The race for first place in DeFi’s total value locked heats up.
The statistics for total value locked, or TVL, in decentralized finance are being rocked by Aave (LEND), a lending protocol that has now taken MakerDAO’s mantle as the most popular destination for Ethereum-based assets.
According to data from DeFi Pulse, Aave holds $1.44 billion in assets as of press time, slightly edging out Maker’s $1.42 billion. Previous front-runner for the top spot Compound has fallen to fifth place, overtaken by yEarn and Curve.
Unlike its close competitor Compound, Aave is not currently running a liquidity mining initiative that could result in padded numbers. The platform offers a wide range of assets for borrowing and depositing, with various stablecoins like Tether (USDT), TrueUSD (TUSD) and USD Coin (USDC) accounting for the majority of its value locked.
One of the available assets is LEND itself, however, at $461 million in value locked. The token has seen a relentless price rally in the last 90 days, pushing it over $900 million in market cap. This is likely to have been a significant contributing factor to Aave’s current dethroning of Maker, as the token rallied 20% on Tuesday.
The protocol’s value locked measurement thus appears to be partially dependent on the price of its token.
TVL has come under fire during the DeFi boom due to many perceived misrepresentations — especially as it is often used as a shorthand to measure a protocol’s popularity and valuation.
However, liquidity mining incentives like on Compound or Curve resulted in the yield farming phenomenon, which inflates TVL in a positive feedback loop with token prices.
Other pitfalls include the fact that the value is not truly locked, as funds can be freely withdrawn to use other platforms or chase higher yields. Furthermore, the dollar value of the TVL directly depends on the market price of the assets supplied, as in the case of LEND.
Some researchers have highlighted that the market’s overall TVL is prone to double-counting. For example, by definition any DAI liquidity on a lending platform like Aave is a second counting of the original assets supplied as collateral to Maker to mint the stablecoin.
Although these issues have led some to propose alternative methods of measuring the success of DeFi assets, the metric still remains the most quoted among industry participants.