Understanding TVL in the Crypto Market
If you have been following the DeFi environment, you may have noticed that it has been on a downward trend since late April 2022. This trend is closely related to the Total Value Locked (TVL) in crypto.
What is TVL in the Crypto Market?
TVL refers to the Total Value Locked, which is measured in dollars and represents the total value of all tokens locked in decentralized finance protocols. Most of this TVL is locked within smart contracts on Ethereum, but almost 45% is on other chains, including layer-2 solutions like Polygon, Abritrum, Optimis, and Base.
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The 2022 Crash
The absolute peak of TVL was reached in November 2021 at nearly $180 billion. However, with the implosion of the Terra/Luna ecosystem and other factors, there was a significant decline, bringing TVL below $40 billion by the end of 2022.
The Recovery in Recent Weeks
In recent weeks, there has been a turnaround in DeFi’s TVL. It first rebounded to $40 billion on October 24 and then to nearly $44 billion on November 5. With the recent boom in Ethereum, it has now risen above $46 billion.
What is the Crypto TVL Composed Of?
The TVL calculation includes all tokens locked in any DeFi protocol. It is mostly composed of ETH and stablecoins such as USDT and USDC. However, ETH remains the undisputed leader in this area.
Hot Take: The Significance of Recent Trends
Recent trends show that the downward trend in TVL that began in late April seems to have ended. The recovery signifies positive news given how things have been going for the past year and a half. Additionally, this recovery indicates a potential return to previous levels seen in November 2022.
