Using aTVL to look past the headlines
As the summer of DeFi winds down after a stellar few months it is important to put any metric surges into the proper perspective. Using TVL alone to measure the growth of the DeFi sector has been pointed out on a number of occasions by DappRadar as a flawed method and that in fact when it comes to DeFi growth, aTVL or adjusted total value locked alongside TVL is a better metric to observe.
It has been reported over the weekend that things could be taking a more positive turn with a value of over $1 billion added to the total value locked within DeFi. However, the data being used to claim this surge is not accurate as what it is founded on is simply token price increases spurred by an Ethereum rally over the last few days.
As the Ethereum token price started to rise, as usual, it dragged the entire industry with it. Looking at the data below you can see a notable increase in token price across the key Ethereum DeFi dapps.
Across the board, other than MKR, every token saw an increase in their 7-day price. As previously discussed traditional TVL as displayed by sites such as DeFi Pulse does not account for these fluctuations in token price, but DappRadar’s aTVL figure does just that.
As you can see the aTVL figure is in fact showing a flat line, meaning there has not been any further value-added to the ecosystem. While TVL is showing a surge around the 4th of November. Looking at the chart below you can clearly see the correlation between the increasing TVL of DeFi and the increasing Ethereum token price.
The sole purpose of aTVL is to bring needed clarity to such situations. Whilst headlines will always seek out the big numbers it’s important to put them in perspective. It is vital to clearly understand the metrics being used in such a young industry and how what could be perceived as competing metrics can be utilized in harmony to yield the best results.
As always we will continue to track and monitor the Ethereum DeFi sector. Make sure you bookmark DappRadar and sign up for our newsletter below to get updates direct to your inbox.