What Is Total Value Locked (TVL)?-If you have been using DeFi tracking sites, the chances are high that you have run into total value locked (TVL) as a reference point. To put it simply, total value locked represents the number of assets that are currently being staked in a specific protocol: this value is not meant to represent the number of outstanding loans, but rather the total amount of underlying supply that is being secured by a specific application by DeFi completely.
Total value locked is a metric that is used to measure the overall health of the DeFi and yielding market. You can track total value locked on many services.
There are three main factors that are taken into consideration when calculating and looking at decentralized financial service’s market cap TVL ratio: calculating the supply, the maximum supply as well as the current price.
In order to get the current market cap, you need to multiply the circulating supply by the current price. In order to get to the TVL ratio, you would need to take that market cap number and divide it by the TVL of the service.
From a theoretical standpoint, the higher the TVL ratio is, the lower the value of an asset needs to be; however, this is not always the case when we look at reality. One of the easiest ways to implement the TVL ratio is to help determine if a DeFi asset is undervalued or overvalued, and this can be done by looking at the ratio. If it is under 1, it is undervalued in most cases.