The Truth about TVL: An In-Depth Analysis of Data Manipulation and New Approaches to Project Evaluation

The authenticity and significance of TVL data have always been hot topics of discussion in the industry. Some believe that certain projects may inflate TVL data by recalculating the same funds. However, from a technical perspective, this practice is actually not feasible.

First of all, the UTXO model itself does not allow for reuse. Even with hash time locking, each UTXO can only be locked once. This means that the same funds cannot be counted in TVL by multiple projects simultaneously.

Secondly, most projects will publicly disclose their staking addresses; even if they do not, they can be traced through on-chain fund flow analysis. These addresses are not only for users to view but also serve as important proof of project control for investors.

In fact, TVL data manipulation mainly occurs at these public addresses. Many projects collaborate with large holders, promising high returns in exchange for capital injection, thereby boosting the TVL data. This practice is quite common in DeFi projects, whether in the Ethereum or Bitcoin ecosystem.

Taking a well-known project as an example, it uses MPC wallets to implement multi-signature. Large holders transfer funds to the project's MPC wallet address, but the funds are actually jointly managed by the holders and the project team. The MPC wallet achieves multi-party collaborative management through private key sharding, ensuring that no single party can independently control the funds.

This approach has led to the controversy known as "false TVL." However, it is important to clarify that "false TVL" does not refer to data falsification, but rather indicates that these funds are actually static and do not create real value, being used solely to attract more investors and promote the project.

TVL can be divided into real TVL and fake TVL. Real TVL refers to liquidity that can be effectively utilized, such as funds in lending or exchange projects, which can enhance user experience. In contrast, fake TVL usually exists in staking projects, where these funds are often idle and contribute little to the actual operation of the project.

For staking projects, TVL may not be the most suitable evaluation indicator. High TVL data may only reflect a superficial boom and may not provide substantial support for the project's core functions.

The industry has long been overly focused on TVL, but we need to recognize that not all TVL holds the same value. As users and investors, we should return to the essential value of the project: does it solve real problems for users? Does it generate sustainable positive cash flow to validate the feasibility of its business model?

Truly excellent projects should be able to create value for users and the entire industry. We need to evaluate projects more comprehensively and deeply, rather than relying solely on a single TVL metric.