What Is TVL?
Total Value Locked (TVL) is the total dollar value of cryptocurrency deposited in a DeFi protocol's smart contracts. It's the de facto standard for measuring DeFi protocol size, adoption, and health. A protocol with $5B TVL has $5 billion worth of assets deposited by users.
How TVL Works
TVL aggregates all assets deposited across a protocol's contracts — liquidity pools, lending markets, vaults, and staking contracts. It fluctuates based on both deposit/withdrawal activity and asset price changes. Rising TVL from new deposits signals growing confidence; rising TVL purely from price increases is less meaningful.
Why It Matters for Traders
TVL is DeFi's equivalent of AUM (assets under management) in traditional finance. It's the primary metric for protocol comparison and health assessment. Rising TVL relative to token market cap suggests undervaluation. Sudden TVL drops can signal emerging risk — smart money exiting before a vulnerability is exploited or confidence collapses.
