Total Value Locked
One of the important indicators of a cryptoproject is TVL (Total Value Locked). This is the total amount of funds locked into the protocol. It is most often used to analyze DeFi protocols.
But it can also be used for the analysis of non DeFi-projects. For example, the tokens locked in staking are also TVL.
How can you use this indicator? According to it the analyst can estimate to what extent the users trust the protocol or to what extent the protocol is profitable for the users. The greater the TVL, the greater the benefit and trust. The benefit is getting interest for staking, farming, and participating in liquidity pools. If the TVL is big, it means that it will be more difficult to collapse such a protocol than a similar one with a small amount of funds.
You have to understand, if the TVL has a very large percentage of the circulating number of tokens, they are not involved in the circulation. And when, for some reason, tokens are unlocked from one or more protocols (TVL decreases), it puts pressure on the price of the token, it begins to decrease. As more tokens enter the market.
The maximum allowable value of TVL has its limits. If theoretically 100% of the tokens are blocked, then there are no tokens in circulation at all. That means the token has no utility value in the network and is only used to store money. This model is good for bitcoin, but for altcoins there has to be a real use. Otherwise it's just a shitcoin that's dangerous to mess with.
TVL is a relative indicator, because it is expressed most often in US dollars and TVL changes as token exchange rates fluctuate. In bear markets, it can fall many times, which is what we are seeing now. But in a bull market, its values reach mind-boggling values and everyone gets euphoric about big numbers.
No matter how big the TVL of some protocol turns out to be, you should always remember to be careful when investing. Tens of billions of dollars in crypto disappear in a matter of days. The situation with LUNA, 3 Arrow Capital, FTX should teach you that.
TVL is used as a component in other indicators. But we will talk about them next time.