Try Quests to earn cryptoStandardized TVL
Traditional TVL metrics are imperfect because they are influenced by both the quantity and price of the tokens over time. We would like to see a version of this metric that abstracts out the price influence on this metric.
Thorchain is a blockchain built on the Cosmos network with the native coin RUNE. Thorchain specializes in cross-chain connectivity. It does so with synthetic coins which are minted by providing THOR or another asset to a pool and in return receiving the synthetic version of the coin of their choice. This highly reduces costs of handling cross-chain coins, as well as increasing the speeds of transactions -- no more wrapped versions of a coin.
Thorchain is a leading cross-chain DEX.
TVL or Total Value Locked is the total value of a coin that is locked into a Liquidity Pool. TVL is calculated by taking the number of coins that are within the pool and multiplying by the price of the coin. P x V = TVL within a pool.
However, there are some issues with this metric, the main issue being the volatility of the underlying asset. Crypto prices can fluctuate massively an any given day (take the Terra crash for instance). Assuming the number of coins is constant -- the TVL will be highly susceptible to changes in price and can be misleading.
One way to standardize TVL is to take the most recent price of the underlying assets and fixing the price across all dates. Thus, allowing one to compare TVL for a steady price and see volume changes against a TVL that has price influence.
When we compare TCL with fluctuating price vs. TVL with a fixed price, we can see how volatile TVL can be.
Let's add in the price of RUNE to emphasize the point.
With the price of RUNE now in the graph, we can see how TVL spikes and dips as the price of RUNE fluctuates.
Its definitely a good sign to see the TVL with the fixed price continuously rise, shows that the major changes in TVL are a sign of price changes and not volume withdraw.
When we look across the top 6 liquidity pools on Thorchain, standardizing the TVL by fixing the price provides a nice, clean, and comparable TVL metric across different coin sets.
Overall, TVL can be an inconsistent metric due to the dramatic price fluctuations that can cause TVL metrics to be misleading... especially in bear markets.
By fixing a price, we can see a better view into how liquidity pools change in value. We can see that Thor's TVL as well as the top 6 liquidity pools have been slowly - but steadily- increasing in standardized TVL.