Total Value Locked (TVL)

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Total Value Locked (TVL) is a critical metric used in the decentralized finance sector to measure the overall health, adoption, and perceived trust in a specific DeFi protocol or the entire DeFi ecosystem. It represents the aggregate U.S. dollar value of all digital assets currently deposited or “locked” within a protocol’s smart contracts. These assets can include cryptocurrencies supplied by users for various purposes such as staking, lending, providing liquidity in automated market makers (AMMs), or serving as collateral for loans.

A higher TVL generally indicates greater user confidence and capital inflow into a protocol, suggesting that users find its services valuable and secure enough to entrust their funds. Conversely, a declining TVL might signal diminishing trust or users withdrawing assets for other opportunities. TVL is a dynamic figure, fluctuating with new deposits, withdrawals, and changes in the underlying asset prices. While TVL is a popular and useful indicator, it’s important to consider it alongside other metrics like active users, transaction volume, and protocol security audits for a comprehensive assessment of a DeFi project’s viability and risk.

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