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21 October 2020

DeFi market fall showcases how rising TVL doesn’t tell the full story

DeFi market fall showcases how rising TVL doesn’t tell the full story


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The decentralized finance market seems to be deflating after the DeFi summer craze when tokenized versions of Bitcoin and protocols, such as Uniswap and SushiSwap, outperformed the rest of the market.

Earlier in October, the two main DeFi indices, Binance’s DeFi Composite Index and TokenSet’s DeFi Pulse Index Set lost more than 60% and 50% of their value, respectively.

Meanwhile, total value locked in DeFi projects has been inching closer to its all-time high of $11.2 billion since late September.

DeFi Composite Index was launched by Binance Futures in late August, and it tracks the DeFi market performance using a basket of DeFi protocol tokens listed on Binance.

TVL is the value of assets locked in a particular DeFi protocol.

With most of the prominent DeFi tokens losing value in the double digits in October, the cumulative market capitalization for all DeFi assets also shrunk by 25% on Oct.

This reduction in the value of DeFi assets has translated to the collaterals locked in DeFi platforms as well.

Although this drop in metrics throughout the DeFi market might seem alarming to most investors, according to Klumov, it could also be viewed as a healthy correction where DeFi assets will now find their true value, adding that TVL should not be the go-to metric: “Since the market is maturing, more complicated metrics have to be established to properly identify winners and losers.”.

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