TVL (Total Value Locked)
The total value of cryptocurrency assets deposited in a DeFi protocol's smart contracts, expressed in USD. TVL is the primary metric for measuring DeFi adoption, protocol health, and user trust. It includes all assets used for lending, liquidity provision, staking, and collateral. TVL can be measured per-protocol, per-blockchain, or aggregated across all of DeFi. However, TVL can be inflated by double-counting (e.g., recursive lending) and should be analyzed alongside other metrics.
“Aave might show $15 billion in TVL, representing total deposits across all its lending markets on multiple chains. DeFi Llama aggregates TVL data across the entire ecosystem.”
DeFi (Decentralized Finance)
An ecosystem of financial services built on blockchain networks that operate without traditional intermediaries like banks, brokerages, or insurance companies. DeFi uses smart contracts to provide lending, borrowing, trading, insurance, derivatives, and yield generation in a permissionless, transparent, and composable manner. Anyone with a wallet can participate.
Liquidity Pool
A collection of funds locked in a smart contract that enables decentralized trading on AMM-based exchanges. Liquidity providers (LPs) deposit paired tokens in equal value ratios and earn a share of the trading fees generated by swaps in that pool. Pools replace traditional order books in DEX architecture.
Protocol
A set of rules, standards, and smart contracts that define how a blockchain network or decentralized application operates. In DeFi, 'protocol' typically refers to the suite of smart contracts that provide a specific financial service. Protocols are usually governed by DAOs and can be forked (copied and modified) because their code is open-source.
Staking
The process of locking up cryptocurrency as collateral to support blockchain network operations — specifically validating transactions and producing blocks — in exchange for rewards. Staking is the core economic mechanism of Proof of Stake blockchains. Stakers earn yield from block rewards and transaction fees but risk slashing (losing a portion of their stake) for misbehavior or extended downtime.