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Algorand News- Algorand Debunks the Myth of TVL in DeFi Analysis
Algorand News– In a soon-to-be-released study, the Algorand Foundation is set to question one of DeFi’s most commonly accepted assumptions: that Total Value Locked (TVL) is a valid metric for evaluating the financial performance of cryptocurrencies. This research could shift how both institutional and retail investors assess the credibility and potential of blockchain projects.
TVL, which calculates the total dollar value of all assets locked in smart contracts on a blockchain, has long been considered a key indicator of a platform’s success—particularly in the DeFi space. However, according to Algorand’s upcoming findings, the correlation between TVL and a token’s price performance appears to be virtually nonexistent.
What Does TVL Really Measure?
TVL is traditionally used to rank DeFi platforms, signal user confidence, and even suggest future price movements of a native token. But as Dr. Matthew Brigida, Chief Economist at the Algorand Foundation and Associate Professor of Finance at SUNY Polytechnic Institute, points out, “TVL is a poor predictor of financial returns once broader market movements are accounted for.”
We analyzed over 300 altcoins from 2023 to 2024 using weekl,What we found was that high-TVL tokens did not outperform low-TVL ones in any consistent or statistically significant way.
The Methodology Behind the Study
The research excluded Bitcoin and stablecoins, focusing strictly on altcoins. Each week, the team created portfolios consisting of the top 25% of tokens by TVL, going long on them, and shorted the bottom 25%. The expectation was to see some alpha generation—a return in excess of market benchmarks—if TVL were indeed a reliable metric.
Instead, the results showed that once general crypto market trends were taken into account, TVL offered no additional insights. Adjustments for known data issues, such as double counting across protocols, didn’t change the outcome.
Why This Matters for Investors and Analysts
In the U.S., surveys like Pew’s 2023 crypto report have shown that many investors still equate TVL with trustworthiness. This perception may lead to overconfidence in platforms or projects that inflate or “game” their TVL to appear more successful than they truly are.
TVL can be manipulated relatively easily and is often inflated, Some protocols count the same locked assets multiple times, distorting reality and misleading both analysts and everyday users.
This growing misalignment between perceived legitimacy and actual performance is concerning, especially as dashboards and media outlets continue to spotlight TVL in headlines and investor materials.
TVL Still Dominates DeFi Metrics—But Change Is Coming
Despite its flaws, TVL remains one of the most cited figures in DeFi analytics. However, the narrative is slowly shifting. Platforms like Messari, Artemis, Token Terminal, and Blockworks have already begun downgrading TVL’s importance or supplementing it with alternative indicators such as Real Economic Value (REV), wallet activity, and unique participant metrics.
The Algorand Foundation’s study urges a more nuanced approach. Instead of relying solely on TVL, the authors recommend developing trust metrics based on user behavior, transaction quality, or network-specific fundamentals.
If the goal is to assess real value, TVL alone cannot do the job, “We need better metrics rooted in actual economic activity.
What This Means for DeFi Moving Forward
This research could mark a turning point for how value is measured in decentralized finance. If accepted by the broader community, it might lead to more robust methods of analyzing blockchain projects—methods that are harder to manipulate and more aligned with actual user engagement and economic utility.
With TVL now proven to lack predictive power for price trends, investors and analysts may begin to prioritize other, more grounded indicators in their due diligence and risk models.
The full study will be published by the Algorand Foundation on June 10, and is expected to spark wider discussions across the crypto space about what really matters when evaluating DeFi platforms and the tokens that power them.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.
