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Does the total lock-up value really represent the financial performance of the agreement?

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Total lock-up value (TVL), as a technical indicator to measure the value of smart contracts deposited into agreements.

Use Uniswap, Compound, and MakerDAO as examples to see if you Really Know TVL

原文作者： Kyle，元宇宙之道

Why do we believe that total value lock-in (TVL) may mislead the financial performance of the agreement, and what measures do we think investors should focus on

What does total value lock (TVL) measure?

It measures the value of idle money in smart contracts.

Let's use the examples of Uniswap, Compound, and MakerDAO to illustrate some of the shortcomings of TVL as an indicator of financial performance.

Uniswap

For Uniswap, TVL is equal to the value of assets that the liquidity provider (LP) deposits into the trading pool.

This is because a trader trading on Uniswap is depositing another asset back into the pool.

So TVL is equal to deposits

By adding Uniswap V2 + V3 liquidity (deposits) we arrive at the $7 - $8 billion figure above.

In our opinion, a better way to measure Uniswap's performance is to focus on:

A) volume

B) Transaction costs incurred

Compound

For Compound, TVL is equal to the difference between the assets deposited and borrowed.

This is because when users borrow other users' assets on Compound, some of those deposits are withdrawn from the market.

TVL = Deposited assets - borrowed assets

By calculating the difference between the provided and borrowed assets, we arrive at the $11 billion figure above.

In our view, a better measure of Compound performance is to focus on:

A) Amount of borrowing (outstanding debt)

B) Interest paid

MakerDAO

For MakerDAO, TVL is equal to the value of the assets the borrower deposited in the vault.

This is because these deposits are not withdrawn from the vault because the protocol creates DAI that the user borrows.

TVL = deposit

We came up with the $15 billion figure by looking at the value of the assets held.

In our opinion, a better way to measure MakerDAO's performance is to focus on:

A) Amount of borrowing (outstanding debt)

B) Interest paid

To sum up, while TVL is useful as a technical indicator of how much value is deposited into the smart contract of the agreement, it does not necessarily tell investors how the financial performance of the agreement is.