## What is TVL and Why Do DeFi Investors Need to Pay Attention?

In the world of decentralized finance (DeFi), TVL (Total Value Locked) is a metric that anyone involved in this space needs to understand. Simply put, TVL measures the total value of assets that users have deposited into a specific DeFi protocol or across an entire blockchain.

### Concept of TVL in DeFi

Imagine you deposit $1,000 into a DeFi protocol to earn interest. That $1,000 will be "locked" within the protocol. If 10 other people also deposit $1,000 each, the protocol's TVL will increase to $11,000. This figure indicates the platform's scale and the level of trust from the user community.

You can also calculate the TVL for an entire blockchain by summing the TVL of all different DeFi protocols operating on it. This helps you grasp the overall health of the entire ecosystem.

### Why is TVL important for investors?

**Assessing platform reliability**: High TVL often reflects widespread adoption and active engagement of the protocol. A platform with a large TVL shows that many users are willing to deposit their funds, indirectly indicating that the platform is more stable and trustworthy.

**Evaluating liquidity**: TVL provides information about the available liquidity within the DeFi ecosystem. Higher liquidity means users can easily perform transactions, borrow, lend, or swap assets without difficulty.

**Understanding protocol development**: TVL is a direct metric to monitor whether a DeFi protocol is growing or declining over time. Trends in TVL can give you the opportunity to predict the project's potential development.

### How to monitor and calculate TVL

To calculate a protocol's TVL, you need to determine the total value of all assets currently locked, including collateral assets, staked assets, and borrowed assets. Then, convert this value into a standard unit like USD.

Data aggregation platforms are the most useful tools for tracking TVL in DeFi. They collect information from various protocols and display it on a unified dashboard, making it easy for you to compare and analyze overall ecosystem trends.

### Important notes when using TVL

Although TVL is an important metric, it should not be relied upon alone to evaluate a DeFi project. It is just one of many factors to consider, such as security, development team, and protocol features.

Additionally, TVL can fluctuate constantly as users add or withdraw assets from protocols. Therefore, regularly checking TVL will help you get the most accurate picture of the current state of the DeFi ecosystem.