![]() ![]() Market cap does, however, have some value as it gives investors insights into projects: While market caps reflect what a protocol (or network) may be worth in the future, TVL gives us a look at the current state of a protocol without guessing or forecasting.įor example, if you were going to invest in a bank, wouldn’t you first consider the total amount of assets it has custody over before looking at the market cap of the stock? Though market cap is indeed a vital metric when evaluating the coins of blockchain networks, most investors first look at TVL before deciding to interact or invest in a DeFi protocol. Remember, protocols operate under blockchains.Ĭryptocurrencies are highly speculative assets, and their prices are in constant flux. The market cap of bitcoin is therefore 19 million x $25,000, which gives us 475,000,000 US Dollars. The current price of Bitcoin is $25,000 per coin. While TVL looks at the actual health and adoption of a network, a crypto coins market cap (capitalization) simply tells us the total value of all coins outstanding.įor example, about 19 million bitcoin (BTC) have been mined so far. Market Cap Calculation: Number of Outstanding Coins x Coin Price Using TVL to measure blockchain networks, therefore, is not applicable.Ĭurrently, the TVL of all DeFi protocols combined is 59.45 US Dollars, as seen from the DeFiLlama visual below It should be noted that TVL applies only to the value locked in a DeFi protocol's smart contracts, which are implemented using algorithms. The greater the TVL, the greater the trust a crypto community has in a given protocol.Īmong other things, TVL can help investors to: High TVLs indicate healthy and robust DeFi networks. TVL is the net sum of all cryptocurrencies locked in a particular project.ĭepending on the project, TVL can be indicative of the total amount of digital assets borrowed/lent, crypto staked, or the net amount of crypto residing in the liquidity pools of a decentralized exchange (DEX). In decentralized finance (DeFi), total value locked is one of the most important metrics investors look at before interacting or investing in a protocol. TVL calculation: Total Number of Coins Staked x Coin Current Price TVL ratio gauges the health of a protocol and is calculated by dividing the market cap by TVL. This is in contrast to a coins/tokens market cap, which is simply the total market value of all coins minted. ![]() In decentralized finance, total value locked (TVL) refers to the total amount of crypto assets that are locked in the ecosystem decentralized application. TVL ratio gauges the health of a protocol. Market cap refers to the total outstanding value of a project or blockchain cryptocurrency. TVL (total value locked) refers to the total amount of cryptocurrency being employed by a DeFi project. In this guide, we will explain the difference between TVL, market cap, and TVL ratio as well as show you how they are calculated. ![]()
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