Since summer 2020, the DeFi market went up drastically and there are positive indications that the trend will continue. With each new project, DeFi looks more interesting to the new investors. With all that in mind, there is a need for measurable metrics so that investors can differentiate protocols. That is where the total value locked ratio comes in handy.
What is the Total Value Locked Ratio?
The total value locked ratio is the number derived from the market cap and total value locked.
TVL ratio = Market cap / TVL
Total value locked (TVL) represents all the assets deposited in the DeFi protocols and Market cap is the total value of all existing coins of a certain cryptocurrency.
What is TVL Ratio used for?
TVL ratio is one of the key metrics when evaluating DeFi protocols. If the TVL ratio of a single protocol is lower than its competitors, that would indicate a lower project valuation and possibly – an undervalued project.
If you look at the TVL ratio of 5 leading DeFi projects, you can see that their ratio quite differs.
| NAME | TVL RATIO |
|---|---|
| Curve (CRV) | 0.0867 |
| Convex Finance (CVX) | 0.0899 |
| MakerDAO (MKR) | 0.1217 |
| AAVE (AAVE) | 0.2208 |
| WBTC (WBTC) | 0.9989 |
The thing to be aware of is that projects have a different view on what is considered to be in their locked asset custody. That is where regulation would come in handy to resolve the confusion and to have a unique measurement.
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