Towards Verifiability of Total Value Locked (TVL) in Decentralized Finance

TL;DR

This paper investigates the lack of standardization and verifiability in TVL calculations in DeFi, proposing a new on-chain verifiable metric and guidelines to improve transparency and trustworthiness.

Contribution

It systematically studies TVL computation methods, identifies verifiability issues, and introduces vTVL, a standardized on-chain verifiable metric for DeFi TVL.

Findings

10.5% of protocols rely on external servers

68 alternative methods to standard balance queries exist

46.5% of protocols' TVL estimates align with published figures

Abstract

Total Value Locked (TVL) aims to measure the aggregate value of cryptoassets deposited in Decentralized Finance (DeFi) protocols. Although blockchain data is public, the way TVL is computed is not well understood. In practice, its calculation on major TVL aggregators relies on self-reports from community members and lacks standardization, making it difficult to verify published figures independently. We thus conduct a systematic study on 939 DeFi projects deployed in Ethereum. We study the methodologies used to compute TVL, examine factors hindering verifiability, and ultimately propose standardization attempts in the field. We find that 10.5% of the protocols rely on external servers; 68 methods alternative to standard balance queries exist, although their use decreased over time; and 240 equal balance queries are repeated on multiple protocols. These findings indicate limits to verifiability and transparency. We thus introduce ``verifiable Total Value Locked'' (vTVL), a metric measuring the TVL that can be verified relying solely on on-chain data and standard balance queries. A case study on 400 protocols shows that our estimations align with published figures for 46.5% of protocols. Informed by these findings, we discuss design guidelines that could facilitate a more verifiable, standardized, and explainable TVL computation.