What’s TVL in crypto? The lowdown on locked liquidity

Crypto investors have more options than just buying and holding. While holding assets like Bitcoin (BTC) is still a common strategy, many traders now use their tokens in decentralized apps (dApps) to earn passive income or access new opportunities in decentralized finance (DeFi).

DeFi protocols attract billions of dollars in cryptocurrency by offering services like lending, staking, and liquidity pools without intermediaries. Built on blockchain and powered by smart contracts, these platforms give users more control over their assets – but they also introduce new risks, including security concerns and regulatory uncertainty.

To evaluate both the risks and opportunities that DeFi protocols present, many crypto investors look to a key metric: TVL.

In this guide, we’ll explain what TVL stands for, how it works, and why it matters in the world of crypto.

What’s TVL in crypto?

TVL, or total value locked, refers to the total amount of cryptocurrency deposited in a blockchain protocol or dApp. These crypto assets are typically held in smart contracts – programs that run on blockchain networks without intermediaries – to power functions like lending, staking, and liquidity provision.

In most cases, TVL measures the value of user deposits actively committed to a protocol’s smart contracts. It can also include on-chain treasuries or reserves maintained by the protocol itself.

Because DeFi operates without third-party oversight, TVL offers a transparent, on-chain metric for gauging a platform’s scale and reliability. A high TVL suggests strong investor confidence, deep liquidity, and meaningful usage. A lower or declining TVL, on the other hand, may point to reduced adoption, weaker incentives, or a higher risk of inefficiencies like slippage and volatility.

How’s TVL calculated?

TVL measures how much value is actively supporting a DeFi platform, whether through liquidity, collateral, or governance participation. To calculate TVL, you need to identify the total worth of cryptocurrency currently held in the protocol’s smart contracts. These deposits often include user funds added to liquidity pools, tokens staked for rewards, or assets committed to lending and borrowing protocols.

Most platforms convert these values into fiat currency – usually U.S. dollars – for easier comparison across blockchains and protocols.

The simplest TVL formula subtracts total withdrawals from total deposits. For example, if a protocol has $500 million in deposits and $100 million has been withdrawn, its TVL would be $400 million.

More complex DeFi protocols that offer a mix of lending, staking, and borrowing – might use TVL formulas like:

TVL = Total supplied assets + Total staked assets − Borrowed assets

So, if a platform were to have $100 million in supplied tokens, $20 million staked in its native token, and $30 million borrowed, its TVL would be:

TVL = $100 million + $20 million − $30 million = $90 million

Where to find TVL in DeFi

Reputable DeFi protocols promote transparency by making TVL data easy to access. Most platforms display real-time figures on deposited assets, staked tokens, or liquidity pool balances directly on their websites. You’ll often find these numbers on a dApp’s homepage or within individual vaults and pools.

The easiest way to track TVL across DeFi is by using a third-party aggregator. Sites like DefiLlama and DappRadar monitor TVL across multiple blockchains and protocols, offering detailed breakdowns by chain, token, and platform. These tools make it simple for investors to compare activity, assess trends, and gauge the overall health of the DeFi ecosystem.

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How to use TVL when trading crypto

TVL is a helpful indicator of a protocol’s activity and traction, but it’s just one factor to consider when deciding whether to commit cryptocurrency to a DeFi platform – security, incentives, and user trust also matter.

Assess security

Generally, a high TVL sustained over time often signals that a protocol is well-established and widely used. Platforms with consistently strong TVL tend to attract more user activity, while those with a history of exploits or leadership controversies often see lower participation.

Still, protocol-reported TVL figures may not always reflect the full picture. Some dApps boost their numbers using short-term incentives or complex token models. To get a broader view, many crypto investors reference third-party aggregators like DefiLlama, which track TVL across DeFi protocols and chains. Others may look at factors like security audits, open-source code, or team transparency to evaluate a protocol’s overall reputation.

Compare yield opportunities 

TVL can also help crypto investors assess whether a DeFi protocol’s advertised yields are realistic. For example, a platform offering extremely high returns with very low TVL may raise red flags around sustainability or risk. By contrast, solid yields supported by a growing TVL suggest the protocol may be gaining trust and traction.

Identify growth potential

Rising TVL over time often points to growing interest, adoption, or momentum in a DeFi protocol. For some crypto investors, this kind of movement suggests a possible upside, especially if the protocol’s governance token hasn’t yet reflected the uptick in activity. A steady increase in TVL may mean that a DeFi protocol is gaining traction, attracting more users and locked crypto assets. 

While more speculative, TVL-based trend analysis is one way to evaluate growth potential, spot emerging crypto opportunities, and time a trade. Comparing TVL across protocols can also help traders assess how a specific DeFi protocol stacks up within the broader crypto market.

Top DeFi protocols by TVL

TVL rankings in DeFi constantly shift as users deposit or withdraw crypto assets and token prices move across the broader crypto market. While most DeFi protocols experience these fluctuations, a few have consistently maintained high total value locked across blockchain networks. These protocols tend to reflect long-term user engagement, platform stability, and strong participation in staking, lending, and liquidity services.

Lido Finance

Focused primarily on the Ethereum (ETH) blockchain, Lido Finance is a decentralized liquid staking protocol. It allows users to stake supported crypto while maintaining liquidity by issuing a tokenized version of ETH called stETH (Lido staked Ether), which tracks the value of ETH 1:1. This lets investors earn staking rewards while using stETH in other DeFi protocols to generate additional yield. When investors want to withdraw their original cryptocurrency, they redeem their stETH for ETH, plus accrued rewards.

Aave

Launched in 2017 as ETHLend, Aave is a decentralized lending protocol built on the Ethereum blockchain. It lets users lend and borrow crypto assets without intermediaries and now includes features like governance token staking, flash loans, and its native GHO stablecoin. Aave has expanded beyond Ethereum to support other blockchains, including Polygon (MATIC), Avalanche (AVAX), and BNB Chain (BNB), increasing accessibility and total TVL across networks.

Uniswap

Released on Ethereum in 2018, Uniswap introduced the crypto world to decentralized trading with an automated market maker (AMM) model. Instead of relying on centralized order books, Uniswap uses smart contracts and liquidity pools where investors deposit equal parts of two tokens. In return, they earn a share of the trading fees each time someone swaps between those tokens. The protocol’s AMM system continuously balances these pools, making it easy to trade ERC-20 tokens on-chain without intermediaries and contributing to its consistently high TVL.

Before you dive into DeFi, download CoinTracker

From staking and lending to liquidity pools and governance tokens, DeFi protocols offer plenty of ways to earn passive crypto income. Many of these activities contribute to a platform’s TVL by keeping assets locked in smart contracts, but they also come with tax implications. Staying compliant with the IRS means keeping accurate records of every transaction.

That’s why it’s important to have a clear view of your DeFi footprint—what you’ve traded, where your assets are locked, and how they move across protocols. CoinTracker’s Portfolio Tracker connects to wallets, exchanges, and DeFi smart contracts to automatically log your crypto trades, liquidity movements, and other taxable events. When it’s time to file, you’ll have IRS-compliant tax forms ready to go—no spreadsheets, no manual tracking.

Start for free today and see how easy it is to manage your DeFi activity – before, during, and after tax time.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.