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The Algorand Foundation recently released a study questioning the assumption that TVL (Total Value Locked) is a meaningful investment signal. This research found that TVL doesn’t correlate with token performance, even when adjusted for known distortions like double-counting.
The team analyzed over 300 cryptocurrencies from 2023-2024, simulating weekly long/short strategies based on TVL rankings. The result? No outperformance, no alpha. And no meaningful insight once broader market movements are accounted for.
This study highlights the need for better metrics in DeFi (Decentralized Finance) and serves as a wake-up call to investors and traders alike. Despite being widely cited as a proxy for legitimacy, TVL’s poor performance as an investment indicator raises important questions about the state of the crypto industry.
The Algorand Foundation’s mission is to power a world where information has integrity and innovative ideas can scale. As such, it is imperative that we reevaluate our reliance on this flawed metric. By doing so, we can move towards a more accurate and informed approach to investment decisions.
Ultimately, this study emphasizes the urgent need for alternative metrics in DeFi. The findings will undoubtedly spark controversy and debate within the community, but it is essential that we take heed of these results and strive for better.
Source: bravenewcoin.com
