Vitalik’s Assessment on the Pros and Cons of TVL: TVL is a Necessary Evil, but Should Not Be Locked Just for the Sake of Locking
Regarding Vitalik’s comments, the founder of DefiLlama believes that TVL is a good rating indicator.
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Vitalik Buterin: TVL is a necessary evil
Founder of DefiLlama: TVL reflects trust and risk tolerance
Vitalik Buterin: TVL is a necessary evil
Vitalik stated in his article on Warpcast that although TVL is not the ultimate goal, it is a necessary evil. Locking funds in (especially immature) protocols instead of secure and convenient wallets brings about security risks to some extent. Sometimes, in order to obtain valuable benefits, we have to take on such risks, but the behavior of locking just for the sake of locking should be minimized.
The crypto community also agrees that many projects market themselves based on TVL, implying that their protocols are compliant and safe to invest in. However, the previous DeFi bull market has shown that following the tide based on TVL may not be the best way to mitigate risks.
(DeFi|What is TVL? Is it the measure of success in DeFi?)
Source
Founder of DefiLlama: TVL reflects trust and risk tolerance
In response to this issue, besides major protocols, it seems that DefiLlama, a platform that provides indicative TVL data, is also at the forefront.
On the same day, the founder of DefiLlama, 0xngmi, tweeted:
The reason why TVL is a good rating indicator is that the investment of funds represents a trust indicator. If a protocol experiences a rug pull or a hack, it will lead to losses and also reflects the risks that market participants are willing to bear. Moreover, manipulating TVL requires a large amount of capital, making it difficult to achieve. Essentially, TVL aggregates the market’s perception of the protocol.
The crypto community rebutted 0xngmi’s statement, citing the case of Solana where a portion of the TVL was inflated due to repetitive calculations.
0xngmi explained that assets like Lido’s stETH, which are double-counted with the stETH-ETH pool on Curve, are not included in the TVL, thus avoiding the aforementioned situation.
(One person playing multiple roles | Solana developer anonymously establishes DeFi ecosystem, announces entry into public chain Aptos)
TVL
Vitalik Buterin
Further reading
EigenLayer reopens staking with TVL surpassing $740 million
TVL’s $1 ≠ $1, How is the market cap and TVL in the crypto market manipulated?
