Recent research from the Algorand Foundation has questioned the effectiveness of the 'Total Value Locked' (TVL) metric in assessing cryptocurrency financial performance.
Study Overview
An analysis conducted by the Algorand Foundation's tokenomics team led by Dr. Matthew Brigida examined over 300 cryptocurrencies from 2023 to 2024, excluding bitcoin and stablecoins. The findings showed that TVL does not serve as a reliable indicator for predicting token performance.
Critique of TVL as a Metric
The study concluded with testing portfolios based on TVL, ranking tokens by TVL value. Despite TVL's popularity, the analysis indicated that such portfolios did not deliver abnormal returns. According to Brigida, 'TVL is often used to project credibility or potential upside, but our results show it fails as an investment signal.'
Conclusion and Recommendations
The Algorand Foundation encourages researchers, investors, and media to adopt metrics that reflect actual usage and economic demand, as cryptocurrencies become increasingly integrated into the global financial system.
The findings underline the need for a reevaluation of cryptocurrency assessment algorithms considering more relevant and reliable metrics, given the changes in the financial landscape.
