How To (Properly) Think About Total Value Locked within Liquid Loans

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By Connor
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Total Value Locked in Liquid Loans

Total Value Locked (TVL) can be a misunderstood figure.

Just like market cap.

In the article, I will show you how to properly think about TVL within Liquid Loans.

What is Total Value Locked in Liquid Loans?

In the context of Liquid Loans, Total Value Locked refers to the total dollar value of PLS locked in vaults.

Therefore, TVL= Total # of PLS in Vaults X Price of PLS provided by Fetch.

This figure does not include the total value of USDL in the Stability Pool, nor does it include the value of LOAN token in the staking pool. 

Why TVL Can Be Misleading (Much Like Market Cap)

TVL and Market Cap can both be misleading because of how they are calculated.

For example, if there is one liquidity pool with 1 PLS and 1 USDC from Ethereum, then the price of PLS equals 1 USD.

Consequently, if there are 1 Billion PLS in existence, then the market cap of PLS will be 1 Billion USD. 

However, if somebody sells 1 PLS for the 1 USDC in that liquidity pool, the price and the market cap go to zero.

This is an extreme example, but the principle applies at all levels of liquidity. Just because the price of PLS is 1 USD now, does not mean that every token can be sold at 1 USD.

Liquidity is more important than both market cap and TVL.

How To Think About TVL (for USDL)

It would be normal to think that if there are 1 Billion USDL in existence, then there is at least 1.1 Billion USDL worth of PLS backing it. 

Even though this is the case within the Liquid Loans protocol, the backing may be limited due to liquidity across the rest of PulseChain.

For example, if there is only one liquidity pool set up on PulseX, and it contains only 1 PLS and 1 USDC from Ethereum, then technically there is only 1 USD of value backing all of 1 Billion USDL in existence.

Therefore, to best support the health of USDL, we need to have thick liquidity pools set up for both USDL and PLS.

This can be on pairs such as USDL:PLS, USDL:CST, USDL:Bridged Stables, PLS:Bridged Stables, ETC.

To encourage liquidity bonding on PulseChain, Liquid Loans is running an LP Rewards Program to allow liquidity providers for the USDL:PLS pair on PulseX v2 to earn LOAN tokens by staking their LP tokens. 

This program will only be available for the first 42 days after launch, click the link in the text to learn more about the LP Rewards Program.

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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

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Connor

Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.

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