#Cryptocurrency #Algorand Foundation #Total Value Locked

The Doubts Surrounding Total Value Locked in Cryptocurrencies

In recent studies carried out by the Algorand Foundation, researchers took a critical look at one of the most frequently cited financial indicators in the cryptocurrency world: Total Value Locked (TVL). This study questions the metrics' effectiveness in guiding investors and structuring cryptocurrency portfolios.

What the Study Found

The findings from the Algorand Foundation's tokenomics team, led by Dr. Matthew Brigida, an Associate Professor of Finance at SUNY Polytechnic Institute, indicate a startling reality: TVL does not correlate with the financial performance of various tokens. Analyzing over 300 cryptocurrencies (excluding Bitcoin and stablecoins) from 2023 to 2024, the study meticulously documented the attempts to ascertain whether TVL could serve as a predictive measure for token performance.

To test this, the research team created weekly portfolios that classified cryptocurrencies based on their TVL. They kept the top 25% performers and short-sold the bottom 25% to observe if utilizing this strategy would yield alpha—a measure of active return.

Surprisingly, the portfolios constructed based on TVL did not produce favorable returns. Brigida remarked that “TVL is often used to exhibit credibility or potential upside, yet our results indicate that it is not an effective investment signal.