Polygon Labs SVP Introduces Chain-Aligned TVL for DeFi

Total value locked (TVL) is a widely used metric to track the popularity, adoption, and overall health of decentralized finance (DeFi) projects. However, David Silverman, SVP of Strategic Product Initiatives at Polygon Labs, believes that TVL, while useful for grabbing headlines, does not provide the full picture of a chain’s true value. In an exclusive interview, Silverman explained the limitations of TVL and introduced the concept of Chain-Aligned TVL (CAT) as a more meaningful measure for the crypto ecosystem.

Silverman acknowledged that TVL provides a general overview of the assets held within a protocol or chain. However, he argued that its importance and accuracy remain debatable. He stated that TVL mainly serves as a tool for crafting headlines and providing a general overview of the value held on a DeFi platform or a chain. He emphasized that saying a chain has a certain TVL does not mean much until one digs deeper into the specifics. For instance, knowing how much USDC or USDT is on a chain can make for good headlines, but if those tokens are just collecting dust in a wallet and don’t contribute to anything, do they really add any value to the ecosystem?

To illustrate his point, Silverman highlighted that holding $1 million worth of USDT in Morpho is arguably far more beneficial for the chain, its users, and the ecosystem. This is because on the platform, it earns a yield and helps grow the chain’s TVL by extending credit. This is the main idea of Chain-Aligned TVL, which is the total value of assets that directly support and strengthen their underlying chain, whether held natively or within aligned protocols. The goal is to associate CAT with projects that truly add value to their communities.

Silverman also outlined the benefits that Chain-Aligned TVL brings to users. He explained that CAT’s nuanced way of gauging a chain’s value can help users find better yield opportunities. Chains will naturally want to promote projects that benefit them and their ecosystems, so they are more likely to promote projects with higher chain-aligned TVLs, making it easier for users to locate high-yielding opportunities. Additionally, CAT-driven projects may offer better interest rates and provide more engaging experiences in areas like games and non-fungible tokens (NFTs), as developers are incentivized to enhance ecosystem engagement.

The benefits of CAT are not limited to users. It can also have positive implications for entire blockchains. CAT is a metric that all chains can leverage and benefit from to get a better understanding of where their development efforts should be focused. Silverman pointed out that transaction fees alone are not always a sustainable business model for chains. The focus on CAT helps bring long-term value to a chain and its ecosystem beyond just short-term transaction revenue.

To showcase Chain-Aligned TVL in action, Silverman cited Agora’s AUSD deployment on Polygon as an example. While other stables may have large amounts of idle TVL, the issuer and the issuer alone benefits from this, not the chain and not 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 growing the chain’s economy even when the assets remain idle.

While Silverman presents a strong case for Chain-Aligned TVL, widespread adoption of this metric remains a challenge. TVL has dominated the DeFi space for years, becoming the standard by which projects are measured. Shifting to a more nuanced metric like CAT will require industry-wide education and a change in how both developers and users evaluate blockchain value. However, as the ecosystem matures and the need for more accurate assessments of chain health grows, metrics like CAT could gradually gain traction, offering a more sustainable and meaningful way to measure a chain’s true impact.