TL;DR
TVL measures the total value of crypto assets deposited in a DeFi protocol’s smart contracts, used as a key metric for comparing protocol adoption and health.
TVL counts all assets held in a protocol’s smart contracts, valued at current market prices. For an AMM like Raydium, TVL is the total value of all tokens in all its liquidity pools. For a lending protocol like Kamino, it’s all deposited collateral. TVL is reported in USD and fluctuates with both deposit/withdrawal activity and price changes of the underlying assets.
Higher TVL generally indicates more trust and adoption — users have deposited significant capital. Rising TVL suggests growing confidence in the protocol. Falling TVL may indicate users withdrawing due to concerns, better opportunities elsewhere, or declining token prices. Compare TVL to the protocol’s token market cap: a token valued at $1B with only $10M TVL may be overvalued relative to actual usage.
TVL can be artificially inflated through recursive deposits (depositing, borrowing, and re-depositing). It doesn’t distinguish between “sticky” capital and mercenary capital that will leave when incentives dry up. TVL also rises when asset prices rise even without new deposits. Use TVL alongside other metrics like daily active users, transaction volume, and revenue for a fuller picture.