Total Value Locked (TVL)
A metric used to measure the total value of assets deposited in a decentralized finance (DeFi) protocol or the decentralized finance ecosystem as a whole.
TVL is often considered the 'AUM' (Assets Under Management) equivalent for DeFi. It is calculated by summing the market value of all tokens locked in a protocol's contracts. A high TVL generally indicates a deep [liquidity pool](/en/terms/liquidity-pool), which reduces slippage for traders and increases the protocol's stability. However, TVL is a 'noisy' metric; it fluctuates based on both the quantity of tokens (inflows/outflows) and the market price of those tokens. To truly judge a protocol's growth, analysts often look at TVL in 'native' units (e.g., total ETH locked) or 'USD Inflows' to isolate market volatility from actual capital commitment.
graph LR
Center["Total Value Locked (TVL)"]:::main
Pre_defi["defi"]:::pre --> Center
click Pre_defi "/terms/defi"
Pre_smart_contract["smart-contract"]:::pre --> Center
click Pre_smart_contract "/terms/smart-contract"
Pre_liquidity_pool["liquidity-pool"]:::pre --> Center
click Pre_liquidity_pool "/terms/liquidity-pool"
Rel_market_cap["market-cap"]:::related -.-> Center
click Rel_market_cap "/terms/market-cap"
Rel_stablecoin["stablecoin"]:::related -.-> Center
click Rel_stablecoin "/terms/stablecoin"
Rel_yield_farming["yield-farming"]:::related -.-> Center
click Rel_yield_farming "/terms/yield-farming"
classDef main fill:#7c3aed,stroke:#8b5cf6,stroke-width:2px,color:white,font-weight:bold,rx:5,ry:5;
classDef pre fill:#0f172a,stroke:#3b82f6,color:#94a3b8,rx:5,ry:5;
classDef child fill:#0f172a,stroke:#10b981,color:#94a3b8,rx:5,ry:5;
classDef related fill:#0f172a,stroke:#8b5cf6,stroke-dasharray: 5 5,color:#94a3b8,rx:5,ry:5;
linkStyle default stroke:#4b5563,stroke-width:2px;
🧠 Knowledge Check
🧒 Explain Like I'm 5
Think of [TVL](/en/terms/tvl) as the total amount of money sitting inside a bank's vaults at any given time. If the bank has a lot of money in its vaults, people usually trust it more and it's easier to handle big transactions.
🤓 Expert Deep Dive
The technical challenge of TVL lies in 'Double Counting.' In a composable DeFi ecosystem, a user might stake ETH in Lido (receiving stETH), then deposit that stETH into Aave to borrow USDC. If TVL is calculated naively, the same $1,000 might be counted multiple times across protocols. Standard aggregators (like DeFiLlama) use specific filters to exclude unissued supply and native consensus staking to avoid inflation. Another critical metric is the MCap/TVL ratio: if a protocol's market cap is significantly lower than its TVL (Ratio < 1), it may be considered 'undervalued' as it secures more capital than its own equity value. Conversely, 'Mercenary Capital'—liquidity that only stays while high-inflation rewards are active—can artificially inflate TVL, leading to a crash once incentives dry up.