The total value locked（TVL）of the DeFi protocols exceeds $70 billion
[TL;DR]
The aggregate Total Value locked of Decentralized finance protocols has exceeded $70 billion, a positive movement from its extreme low in April when it hit $63 billion.
TVL simply refers to the value of funds deposited into a protocol. It is calculated by multiplying the number of specified tokens by the value in US dollars.
The Total Value Locked of a protocol is influenced by several factors, including market volatility, political insecurity, economic instability, etc. Market crashes like Terra’s UST and LUNA’s decline can negatively impact the overall TVL of DeFi protocols and vice versa.
Optimism Protocol’s almost 300% spike in anticipation of Ethereum’s merge may be partly responsible for this sector’s climb in the aggregate TVL.
Either way, members of the decentralized finance eco hold out hope that this is the beginning of Defi’s recovery.
DeFi’s TVL Total Value Locked Climbs Over $70 billion
At writing, the aggregate Total Value Locked of DeFi protocols has climbed above $70 billion. The current value is up 10% from the drastic drop in April this year when the aggregate Total Value Locked of all DeFi protocols plunged to around 63 billion dollars. According to DefiLlama data, the leading protocols by TVL include MakerDAO maintaining its number one position with a TVL of 9 billion dollars. Lido follows it at 8 billion dollars, AAVE with 7 billion dollars, and Uniswap at over 6 billion.
How Total Value Locked is uated
Source: Quora
In decentralized finance, TVL or Total Value Locked simply means the total worth of the digital assets deposited in a decentralized finance protocol. The term could also cover the aggregate value of all DeFi protocols. It is an essential metric for measuring these protocols because it helps determine their:
A. Popularity,
B. Liquidity, and
C. Usability.
All these factors, in turn, make up investors’ consideration when uating a project’s feasibility.
One can get a project’s TVL by calculating the number of deposited tokens in the concerned protocol and multiplying it by the current value of each token in USD. Likewise, to get the total value of all protocols, one needs to calculate each project individually and then aggregate the results.
Factors contributing to decentralized Finance Protocols’ TVL
Over the years, decentralized finance, despite its popularity and profitability, has experienced much volatility causing its Total Value Locked to experience extreme fluctuations. Because the TVL of all protocols is measured by aggregating the TVL of all said DeFi networks, it affects all when one gets adversely affected.
The instability can be traced to several factors, such as market crashes. For example, the DeFi protocols TVL experienced a massive setback when algorithmic stablecoin UST lost its peg and crashed to almost nothing in May, taking its sister coin LUNA with it. The aggregate Total Value Locked had scaled unheard-of heights, hitting over 200 billion dollars in the last quarter of 2021, according to Statista data.
However, the TVL dropped to as low as 80 billion dollars after the Terra crash. By June, TRON’s USDD lost its dollar peg, causing its Total Locked Value to fall to its lowest at $4.53 billion. This negatively impacted the aggregate TVL even more, causing it to drop to around $63 billion.
Bad actors’ exploitation can also be credited with adversely affecting the TVL of DeFi protocols. Take Nomad protocol’s recent setback, for instance. Malevolent actors breached its earlier this month, draining its funds almost completely. A digital security company, Blocksec, estimates that the protocol lost a TVL of at least 150 million dollars in Tether USD in the exploit. According to DefiLlama, Nomads TVL dropped from around 190 million dollars to less than 11,000 dollars.
Other factors affecting DeFi protocols’ TVL include political insecurity caused by the Russo-Ukrainian war, economic instability like recession and inflation, general market volatility caused by whale movements, among other things, and many more.
Why is the Aggregate Defi’s Total Value Locked rallying?
Data from DefiLlamma shows that Optimism, a layer 2 scaling solution on Ethereum, may hold at least partial responsibility for this climb. As Ethereum’s Merge draws close, scheduled for mid-September, the hype has increased around the network, causing Optimism’s TVL to shoot up about 284%. Apparently, members of the decentralized finance space welcome Ethereum’s move to achieve consensus using the more energy-efficient PoS mechanism. Hence they are putting more eggs into the erstwhile proof-of-work ’s basket.
What does this mean for the future of Decentralized Finance Protocols?
Source: Unsplash
Other entities are taking this recent volatility as a sign of the validity of the DeFi sector. As Justin d’Anethan of Amber Group said, the chaos has only proven the validity of the DeFi space as it continued to operate as expected, unlike centralized entities. It is likely to birth an increase in faith in decentralized finance. Consequently, the adoption rate of DeFi protocols is likely to increase, which will further boost their Total Value Locked.
In Conclusion
The aggregate Total Value Locked for DeFi protocols is rallying after taking several hits in recent months. Some entities attribute this to Ethereum’s upcoming merge, but the overall outlook is optimistic since the sector’s resilience through multiple setbacks might increase faith in it.
