From day one, the total value locked in DeFi projects has attracted a lot of attention. As the number keeps growing, however, some questions arise. As pointed out by Damir Bandalo, the TVL figure is likely incorrect by quite a margin.
Inflating the Total Value Locked Numbers
Most people will agree that decentralized finance projects attract a lot of attention. Moreover, the total value locked – or TVL – has exploded in recent times. While the figures are not impossible to attain right now, they are not entirely correct either. Damir Bandalo has done a lot of research, and come up with some interesting findings.
First of all, he points out how every Dollar worth of assets is probably accounted for multiple times. Due to the native inner workings on some platforms, one Dollar can be used across different platforms in different formats.
A lot of talk these days around the total value locked in DeFI.
However all of them count the same $ many times.
So I did my own calc to find out how much is actually locked in top 15 DeFi protocols.
Answer: $3.5bil. (compared to $6.7bil on @defipulse)
1/n
— Damir Bandalo (@damirbandalo) August 16, 2020
For example, $1 worth of ETH put into Maker will mint DAI. That DAI can then be put into various other platforms, but still represent the same $1 across different platforms. This skews the total value locked numbers significantly, and muddies the waters even further.
Secondly, there is a key difference between value created and value locked. On Synthetix, according to Bandalo, there are a lot of assets created that have value. Its sUSD stablecoin, for example, has use cases.
However, it is also counted as part of the total value locked on the platform. Whether that is accurate is a matter of debate, but it’s still worth pointing out. Generating new tokens with value on the platform should be very different from the total TVL numbers.
Stablecoin Representation
Further documenting his research, Bandalo indicates how two stablecoins have gained traction as part of DeFi. Those are USDC and TUSD. In the latter’s case this has proven to be quite interesting. TUSD, while initially promising, has not found too many use cases outside of yCRV as of late.
A couple of interesting facts I discovered during the process.
Only 3.85% of ETH & 0.18% of BTC is locked in DeFi. A lot of room to grow. 🚀
By contrast 29% of USDC is locked and 62% of TUSD. (which actually has very little adoption outside the ycrv product)
— Damir Bandalo (@damirbandalo) August 16, 2020
As far as the other stablecoins are concerned – and there are over a dozen – things have yet to pop off, so to speak. It will be interesting to see how all of this evolves in the coming months. For stablecoins, it has always been difficult to find a niche outside of trading.
What Comes Next?
It would be beneficial to DeFi as an industry to add more transparency. More specifically, separating total value locked from value created is a good place to start. There is no point in deceiving onlookers, either knowingly or by accident.
To ensure this industry keeps growing, there needs to be more accountability as well. For now, all platforms can launch without going through any audit or peer review. In the case of YAM, this has proven to be very problematic, yet people went with this concept anyway. Overcoming these hurdles is crucial to achieve any long-term success.
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