total value locked in DeFi is a “deceptively complicated metric” »alt =» total value blocked in DeFi is one «metric ingannevolmente complicata »101 ″ class =» content-img »/> Source: Adobe / Andrey Korshenkov

One of the most widely used metrics in the decentralized finance (DeFi) industry, Total Locked Value (TVL), is “a deceptively complicated metric hiding under a benign name,” according to the cryptocurrency firm. Currency metrics .

What this metric should measure is the total size of a leveraged market, and that figure “can be misleading as it is inflated by a leverage multiplier, has high price sensitivity and is anything but holistic,” analysts at the company. She said.

According to them, due to the wide scope of DeFi applications, measuring adoption of the DeFi theme as a whole is not an easy task, which is why the industry is “converging” on TVL.

TVL of any protocol is taken as the dollar valuation of all collateral deposited in that specific decentralized application, so it can be compared with any other dapp (decentralized application) regardless of its functionality.

At 11:27 UTC, DeFi Pulse shows that TVL is currently $ 66.55 billion, while according to Defi Llama it is $ 111 billion and DappRadar claims it is $ 98 billion.

Either way, Coin Metrics has identified three challenges that stand in the way of calculating a robust TVL metric.

1. myth of the ‘total’

What “total” means is to track all versions of a protocol, its versions in multiple chains (Ethereum (ETH), Binance Smart Chain (BSC)), as well as second levels like Polygon (Matic) or Fantom (FTM).

Because protocol clones are released so frequently, it has become “nearly impossible to perfectly track all collaterals assigned to a blockchain in real time,” as observers like Coin Metrics have to choose which protocols to monitor TVL individually. To accurately calculate TVL for a platform like Ethereum, providers must constantly re-evaluate past measurements to reflect new protocols and types of collateral.

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” frequency of new protocol releases leads to a natural underestimation of the total value used as collateral in all DeFi applications by all data providers,” they said.

Another complicating factor is that existing protocols can also change, so new versions and contract implementations also need to be constantly monitored.

2. myth of ‘value’

“Value” means finding a solid price for each asset that can be used as collateral, and DeFi protocols support an almost infinite variety of those assets. ” size of the collateral rates complicates estimates of value,” the analysts said.

Additionally, all of these assets can be traded across multiple locations, including centralized, off-chain, on-chain, etc. Gathering price data from all locations is “a Herculean task” and yet must be done so that the asset used as collateral can be properly valued through an index value that takes each location into account.

But what further complicates matters is that “even if a data provider must have the bandwidth to produce index values ​​from all possible trading venues, it is difficult to take all the collected data at face value.” Price data in DeFi’s liquidity pools can be manipulated, undermining measurements of value.

3. myth of the “closed”

“Blocked” is a misnomer, Coin Metrics says, as most liquidity protocols can be quickly added or removed. It also involves unraveling the links between each asset to avoid double or triple counting.

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It could be assumed that each unit of value deposited as collateral is used only within that protocol, that the assets are “locked in and used strictly in the context of demand.” “However, due to the way DeFi money markets are designed, this assumption is incorrect,” according to the company.

DeFi enables the creation of asset derivatives that reimpose collateral, which means collateral used in one application can be used in another, then another, and so on.

“In summary, some assets used as collateral in DeFI applications are derivatives that represent existing claims on other collateral,” said Coin Metrics. “This translates into a multiplier that can dramatically increase TVL’s estimates, as both collateral and collateral are counted.”

As reported, the metric has been questioned by many in the crypto industry. Speaking to, industry data agreed that there is a risk of double counting that inflates TVL data. y also warned that much of the rise in TVL comes from productive agricultural activities that can generate dangerous levels of systemic risk.

In addition to double counting, other issues include the counting of governance and synthetic tokens used to represent another crypto asset deposited as collateral and the rise in TVL simply because crypto prices have risen relative to USD .____ To find out more: – ‘Facts’ We ‘Know’ About Cryptocurrencies Are ‘Incorrect’ – Senate Hearing Witness – Bitcoin and Ethereum Can Coexist with DeFi by Combining the Two

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– DeFi had a strong 2021, driven by new trends and paradigms – How Bitcoin and DeFi are completely different phenomena

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