If you’ve been following cryptocurrencies, you’ve likely seen the term TVL or Total Value Locked, measuring the amount of value locked in DeFi. Since most applications need capital to be deposited, often in the form of loan collateral or liquidity in a trading pool, it has been used as the de facto metric to show the growth of decentralized finance or DeFi. But there is trouble with TVL.

While the growth in TVL is a positive sign for the growing world of DeFi, it requires to be interpreted correctly. To state the obvious, this figure is highly reliant on the price of ETH. As its price has doubled since the beginning of the year, so too has the value locked in DeFi despite any there being any other meaningful contributors to the growth.

Another obvious flaw in TVL is that it is also heavily influenced by the price of SNX. At the time of writing, there is $125m of SNX locked and towards the end of last year, it accounted for over one-fourth the total amount in DeFi. Not only did the price increase ~3,000% in 2019 but the figure is also somewhat misleading as it is an inaccurate measure of the true value of that amount staked. For one, there is 80% of the total supply staked so if one were to sell that it would be worth orders of magnitude less. And to make it worse, SNX is relatively illiquid trading less than $1m each day, so the slippage on trying to realize that value would be immense.

SNX is still an important piece of the DeFi puzzle and should be taken into account in some format. There has not been a metric released to account for these shortcomings, but there is an simple remedy for the overreliance on Ethereum price by simply looking at the amount of ETH locked up.

The most important difference is seen at the start of 2020. The number of ETH locked has only increased by 5% compared to 70% when denominated in USD. Other than that though, the trend is still obvious – the value in DeFi has been increasing substantially over the past year.

So, TVL is mostly used to show that the general world of DeFi is growing. There is a fundamental problem with that thinking though, and that’s because value locked can increase without any new users or value coming into DeFi.