The total value of assets deposited in a specific decentralized finance (DeFi) system is measured by the TVL. By combining the TVLs of all the various DeFi protocols on that blockchain, it is also feasible to determine the TVL of the entire ecosystem of blockchains. Imagine depositing $1,000 into a DeFi protocol that permits you to receive interest on your account in order to better comprehend TVL. The protocol has now been staked or locked with your $1,000. Now the protocol's TVL will increase to $11,000 if ten more participants each contribute $1,000. How to Calculate TVL Adoption and activity levels within the DeFi ecosystem can be measured using TVL. The entire cost of all assets that are currently locked on that platform must be known in order to calculate TVL. All locked assets, such as collateral, staked assets, and borrowed assets, are included in this. Then translate the asset value into a standard unit, such as US dollars or another fiat currency. The TVL of the DeFi protocol is finally calculated by adding the total value of all assets. The most often used tools for monitoring TVL in DeFi are data aggregators. These platforms gather information from numerous DeFi protocols and combine it into a single dashboard, making it simple to monitor the ecosystem's overall development and uptake. Why Is TVL Important for DeFi? TVL is a crucial statistic for comprehending the DeFi ecosystem since it enables users to evaluate the possibilities of a given protocol. Here are a few of the explanations for why TVL is crucial in DeFi: TVL offers perception into the general well-being and development of a DeFi protocol or platform. A higher TVL typically denotes greater ecosystem adoption and activity. TVL can be used to gauge the level of liquidity present in a specific DeFi ecosystem. It is simpler for users to trade, borrow, lend, or swap assets the more liquidity there is. A DeFi platform may appeal to users more if it has a high TVL. A platform with a higher TVL than one with a lower TVL may be more reliable and stable because it shows that more users are prepared to trust the platform with their assets. Nevertheless, TVL shouldn't be the only criterion used to assess DeFi projects. It should simply be one of many variables taken into account in a thorough assessment of DeFi projects. Additionally, it's crucial to keep in mind that the TVL might change as users add and delete assets, thus it's crucial to constantly check the TVL to receive an accurate view of the ecosystem's present health.