What is Total Value Locked (TVL)?
Let's find out Total Value Locked (TVL) meaning, definition in crypto, what is Total Value Locked (TVL), and all other detailed facts.
Total Value Locked (TVL) measures the number of assets that are staked in a protocol at the current moment. This statistic does not indicate the number of outstanding loans, it represents the total amount of underlying supply that is secured by a DeFi application. Overall, TVL is a metric used to assess the health of the DeFi and yielding markets.
When calculating and analyzing the market cap TVL ratio of a decentralized financial service, three primary factors are taken into account:
- The circulating supply
- The maximum supply
- The current price
How to calculate the TVL ratio? First, you need to multiply the circulating supply by the current price to get the current market cap. Then, take the market cap number and divide it by the service's TVL to get the TVL ratio.
Theoretically, the higher the TVL ratio, the lower the asset's value must be. Though it’s not always the case. One of the simplest applications of the TVL ratio is to assess whether a DeFi asset is undervalued or overvalued (if it is less than 1, it is undervalued).