#Cryptocurrency #USA #New York #Algorand #Total Value Locked

Critical Findings on Total Value Locked from the Algorand Foundation

A groundbreaking study from the Algorand Foundation's Tokenomics team challenges the validity of one of the most referenced metrics within the cryptocurrency sector: Total Value Locked (TVL). Traditionally viewed as a hallmark indicator of a project's credibility, the findings suggest that TVL does not accurately reflect the financial performance and value of tokens over time.

Led by Dr. Matthew Brigida, a finance professor at the SUNY Polytechnic Institute and the chief economist at the Algorand Foundation, the research analyzed a data set of over 300 cryptocurrencies, excluding Bitcoin and stablecoins, from 2023 to 2024. The findings revealed no correlation between TVL and token performance, thus contesting its utility in guiding investment decisions.

In their method, the research team constructed weekly portfolios by categorizing tokens based on their TVL. They retained the top 25% of tokens while short-selling the bottom 25% in a bid to determine if high TVL could yield higher returns. However, the results disproved this hypothesis; the portfolios did not generate any abnormal returns, indicating TVL as an ineffective prediction tool for future gains.

Dr. Brigida emphasized the growing concern regarding the reliance on TVL as an investment signal, stating, "While TVL has often been viewed as a sign of reliability or potential appreciation, our findings highlight its inadequacy as a predictive measure. Even after adjusting for known issues such as double-counting, TVL-based portfolios yielded no significant advantage."

Despite the popularity of TVL—seen frequently in crypto media, dashboards, and investor reports—it appears that relying on this metric can mislead analysts and investors. Platforms like Messari, Artemis, and Token Terminal have started treating TVL as a secondary metric, while Blockworks has introduced Real Economic Value (REV) as a more appropriate measure. Community analytical tools such as Dune and L2BEAT have opted for decentralizing TVL interpretation or are utilizing metrics like Total Value Secured (TVS). Furthermore, Nansen enhances the understanding of TVL by incorporating wallet behavior and smart money flows, while Flipside Crypto focuses on the value generated by high-quality users in relation to TVL.

As cryptocurrencies continue to integrate more deeply into global finance, the Algorand Foundation strongly encourages researchers, investors, and media platforms to adopt metrics that truly reflect actual usage and economic demand. This investigation underscores Algorand's commitment to fostering authentic contributions to the evolving cryptocurrency landscape, delivering academic rigor alongside real-time blockchain insights to spur data-driven innovation in the Web3 realm.

For further details, please refer to the complete press release and the full white paper available online.