DeFi Explained: The TVL Metric Research
Published in
5 min readNov 5, 2020


The most popular metric for DeFi is the TVL (Total Value Locked) metric. TVL represents the total amount of assets locked in the various DeFi applications smart contracts.

The term “locked” can be deceiving — these assets aren’t necessarily locked for any specific time, they are simply “secured” in the DeFi application smart contracts. Despite this misnomer, the metric is still imperative in identifying how much capital is actually in “use” across the entire DeFi ecosystem.

DeFi Pulse popularized the metric during the 2019 bear market when there weren’t quite as many eyes fixated on DeFi as there are today. During this period, there was less than $400M locked, and more than 90% of that was concentrated in a single application — MakerDAO. Today, there is over $10.4B of TVL located within the Ethereum DeFi ecosystem.

TVL is now used to power DeFi indexes that calculate their weights based on the TVL in the project’s smart contracts. The value is also spread across over 40 applications; the most value locked in a single application only consists of a 22% dominance of the supply.

DeFi Product Categories


The TVL metric is divided into 5 product categories that form the bulk of each DeFi application’s foundation. Each category may implement a slight variation on how TVL is calculated, from either “deposited” assets for lending protocols to “minted” assets for tokenization protocols.

Below, we will break down these 5 categories and provide simple examples of how TVL is calculated in each use case.



Lending is the most popular use case found in the Ethereum DeFi ecosystem. This process allows depositors to lend their valuable assets — such as ETH, WBTC, or LINK — to borrowers, who then collateralize the loans with their own locked assets.

In lending, the TVL metric is measured by the value of assets deposited into smart contracts by both the lenders and borrowers. Borrowers are then given a “credit line” containing up to 60% of their locked value.

MakerDAO is the leader in this category, presiding over $1.8B in locked assets that account for 2.39% of the total ETH in circulation and 14% of the total minted WBTC. Borrowers first deposit these assets in order to borrow the DAI stablecoin from the protocol.

Decentralized Exchanges


Decentralized exchanges have climbed the ranks quickly within the last year and have now become a staple when calculating TVL. DEXs, powered by liquidity pools, have amassed over $3.5B in deposited assets within their smart contracts.

In DEXs, TVL is measured by the value of assets deposited into the exchanges’ smart contracts, including order-book type exchanges like Loopring and DeversiFi. The liquidity pool exchanges like Uniswap, Curve, and Balancer are what truly break records when we measure TVL.

Uniswap is the leader in this category and the winner out of all DeFi protocols, holding over $2.35B in locked assets. Uniswaps liquidity for ETH, WBTC, and FYI is even deeper than that of centralized exchange giants like Binance and Huobi.



Derivatives have been a growing DeFi use case. Their products are tailored toward advanced traders who are already well served in centralized finance; additionally, the presence of Ethereum scaling roadblocks prevents better adoption. Derivatives allow asset deposits to power synthetic assets, futures contracts, and other options.

TVL in derivative protocols is measured by the value of assets deposited into the smart contracts, which provide the backing to synthetic assets and financial contracts. In options trading applications, users can deposit USDC to earn interest when traders buy the spreads in order to hold a position open.

Synthetix is the leader in the derivatives category, with over $592M in locked assets. Synthetix depositors “stake” (lock) the SNX tokens to create synthetic assets like USD, euros, gold, and Bitcoin. Synthetix traders can then earn fees from the platform when their minted assets are traded or redeemed back to SNX for a fee.



Payment protocols have yet to become a centerpiece of the DeFi ecosystem. Currently, payment protocols are Layer 2 solutions that allow users to exchange transactions at a faster rate for a cheaper price.

In payment protocols, TVL is measured by the value of assets deposited into smart contracts that are transferred to the payment protocol’s side-chain or plasma implementation.

With over $136M locked assets, Flexa is now the leader in this category. The Flexa-powered payment protocol allows depositors to use their crypto assets with popular merchants, including Starbucks, Dunkin Donuts, and GameStop.



Assets are tokenized “coins” — like Bitcoin and Stablecoins — that are newly minted in different applications’ smart contracts. These tokenized assets can then be used across the DeFi ecosystem for exchanges or collateral.

Stablecoins can be derived from “yield protocols” that allow depositors to receive an equal representation of their deposited tokens.

TVL in assets is measured by the number of coins that are tokenized. These tokenized assets represent a 1:1 redemption of the underlying asset.

WBTC is the leader in this category, currently possessing over $1B in Bitcoin that has been tokenized on Ethereum. These tokenized Bitcoins are now used across both the lending and DEX protocols, securing them an essential spot in the DeFi ecosystem.



While the TVL metric is an integral part of the crypto market, there are some that find the metric confusing, because each application may have a different view on what is considered to be in their custody.

Despite this, the vast majority of the DeFi community is satisfied with the current DeFi Pulse solution, which counts each approved project’s collateral any time a user deposits it into a supported application.

Multi Research focuses on bringing relevant information about various components of the decentralized economy for those that do not have time to stay on top of it all the time.

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