; post the shares as collateral in a money market; borrow against them and supply the loan to a pool. Each protocol reports the assets it holds, so the original 1,000 dollars can show up three times across the ecosystem. Trackers try to adjust for this, which is one reason totals differ between sources.

What TVL does and does not tell you

TVL shows how much value users have trusted a protocol with, and that is a real signal: a large TVL takes time to build and draws scrutiny from attackers and researchers alike. It does not show whether the code is safe, whether the yield is sustainable or how much of the value could leave in a day. A protocol can grow TVL quickly with temporary token rewards, and value drawn in by incentives often leaves when they end. Nor does TVL say who holds the value: 100 million dollars spread across thousands of users behaves very differently from the same figure held by three large accounts that could leave in one transaction.

Risks and limits

Treat TVL as a size metric with known distortions: price moves, double-counting, incentives and differences between trackers' methods. Before drawing conclusions, compare it with revenue, the number of independent users, how concentrated the holdings are among a few large accounts, and the security record. A bigger TVL means a bigger user base, and also a bigger target.

Tori Finance is listed on DeFiLlama and CoinGecko, where its figures can be followed alongside those of other protocols. As with any protocol, those numbers describe size, not safety or future returns.