TVL (Total Value Locked): What It Is and How It Works

How TVL is calculated

DeFi applications hold user funds in smart contracts: collateral in lending markets, tokens in liquidity pools, staked assets in liquid staking protocols, and so on. Because those balances are public on the blockchain, anyone can add them up.

The basic method is:

1. find every contract that belongs to a protocol;
2. read the token balances held in those contracts;
3. multiply each balance by the token's current market price;
4. add the results.

A chain's TVL is the sum over the protocols deployed on it. Data aggregators such as DefiLlama publish open methodologies and code for each protocol, and they differ on details: whether to count a protocol's own governance token, staked assets, borrowed funds, or liquid staking tokens that are deposited again elsewhere.

Current TVL values change constantly, so this glossary does not quote them; they come from live data.

What TVL tells you, and what it does not

Useful for:

• comparing the relative size of protocols in the same category, such as lending markets or DEXs;
• tracking whether deposits are flowing into or out of a protocol or chain over time;
• rough context for a token's market cap compared with the assets its protocol manages.

Limitations:

• Prices drive it. If ETH falls 20%, the TVL of an ETH-heavy protocol falls with it even if nobody withdraws.
• Double counting. The same funds can be counted several times when a token deposited in one protocol is issued as a receipt token and deposited in another.
• Incentives inflate it. Deposits attracted by temporary rewards, for example through yield farming, can leave as soon as rewards end.
• It is not revenue or users. A large TVL does not mean a protocol is profitable, widely used or safe; smart-contract risk remains.

TVL vs market cap

Market cap is the value of a token's circulating supply. TVL is the value of the assets deposited into a protocol. A protocol's token can be worth far more or less than the funds in its contracts; some analysts compare the two (market cap to TVL) as one rough valuation signal among many.