After dropping down to $77.7 billion early last week, Defi Total Locked Value (TLV) rose to $86 billion still climbing. It shows a positive outlook on the crypto economy in Q4. Defi made the most headlines in the crypto report last week with so much excitement on social media among crypto enthusiasts.
According to a Defi aggregation platform, DefiPulse.com report, there has been an up and down movement in the Defi TLV when it first dropped to $80B then $77.7 before regaining back to $86. Though there are no clear indications of how long this price rise will last, experts are optimistic there will be continuous new gains in Q4.
What is Defi?
Defi is a short form for decentralized finance a collective name for blockchain-based financial services. The name decentralized finance shows that the ecosystem does not rely on central financial mediators, intermediaries such as brokers, banks, and exchanges to offer financial instruments.
Defi represents all the financial products and services accessible to those who can use the Ethereum network. Its services include working applications and protocols that have formed a complete ecosystem. Defi applications aim to recreate the traditional financial system by removing intermediaries between parties in a financial transaction. It uses blockchain and cryptocurrency to enable bank-like transactions such as saving, trading, lending, investment, and wealth management.
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Factors Driving the Current Defi TLV Increase
Defi Total Locked Value is a sum of all the Smart Contracts on the Ethereum Blockchain. A total balance of all the Ethereum native token Ether (ETH) and Ethereum Classic tokens ERC-20 tokens held by these smart contracts multiplied by their price in USD.
In the last week of September, Bitcoin began to see an upward trend after maintaining a resistance at the $42,000 threshold, pooling 6 altcoins out of the top 10 with it. These include Ethereum, Binance Coin, Solana, XRP, Dogecoin, and Polkadot. Coins like Cardano, USDT, and USD Coin resisted.
Experts think this new trend triggered investors to keep more of their funds locked in liquidity pools, hence the rise in the TLV by $6 billion.
What Does This Value Mean to the Defi Market in Q4?
Experts think there will be more liquidity in Defi market in Q4. If the trend continues, more investors would willingly increase deposits in the pools, which will result in more increases in the TLV and earnings for investors.
The TLV is used to measure the general health of the Defi and the yielding market. It represents the number of assets that are currently staked in a specific protocol and determines the Defi service’s market cap. TLV ratio is determined by calculating the current asset supply, the maximum supply, and the current price.
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The current Defi service market cap can be arrived at by multiplying the circulating supply by the current price, the current market cap number and divide by the TVL of the service to arrive at the TLV ratio.
In theory, a higher TLV ratio will result in a lower value of an asset, which does not always work in reality. The best way to apply the TLV ratio is to help determine if Defi’s asset is overvalued or undervalued. If it is under 1 this probably means it is undervalued.
Top Performing Liquidity Pool
Aave came top of the last week performing Defi protocols recording 14.88% in dominance. The best performing Defi tokens include DYDX, RGT, UNI, PERP, and REN
However, if a short rally could pull the TLV up fast, a higher increase should be expected if the bull runs through Q4.