<\/p>\n
Investors love to dig into data, constantly on the hunt for new metrics that might offer some special insight to assist in determining their next financial move.\u00a0<\/p>\n
And in the world of DeFi, total value locked, or TVL, has become the go-to method for measuring the viability of an ecosystem.<\/p>\n
But it\u2019s actually a terrible way to gauge the success of a blockchain or its apps, according to Tushar Jain.<\/p>\n
Speaking to Blockworks on the Lightspeed podcast (Spotify<\/a>\/Apple<\/a>), the Multicoin Capital managing partner asserts that not only is TVL<\/a> a useless metric, it\u2019s \u201cactively harmful\u201d to focus on.<\/p>\n \u201cIt gives you a false sense of precision on a metric that can be trivially gamed,\u201d he says, adding, \u201cTVL, in a lot of places, is double, triple, quadruple-counted.\u201d<\/p>\n \u201cYou deposit into some smart contract<\/a>, you get this receipt token. You deposit that into the next contract and so on and so forth,\u201d he explains. \u201cYou can daisy-chain these things together,\u201d resulting in an ever-growing snowball of artificially inflated statistics.<\/p>\n Jain argues that TVL doesn\u2019t take the liquidity of assets into account, allowing for the creation of \u201csome very low-float, high market cap thing\u201d that touts \u201chigh TVL\u201d as a key selling attribute.\u00a0<\/p>\n \u201cIt gives people a sense of false precision,\u201d he says.<\/p>\n \u201cPlease stop looking at TVL as a useful metric if you\u2019re at all a serious investor,\u201d he insists. \u201cYou are just lying to yourself about it being a metric.\u201d<\/p>\n Jain admits TVL holds one key advantage. It\u2019s \u201cthe easiest thing to measure.\u201d<\/p>\n \u201cIt\u2019s trivial, right?\u201d he says. \u201cYou just run a query and like, here\u2019s your number.\u201d\u00a0<\/p>\n \u201cInvestors love looking at metrics,\u201d he says. \u201cThey want to look at data. They want to feel like they\u2019re data-oriented.\u201d But if investors are going to look at data, they probably should use \u201ca metric that matters,\u201d he says, \u201cnot just the one that\u2019s easiest.\u201d<\/p>\n Jain argues that the only metric that really matters is \u201cpeople building net-new stuff<\/a> and the number of users interacting with that stuff.\u201d Everything else is a derivative of that activity, he says.<\/p>\n Read more: <\/strong>Is crypto\u2019s bull market back?<\/a><\/p>\n \u201cIf your chain has people getting assets on that chain,\u201d he says, \u201cif they\u2019re doing things \u2014 whether they\u2019re mapping for HiveMapper<\/a> or providing your GPU for render or using USDC payments or so on and so forth \u2014 DeFi will become a thing there,\u201d he says, \u201cnot because you have a high TVL, but because it\u2019s the cheapest, most convenient thing to do.\u201d<\/p>\n \u201cFocusing on TVL is putting the cart before the horse,\u201d he says.\u00a0<\/p>\n \u201cI\u2019m on a crusade to get people to stop using it.\u201d<\/p>\n Don\u2019t miss the next big story \u2013 join our\u00a0free daily newsletter<\/a>.<\/strong><\/p>\nBut it\u2019s so easy<\/h2>\n
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