Adjusted TVL metric helps put DeFi growth in perspective

A new metric published by DappRadar wants to paint a more reliable picture of how the decentralized finance ecosystem is growing.

Called “Adjusted TVL,” the metric attempts to clean total value locked readings from any external influence — primarily price increases.

Total value locked is often considered a measure of the popularity of a DeFi protocol and the sector as a whole. However, measuring it in U.S. dollars means that any token price increase will also drive TVL up — even though no new assets were committed to the protocol. Researchers noted that while this may inflate the metric in bull markets, it would also underestimate it unfairly during bear cycles.

DeFi statistics website Defipulse allows viewing the amount of Ether (ETH), Bitcoin (BTC) and Dai (DAI) locked in a protocol, but this fails to take into account any other asset that may contribute to the metric. On Aave, for example, the majority of the value locked is made of LEND, Chainlink (LINK), and centralized stablecoins like TUSD and USDC.

DappRadar’s adjusted TVL fixes all assets in a protocol at their price from 90 days before. Any growth or loss in this adjusted value in a 90 day period can thus only come from net flows of assets, and not their price change.

Adjusted TVL paints a slightly less optimistic picture than a face-value reading would suggest. Out of the $7.3 billion in nominal TVL, adjusted TVL only accounts for $3.9 billion. This suggests that the remaining $3.4 billion simply came from price rallies of existing assets in the last three months.

On a project-by-project view, the protocol with the least discrepancy between adjusted and nominal TVL is Curve, a stablecoin-focused exchange. Nevertheless, a discrepancy of 15% still exists, likely explained by another category of Curve pools — swaps between different wrapped versions of Bitcoin and Ethereum.

Maker and Aave have a discrepancy of about 30% each due to their reliance on Ether and other tokens. By far the highest…

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