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The adjusted TVL metric helps put DeFi growth in perspective

August 28, 2020

A new metric released by DappRadar aims to paint a more reliable picture of how the decentralized financial ecosystem is growing.

Call “Adjusted TVL” (Adjusted TVL) tries the metric to free the entire values ​​for the locked value from external influences, mainly price increases.

The total blocked value is often viewed as a measure of the popularity of a DeFi protocol and the industry as a whole. However, measuring in US dollars means that an increase in the token price will also increase TVL, although no new assets have been set for the record. The researchers found that while this could inflate the metric in bull markets, it would also wrongly underestimate it during bear cycles.

The adjusted TVL metric helps put DeFi growth in perspectiveThe adjusted TVL metric helps put DeFi growth in perspective

The DeFi Defipulse statistics website allows you to view the amount of Ether (ETH), Bitcoin (BTC), and Dai (DAI) that are blocked in a log. However, it does not take into account any other assets that could contribute to the metric. At Aave, for example, most of the blocked value consists of LEND, Chainlink (LINK) and centralized stablecoins such as TUSD and USDC.

The customized TVL from DappRadar fixes all assets in a protocol at their price 90 days in advance. Therefore, over a 90 day period, growth or loss in this Adjusted Value can only result from net flows of assets and not from changes in price.

The adjusted TVL paints a slightly less rosy picture than a nominal measured value suggests. Out of the nominal TVL of $ 7.3 billion, the adjusted TVL is only $ 3.9 billion. This suggests that the remaining $ 3.4 billion was simply due to spikes in the price of existing assets over the past three months.

In a project-by-project view, the log with the smallest discrepancy between fitted and nominal TVL Curve is a stable, coin-focused exchange. However, There is still a 15% discrepancy, probably explained by another category of curve groups: swaps between different packaged versions of Bitcoin and Ethereum.

Maker and Aave have a discrepancy of around 30% each due to their dependence on Ether and other tokens. By far the largest deviations can be found with Synthetix and mStable. The former has an adjusted TVL of $ 108 million versus a face value of $ 931 million. The ratio of the latter is $ 900,000 to $ 50 million.

Adjusting for price growth can help put DeFi expansion in perspective. While the total number of assets entering the sector has actually grown, it has been much less than the gross numbers suggest.

Some have argued that the proliferation of the TVL metric is also contributing to price increases, relying on the misconception that it means increasing popularity. Examples like Synthetix and mStable suggest that their native token price growth caused most of their TVL surge, which could be the result of a positive feedback loop.

But even discounting for price growth does not necessarily mean that the adjusted TVL paints a completely fair picture of the protocol’s popularity and fundamentals. For example, in the case of Compound, Curve and others, new assets can be entered solely for the purpose of growing their tokens for income.

From a fundamental standpoint, these assets also add to the true TVL, as without the tokens being distributed, the assets would likely leave the log in droves.

Ilya Abugov, project manager at DappRadar, told Cointelegraph: “One metric is not enough to describe what is happening in the industry.”

The website also features a category of unique active wallets. This gives a more complete picture of how many wallets, and likely people, are using a log at any given time. But the customized TVL isn’t the end of the story, he said, “We’re going to keep expanding our suite [para] that the community can have a more complete picture of the state of affairs in the industry “.

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