TVL (Total Value Locked) is an important metric in decentralized finance (DeFi) that represents the total amount of assets locked in the smart contracts of a specific platform or protocol. TVL measures how much capital (usually expressed in U.S. dollars) users have deposited on the platform to participate in various financial operations, such as staking, liquidity provision, and lending.

Key points:

What TVL shows:

TVL indicates the level of trust and usage of a particular DeFi protocol. The more funds locked on a platform, the more users are interacting with it, signaling its popularity and stability.
TVL reflects the total value of crypto assets locked in a protocol, including assets like ETH, BTC, stablecoins, and others.

How TVL is calculated:

TVL = The sum of all assets locked on the platform × the current market price of those assets.
This number can fluctuate depending on the market price of assets and changes in the amount of funds locked by users.

Examples of usage:

Uniswap: A decentralized exchange where users add liquidity to liquidity pools. TVL shows how much capital is in the pools at any given time.
Aave: A lending platform where TVL shows how much capital users have locked to lend or borrow assets.

Importance of TVL:

Popularity indicator: TVL helps to understand how popular and in-demand a protocol is.
Attractiveness for investors: Investors use TVL to evaluate the stability and potential yield of a protocol.
Comparison between platforms: TVL can be used to compare different DeFi protocols based on the amount of funds locked in them.

TVL is an essential metric for evaluating the overall health of the DeFi ecosystem and individual platforms.