Why Relying on TVL Could Mislead Your DeFi Strategy

Although there have been advancements in tracking the TVL over time, Silverman believes several issues persist. Thus, he advocated for what he calls a Chain-Aligned TVL.

According to Silverman, the name itself clearly differentiates it from traditional TVL. This metric focuses on the active use of assets rather than their mere presence on the chain.

“Knowing how much USDC or USDT is on a chain can make for good headlines, but if those tokens are just collecting dust in a wallet and dont contribute to anything, do they really add any value to the ecosystem？” he questioned.

To illustrate his point, he emphasized that holding $1 million worth of USDT in Morpho is arguably far more beneficial for the chain, its users, and the ecosystem. Why？ Because on the platform, it earns a yield and helps grow the chains TVL by extending credit.

“This is the main idea of Chain-Aligned TVL, which is the total value of assets that directly support and strengthen their underlying chain, whether held natively or within aligned protocols,” Silverman disclosed to BeInCrypto.

Furthermore, he said, the goal is to associate CAT with projects that truly add value to their communities.

Maximizing DeFi Potential: How Chain-Aligned TVL Benefits Users

The Polygon executive also outlined the benefits Chain-Aligned TVL brings to users. He explained that CAT‘s nuanced way of gauging a chain’s value can help users find better yield opportunities.

“Chains will naturally want to promote projects that benefit them and their ecosystems, so they are more likely to promote projects with higher chain-aligned TVLs, making it easier for users to locate high-yielding opportunities,” he noted.

Silverman stressed that focusing on CAT can drive the development of more effective and user-friendly applications. The underlying chain will prioritize well-integrated projects beneficial to its ecosystem.

“Benefits to users include things like easier/cheaper/faster transitions and better DeFi opportunities,” he claimed.

Additionally, CAT-driven projects may offer better interest rates and provide more engaging experiences in areas like games and non-fungible tokens (NFTs), as developers are incentivized to enhance ecosystem engagement.

The benefits arent limited to users only. Rather, it can also have positive implications for entire blockchains.

“CAT is a metric that all chains can leverage and benefit from to get a better understanding of where their development efforts should be focused,” Silverman revealed to BeInCrypto.

He pointed out that transaction fees alone are not always a sustainable business model for chains. According to Silverman, the focus on CAT helps bring long-term value to a chain and its ecosystem beyond just short-term transaction revenue.

Meanwhile, to showcase Chain-Aligned TVL in action, Silverman cited Agoras AUSD deployment on Polygon as an example.

“While other stables may have large amounts of idle TVL, the issuer and the issuer alone benefits from this not the chain and not the users. With AUSD, a portion of the yield generated from reserves is emitted on the chain as incentives helping grow protocols, rewarding active users and growing the chains economy even when the assets remain idle,” he highlighted.

While Silverman presents a strong case for Chain-Aligned TVL, widespread adoption of this metric remains a challenge. TVL has dominated the DeFi space for years, becoming the standard by which projects are measured.

Shifting to a more nuanced metric like CAT will require industry-wide education and a change in how both developers and users evaluate blockchain value.

However, as the ecosystem matures and the need for more accurate assessments of chain health grows, metrics like CAT could gradually gain traction, offering a more sustainable and meaningful way to measure a chains true impact.