After the crypto price dump earlier this week, the DeFi market saw the total value locked in the industry drop below $100 billion for the first time in a month. On September 21st the total market had $97.9 billion in TVL, while that number has now gone up to more than $110 billion.
The total value locked in smart contracts is a common way to measure the success of the DeFi industry. The more value there is, the better the industry is doing. In the past 24 hours, platforms like Aave, Curve, Compound, PancakeSwap, and Uniswap have all seen their TVL increase 5.8 up to 13.5%. This paints the picture of some industry-wide euphoria or positivism at this particular moment in time.
However, with fluctuating token prices TVL can paint a very positive picture without actually growing its market. A crypto price pump or dump can have strong influence on the TVL and the DeFi sector. That’s why DappRadar introduced aTVL, the adjusted Total Value Locked. Here we look at the TVL against the token prices set at one particular value . This way data shows growth or decline without worrying about token prices.
Bigger picture: DeFi market is growing
Looking back at the general growth of the DeFi market, we see both the TVL and aTVL climbing up. In May the TVL experienced a gigantic peak, and overall the trend is upwards. With the adjusted TVL we can see that price fluctuations have far less influence on the general trend, and also here the trend is upwards.
However, it’s also important to look at a shorter time frame. When we measure the aTVL over a 90 day period, there’s a strong decline. Between August 10th and 21st the aTVL from the DeFi industry dropped 27% from $157 billion to $116 billion.
But things don’t look grim for the DeFi industry at all. Despite a drop in TVL value, the aTVL has been moving upwards when measured over the past 30 days. One month ago the aTVL was $91 billion, and since that time investors have been putting more money into the DeFi industry reaching an aTVL of $122 billion. Looking at values in the DeFi industry without the influence of token pricing, can paint a very different picture.
Not the only measurement of success
The Total Value Locked is a good way to get a very one-sided idea about the DeFi market. It’s just one of the indicators that signals the direction of market movements. TVL would make a lot of sense as a golden rule when all DeFi protocols use the same blockchain. However, the DeFi market is becoming more fragmented. BINANCE Smart Chain and Polygon established themselves earlier this year, and especially BSC is playing a relatively big role.
These two blockchains allow users to participate against lower usage costs, as transaction fees associated with these blockchains are much lower than on Ethereum. Suddenly users can easily move in and out of liquidity pools, continuously searching for the best APY on their holdings.
In addition new blockchains have entered the scene with quite some impact. Avalanche and Solana have growing DeFi ecosystems, and reportedly already had $5 billion TVL in August. With new DeFi protocols entering the landscape, the number of active wallets, transactions and TVL will each play a role in determining the success of the DeFi industry and that of individual DeFi protocols.
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