Vitalik assesses the pros and cons of TVL: TVL is a necessary evil, but locking for the sake of locking should be avoided.

DefiLlama founder believes TVL is a good rating indicator for Vitalik's comments.

Vitalik Buterin: TVL is a Necessary Evil

Vitalik posted on Warpcast stating:

Although TVL is not the ultimate goal, it is a necessary evil. Locking funds in protocols, especially those that are still immature, instead of secure and simple wallets, can bring security risks to a certain extent. Sometimes, in order to gain valuable benefits, we have to take on such risks, but the act of locking just for the sake of locking should be minimized as much as possible.

The crypto community also agrees, stating that many projects market themselves based on TVL, implying that their protocols are compliant and safe to invest in, but the previous DeFi bull market showed that following the TVL blindly may not be the best way to avoid risks.

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DefiLlama Founder: TVL Reflects Trust and Risk Tolerance

In response to this issue, besides major protocols, it seems that the indicative platform for TVL data, DefiLlama, is also at the forefront.

The founder of DefiLlama, 0xngmi, tweeted on the same day:

The reason why TVL is a good rating indicator is that the investment of funds represents a trust indicator; if a protocol experiences a rug pull or a hack, it will lead to losses, reflecting the risks that market participants are willing to take. Manipulating TVL requires a large amount of capital, making it difficult to achieve. Essentially, TVL aggregates the market's view of the protocol.

why TVL is a good ranking metric:
– It's a market based metric of trust with skin in the game: if protocol rugs or gets exploited money is lost
– Hard to manipulate since that requires lots of capital

It's basically aggregating the market view on the risk of a protocol

— 0xngmi (@0xngmi) February 29, 2024

The crypto community countered 0xngmi, pointing out the case of Solana where a portion of TVL was inflated due to repeated calculations.

0xngmi explained that assets like Lido's stETH, which are double-counted with curve's stETH-ETH pool, are not included in TVL, thus avoiding such situations.

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