The total value of all the staked or locked assets in a decentralized protocol is computed with the help of a formula called the Total Value Locked or TVL. It represents the total number of assets that, at any given point of time have been staked in a specific protocol.
This value does not represent the outstanding loan but is rather the total amount of underlying supply secured by a specific application by decentralized finance completely. TVL is a measurement of the complete health of the DeFi market.
Three factors are considered before calculating the TVL ratio of the decentralized finance market. Market supply, current price, and maximum supply are taken into consideration while calculating this ratio. In order to calculate the TVL ratio, one must divide the market cap with TVL of the service.