Algorand Foundation's Study Questions the Relevance of Total Value Locked in Cryptocurrency Markets
A recent analysis spearheaded by Algorand Foundation's tokenomics team raises critical questions about the Total Value Locked (TVL) metric, which is frequently used in the cryptocurrency domain. The report, based on extensive research, suggests that despite its prevalent use in market dashboards and headlines, TVL has little to no predictive power regarding the financial performance of cryptocurrencies.
Conducted by Dr. Matthew Brigida, an associate finance professor at SUNY Polytechnic Institute and the chief economist at Algorand Foundation, this research examined over 300 cryptocurrencies between 2023 and 2024, excluding Bitcoin and stablecoins. Astonishingly, the findings revealed no correlation between TVL and the tokens' performance.
The research team created weekly portfolios by ranking tokens according to their TVL, retaining the top 25% while short-selling the bottom 25% to determine if investing in high TVL assets could yield excess returns. The results were disappointing; the high TVL portfolios did not generate any significant alpha, demonstrating that TVL should not be viewed as a solid investment signal.
Dr. Brigida stated, "TVL is often utilized to gauge credibility or growth potential, but our findings indicate it lacks investment signal value." Even considerations for known issues such as double counting did not improve the reliability of TVL as a predictive measure, with the portfolios still producing no abnormal returns.
While it remains common in news coverage about cryptocurrencies, the report warns that TVL could mislead investors and analysts alike. Industry platforms like Messari and Artemis have begun treating TVL as a secondary metric, while Blockworks introduced the concept of Real Economic Value (REV) as a more reliable measure. Furthermore, community analysis tools like Dune and L2BEAT now decentralize the interpretation of TVL, leaning towards metrics like Total Value Secured (TVS). Nansen enhances TVL context by encompassing wallet behaviors and smart money flows, whereas Flipside Crypto shifts the focus from mere TVL to the quality of users.
As cryptocurrencies deepen their integration into the global financial landscape, Algorand Foundation urges stakeholders—platforms, researchers, investors, and media—to pivot towards metrics that accurately reflect actual usage and economic demand. This research underscores Algorand's role in fostering the evolution of cryptocurrency markets, merging academic rigor with real-time blockchain insights to innovate within the data-driven realm of Web3.
In conclusion, the insights offered by Algorand Foundation significantly challenge the accepted norms surrounding TVL. As the cryptocurrency market evolves, the emphasis should shift towards more meaningful measures that encompass genuine economic activity rather than abstract numbers that could easily be gamified. This shift is paramount for sustainable growth and informed investment decisions in the rapidly changing digital financial landscape.
Conducted by Dr. Matthew Brigida, an associate finance professor at SUNY Polytechnic Institute and the chief economist at Algorand Foundation, this research examined over 300 cryptocurrencies between 2023 and 2024, excluding Bitcoin and stablecoins. Astonishingly, the findings revealed no correlation between TVL and the tokens' performance.
The research team created weekly portfolios by ranking tokens according to their TVL, retaining the top 25% while short-selling the bottom 25% to determine if investing in high TVL assets could yield excess returns. The results were disappointing; the high TVL portfolios did not generate any significant alpha, demonstrating that TVL should not be viewed as a solid investment signal.
Dr. Brigida stated, "TVL is often utilized to gauge credibility or growth potential, but our findings indicate it lacks investment signal value." Even considerations for known issues such as double counting did not improve the reliability of TVL as a predictive measure, with the portfolios still producing no abnormal returns.
While it remains common in news coverage about cryptocurrencies, the report warns that TVL could mislead investors and analysts alike. Industry platforms like Messari and Artemis have begun treating TVL as a secondary metric, while Blockworks introduced the concept of Real Economic Value (REV) as a more reliable measure. Furthermore, community analysis tools like Dune and L2BEAT now decentralize the interpretation of TVL, leaning towards metrics like Total Value Secured (TVS). Nansen enhances TVL context by encompassing wallet behaviors and smart money flows, whereas Flipside Crypto shifts the focus from mere TVL to the quality of users.
As cryptocurrencies deepen their integration into the global financial landscape, Algorand Foundation urges stakeholders—platforms, researchers, investors, and media—to pivot towards metrics that accurately reflect actual usage and economic demand. This research underscores Algorand's role in fostering the evolution of cryptocurrency markets, merging academic rigor with real-time blockchain insights to innovate within the data-driven realm of Web3.
In conclusion, the insights offered by Algorand Foundation significantly challenge the accepted norms surrounding TVL. As the cryptocurrency market evolves, the emphasis should shift towards more meaningful measures that encompass genuine economic activity rather than abstract numbers that could easily be gamified. This shift is paramount for sustainable growth and informed investment decisions in the rapidly changing digital financial landscape.
Topics Business Technology）
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