The Truth Behind TVL: Deconstructing Project Staking Models and Evaluation Criteria

The possibility of TVL data manipulation has sparked discussions within the industry. Some believe that the same UTXO may be counted multiple times for different projects' TVL; however, this is technically not feasible. A UTXO can only be locked once, and therefore can only be counted once at any given time.

Most projects will publicly disclose their staking addresses, and even if they are not disclosed, they can be tracked through on-chain fund flows. These addresses are not only for users but also for investors to verify the control of the project team. TVL data operations mainly occur on these public addresses.

Project parties usually collaborate with large holders to inject funds in order to increase TVL. In return, large holders receive a guaranteed yield. This practice is common in DeFi projects, whether in Europe, America, or domestic projects.

Taking a certain project as an example, it uses an MPC wallet to achieve multi-signature. The major holders deposit funds into the project's MPC wallet address, but the funds are jointly managed by the major holders and the project party. The MPC wallet achieves multi-party collaboration through multiple private key shards, ensuring that no single party can independently control the funds.

This practice has sparked discussions about "fake TVL." It is important to clarify that "fake TVL" is not data fabrication, but rather refers to the fact that these funds are static, cannot create actual value, and are only used to attract retail investors and for project promotion.

TVL can be divided into two categories: real and fake. Real TVL refers to liquidity that can be effectively utilized, such as funds in lending or exchange projects, which can enhance user experience. Fake TVL refers to idle funds, such as those in staking projects, which are not actually being fully utilized.

For staking projects, TVL is not an appropriate evaluation metric. A high TVL may just be a superficial prosperity and may not contribute substantial value to the project's operations.

For a long time, the industry has placed excessive emphasis on the TVL metric. However, not all TVL has actual value. Investors and users should focus on the core value of a project: Does it solve user problems? Can it generate positive cash flow to prove the viability of the business model?

A truly high-quality project should be able to create value for users and the entire industry. We need to reassess project evaluation criteria and should not overly rely on a single metric.