Total value locked (TVL) is the main metric used to assess the economic significance of decentralised finance (DeFi) projects. It represents the total value of on-chain cryptoassets deposited in DeFi protocols. Despite its importance, TVL calculations are not standardised and in some instances rely on self-reported off-chain data, opening the door to manipulation. Inconsistent methodologies across different aggregators can lead to large discrepancies in the reported figures. This lack of transparency raises concerns about accuracy when measuring the financial magnitude of DeFi ecosystems.
Contribution
This paper systematically examines how TVL is computed in practice, identifies key challenges that hinder its verifiability, and proposes solutions to improve its computation. By analysing data from the protocols covered in widely used TVL aggregators, the study uncovers some reliance on off-chain external data sources and calculation methods based on custom, self-defined methods.
„We thus introduce verifiable total value locked (vTVL), a new metric designed to improve transparency and reproducibility by relying solely on on-chain data and standardised balance queries, as well as avoiding double-counting.” – the authors said.
Findings
The study analyses 939 DeFi protocols on Ethereum and finds that 10.5% rely on external off-chain data sources, making their TVL figures difficult to independently verify. While 78.6% of protocols use standard balance queries, a significant number employ non-standard methods, further reducing interpretability.
A case study on 400 protocols reveals that the newly proposed vTVL is identical or closely matches published TVL figures for 46.5% of the protocols. These findings point to the potential for further TVL standardisation.
„We thus conclude by outlining key design principles to ensure more reliable TVL computation, such as using only on-chain data, publishing contract and token lists, and defining common protocol and asset selection criteria.” – the authors added.
Abstract
Total Value Locked (TVL) aims to measure the aggregate value of cryptoassets deposited in Decentralized Finance (DeFi) protocols. Although blockchain data is public, the way TVL is computed is not well understood. In practice, its calculation on major TVL aggregators relies on self-reports from community members and lacks standardization, making it difficult to verify published figures independently.
„We thus conduct a systematic study on 939 DeFi projects deployed in Ethereum. We study the methodologies used to compute TVL, examine factors hindering verifiability, and ultimately propose standardization attempts in the field. We find that 10.5% of the protocols rely on external servers; 68 methods alternative to standard balance queries exist, although their use decreased over time; and 240 equal balance queries are repeated on multiple protocols.” – according to the report.
The authors conclusion: „These findings indicate limits to verifiability and transparency. We thus introduce „verifiable Total Value Locked” (vTVL), a metric measuring the TVL that can be verified relying solely on on-chain data and standard balance queries. A case study on 400 protocols shows that our estimations align with published figures for 46.5% of protocols. Informed by these findings, we discuss design guidelines that could facilitate a more verifiable, standardized, and explainable TVL computation.”
More details: BIS Working Papers No 1268 – Towards verifiability of total value locked (TVL) in decentralized finance
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