Word of the day | TVL Liquidity

TVL Liquidity

TVL stands for "Total Value Locked." It basically refers to the total amount of cryptocurrency sitting in a DeFi (Decentralized Finance) platform.

Imagine DeFi like a big online marketplace for crypto. People can lend, borrow, trade and earn interest on their crypto holdings, but these platforms need something to function smoothly: liquidity.

Liquidity refers to how easily something can be bought or sold. In DeFi, liquidity comes from people locking up their crypto in "pools." Think of these pools like big pots of money that everyone can tap into for different DeFi activities.

So, a high TVL means a lot of crypto is locked in the platform's pools. This is generally a good sign, because it suggests:

  • The platform is popular and trusted by users.
  • There's enough "fuel" for smooth transactions within the platform.

However, it's important to remember that TVL isn't the only factor to consider when evaluating a DeFi platform. As always DYOR (do your own research) before getting involved.

https://www.dbm.academy/faq for more blockchain vocabulary.