Chain-Aligned TVL Proposed to Replace TVL in DeFi

In the rapidly evolving landscape of decentralized finance (DeFi), the efficacy of Total Value Locked (TVL) as a metric is under scrutiny. Experts like David Silverman are advocating for a more precise metric known as Chain-Aligned TVL (CAT). Silverman argues that cat provides a more accurate reflection of a blockchain's true ecosystem contribution, rather than merely quantifying idle assets.

Silverman emphasizes that TVL, while providing a general overview of assets held within a protocol or chain, often fails to convey the true value and utility of these assets. He notes that many users do not fully understand the specifics behind this metric. For instance, stating that Ethereum has a TVL of $44.38 billion does not provide meaningful insights until one delves deeper into the specifics of the assets and their usage.

Ask Aime: What is Chain-Aligned TVL and how does it differ from traditional TVL in the DeFi ecosystem?

Silverman believes that the current method of tracking TVL has several limitations. He questions the value of holding large amounts of stablecoins like USDC or USDT if they are merely collecting dust in a wallet and do not contribute to the ecosystem. He illustrates this point by highlighting that holding $1 million worth of USDT in Morpho is more beneficial because it actively earns yield and extends credit, thereby enhancing the ecosystem’s overall value. This is the core idea behind Chain-Aligned TVL, which measures the total value of assets that directly support and strengthen their underlying chain, whether held natively or within aligned protocols.

Silverman outlines that Chain-Aligned TVL brings considerable benefits to users. By providing a more nuanced measurement of a chain’s value, CAT can help users uncover better yield opportunities. Chains are more likely to promote projects with higher chain-aligned TVLs, making it easier for users to locate high-yielding opportunities. This focus on CAT can drive the development of more effective and user-friendly applications, as the underlying chain prioritizes well-integrated projects beneficial to its ecosystem. Benefits include more accessible, cheaper, and faster transactions, alongside improved DeFi opportunities. CAT-driven projects could also provide better interest rates and create engaging experiences, particularly in gaming and non-fungible tokens (NFTs), as developers are encouraged to enhance ecosystem engagement.

The benefits of CAT are not limited to users alone; this shift can positively impact entire blockchains. CAT is a metric that all chains can leverage and benefit from to better understand their development focus. Silverman points out that transaction fees alone are not always a sustainable business model for chains. Focusing on CAT helps create long-term value for a chain and its ecosystem beyond just short-term transaction revenue. To showcase Chain-Aligned TVL in action, Silverman referenced Agora’s AUSD deployment on Polygon. While other stablecoins may have large amounts of idle TVL, only the issuer benefits from this; not the chain or the users. With AUSD, a portion of the yield generated from reserves is emitted on the chain as incentives, helping grow protocols, rewarding active users, and expanding the chain’s economy even when assets remain idle.

While Silverman presents a compelling case for Chain-Aligned TVL, widespread adoption of this metric remains a challenge. TVL has dominated the DeFi space for years, becoming the standard for evaluating projects. Shifting to a more nuanced metric like CAT will require industry-wide education and a reevaluation of how both developers and users assess blockchain value. However, as the ecosystem matures and the demand for more accurate assessments of chain health increases, metrics like CAT could gradually gain traction, providing a more sustainable and meaningful method to measure a chain’s true impact.