TVL is calculated by adding up the value of all assets currently deposited into a protocol's smart contracts, usually expressed in US dollars at current market prices. It is commonly used as a rough measure of a decentralised finance protocol's scale and popularity: a protocol holding more deposited assets is generally assumed to have more users trusting it with funds than a protocol holding far less, although TVL alone says nothing about how that protocol's funds are managed, how its code was written, or how secure it actually is.
TVL is a useful scale indicator but not a safety guarantee. Its dollar value can rise or fall simply because the market price of the deposited assets changes, not because user behaviour changed at all, and a high TVL does not mean a protocol's underlying code is secure or free from exploit risk. Well-funded, high-TVL protocols have still suffered hacks and significant losses in the past, which is a reminder that scale and safety are two different things.
TVL is best treated as one data point among several, alongside a protocol's audit history, how long it has operated without incident, and its general track record, rather than as a stand-alone measure of trustworthiness or a reason to deposit funds on its own.
Key takeaways
- TVL estimates the total value of assets deposited in a DeFi protocol, usually shown in US dollars.
- It is commonly used as a rough proxy for a protocol's scale and popularity.
- A high TVL is not a safety guarantee, since it does not reflect code security and moves with the market price of deposited assets.
Total Value Locked (TVL) — frequently asked questions
Does TVL apply to a single blockchain only?
No. TVL can be measured per protocol, per blockchain, or across all of DeFi combined, so it is worth checking exactly what scope a particular TVL figure refers to before comparing numbers.
Why can TVL change without any new deposits or withdrawals?
Because TVL is usually expressed in dollar terms, a change in the market price of the deposited assets themselves, even with no user activity at all, will change the reported TVL figure.
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