Home Coins Ethereum (ETH) Adjusted TVL metric helps put DeFi growth in perspective

Adjusted TVL metric helps put DeFi growth in perspective

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 DeFi Pulse allows viewing the amount of Ether (ETH), Bitcoin (BTC) and 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’s LINK and centralized stablecoins like TrueUSD (TUSD) and USD Coin (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 Ether.

Maker and Aave have a discrepancy of about 30% each due to their reliance on Ether and other tokens. By far, the highest discrepancies can be seen on Synthetix and mStable. The former counts $108 million in adjusted TVL compared with a nominal figure of $931 million. The latter’s proportion is $900,000 to $50 million.

Adjusting for price growth can help put DeFi’s expansion into perspective. While the total amount of assets flowing into the sector has indeed grown, it was much less than raw numbers would suggest.

Some argued that the prevalence of the TVL metric helps drive prices up as well, based on the misconception that it signifies growing popularity. Examples such as Synthetix and mStable suggest that the price growth of their native tokens drove the vast majority of their TVL increase, which could be the result of a positive feedback loop.

But even discounting price growth does not necessarily mean that adjusted TVL paints a completely fair picture of protocol popularity and fundamentals. In the case of Compound, Curve and others, for example, new assets may come in solely for the purpose of yield farming their tokens.

From a fundamental standpoint, these assets are also inflating true TVL, as without the token distribution, the assets would likely leave the protocol en masse.

Ilya Abugov, project manager at DappRadar, told Cointelegraph that “one metric is insufficient to describe what is happening in the industry.”

The website also features a unique active wallets category, which paints a fuller picture of how many wallets — and most likely people — are using a protocol at a specific point in time. But the adjusted TVL is not the end of the story, he said: “We will continue to expand our suite [so] that the community may have a more complete picture of the state of events in the sector.”

Source link

- Advertisement -
Mr Bitcointe
Mr Bitcointehttps://www.bitcointe.com/
“Fact You Need To Know About Cryptocurrency - The first Bitcoin purchase was for pizza.” ― Mohsin Jameel
474FansLike
76FollowersFollow
4,567FollowersFollow
5,261FollowersFollow
1,550FollowersFollow
2,230SubscribersSubscribe
USD - United States Dollar
EUR
1.17
GBP
1.29
CHF
1.09
NOK
0.11
JPY
0.01
CAD
0.75
AUD
0.72

Most Popular

Twitter’s Jack Dorsey takes aim at Coinbase’s apolitical stance

Twitter CEO Jack Dorsey has taken major U.S. crypto exchange Coinbase to task over its open letter to employees published on Sep 28. The letter,...

Dash adjusts block reward percentage to improve the economics of its network

Dash Core Group, the entity responsible for developing the privacy-focused coin DASH, publicized fresh changes to the asset's proof-of-stake network on Sept. 30. "Dash...

Crypto Bets on the US Election Show Joe Biden Winning the Presidency by 60%

During the first half of the year, betting portals that allow people to wager cryptocurrencies on the upcoming U.S. election had shown...

ICON Development Roadmap Update — September 2020 | by ICON Foundation | Hello ICON World | Sep, 2020

ICON 2.0 Timeline and Gangnam TestnetGreetings ICONists,This month was highlighted by the announcement of our new and improved blockchain, ICON 2.0: BATANG. For the...
bitcoin
Bitcoin (BTC) $ 10,813.90
ethereum
Ethereum (ETH) $ 362.69
ripple
XRP (XRP) $ 0.242136
tether
Tether (USDT) $ 0.999984
bitcoin-cash
Bitcoin Cash (BCH) $ 228.44
bitcoin-cash-sv
Bitcoin SV (BSV) $ 175.08
litecoin
Litecoin (LTC) $ 46.47
eos
EOS (EOS) $ 2.59
binancecoin
Binance Coin (BNB) $ 29.08
okb
OKB (OKB) $ 6.24
tezos
Tezos (XTZ) $ 2.24
leo-token
LEO Token (LEO) $ 1.27
cardano
Cardano (ADA) $ 0.103117
monero
Monero (XMR) $ 110.85
stellar
Stellar (XLM) $ 0.075452
chainlink
Chainlink (LINK) $ 9.98
huobi-token
Huobi Token (HT) $ 4.61
tron
TRON (TRX) $ 0.026337
usd-coin
USD Coin (USDC) $ 1.00
dash
Dash (DASH) $ 70.62
neo
NEO (NEO) $ 19.58
iota
IOTA (MIOTA) $ 0.286063
nem
NEM (XEM) $ 0.116498
zcash
Zcash (ZEC) $ 65.01
maker
Maker (MKR) $ 569.90
paxos-standard
Paxos Standard (PAX) $ 1.00
ethereum-classic
Ethereum Classic (ETC) $ 5.41
vechain
VeChain (VET) $ 0.013533
true-usd
TrueUSD (TUSD) $ 1.00
ftx-token
FTX Token (FTT) $ 3.63
kucoin-shares
KuCoin Shares (KCS) $ 0.871371
waves
Waves (WAVES) $ 2.63