What Is Total Value Locked and Why It is Important in DeFi
How Total Value Locked Helps Measure Growth in DeFi Platforms
Decentralized finance, also called DeFi, is a way to use money online without banks. People can save, lend, borrow, or trade crypto by using apps on the blockchain. These apps run on code, not on people or companies. To know how strong or trusted a DeFi project is, one simple number is used very often. That number is total value locked.
This blog explains everything for beginners and new readers. what it means, why it is important, how it is counted, what changes it, and how to use it safely.
What is Total Value Locked?
TVL means the total amount of money that users have put into a DeFi platform. This money is fixed inside smart contracts.
When people add crypto to earn rewards, lend coins, or stake tokens, that crypto becomes locked. It stays there until the user takes it out. All the money from all users is added together. This final amount is called total value locked.
In simple words, It shows how much money people trust a DeFi platform with.
Why It Is Important
TVL helps people understand how active a DeFi project is.
It is important because:
It shows how much money is inside the platform
It shows how many users trust it
It helps compare one DeFi app with another
It shows growth or decline over time
When it keeps growing, it often means more people are joining and staying.
How It Is Counted
To find it, all crypto in a DeFi platform is counted.
This includes:
Crypto in lending pools
Tokens fixed for staking
Money in liquidity pools
Assets used to earn rewards
Each asset is changed into US dollar value. Then all values are added together. This number is shown as TVL.
Since prices change every day, it can also change daily.
Where Total Value Locked Data Comes From
TVL data comes from public blockchain records. These records are open and anyone can see them.
Tracking platforms access smart contract data from blockchains such as Ethereum and others. They check how much crypto is fixed and show updated numbers.
This makes it open and easy to check.
Total Value Locked vs Token Price
Many beginners think token price and lock value are the same. They are not.
Token price shows the value of one coin
It shows how much money is being used
A token price can rise because of hype. But it rises only when users keep money inside the platform.
This is why it is seen as more reliable.
Why It Goes Up or Down
It changes often. This is normal in DeFi.
Some main reasons are:
New people put their money into the platform
Some users remove their money.
Crypto prices rise or fall
The rewards become higher or lower
Even if users do nothing, price drops can lower the value.
Is High Total Value Locked Always Safe?
A high value is usually good, but it does not mean zero risk.
You should know:
TVL does not show safety
TVL does not show profit
One big user can raise TVL fast
TVL can fall fast in bad markets
So, it should never be the only thing you check.
How Beginners Should Use It
If you are new to decentralised finance, can help you choose better platforms.
Use it like this
Check if TVL grows over time
Compare similar DeFi projects
Look at long-term TVL charts
Always check security and risks
This helps avoid common mistakes.
Total Value Locked and DeFi Growth
It also shows how decentralised finance is growing as a whole.
When TVL grows across many platforms, it means
More people trust DeFi
More apps are being used
More amount is entering the system
This is why experts track it across many blockchains.
Common Myths About Total Value Locked
There are many wrong ideas about TVL.
Some common myths are:
High TVL means no risk
Low TVL means bad project
TVL can predict prices
TVL shows profit
These ideas are not true. It is only one part of the story.
Why Total Value Locked Matters in the Future
As decentralised finance grows, it will stay very important.
It helps show:
Real user activity
Long-term trust
Which platforms users prefer
Developers use TVL to track success. It is used to check how strong it is.
Final Thoughts
One of the simplest ways to grasp decentralised finance is to consider it. It shows how much money users have locked into a platform and kept there.
When used correctly, It helps you see trust, growth, and real use. It should always be used with other checks, but it remains one of the most important numbers.
Learning this gives you a strong and simple base to understand decentralized finance.
