Bitcoin DeFi's TVL Mirage: Uncovering the Truth Behind the Numbers

Recently, fundamental questions have been raised about the total value locked (TVL() in the DeFi ecosystem. Industry analysts, including Happy teachers, have pointed out transparency issues with TVL data, questioning whether the reported figures truly reflect the actual value of projects. This inquiry is not only relevant to the Bitcoin ecosystem but also sparks important discussions about data reliability across the entire DeFi industry.

UTXO Reuse Impossibility and the Technical Truth of TVL Calculation

From a technical perspective, there is a fundamental principle that the same UTXO) unspent transaction output( cannot be repeatedly counted as TVL across multiple projects. Due to the core characteristics of the UTXO model, a single UTXO can only be used once in a transaction. Even with advanced techniques like Hash Time Lock), the same asset cannot be simultaneously unlocked and utilized in multiple places.

Therefore, technically, the same UTXO cannot be counted as belonging to different parties at the same time. So why does concern about inflated TVL figures persist in the industry? The reason is that the actual operational mechanisms involve issues beyond mere technical impossibility—they relate to different levels of systemic problems.

Project Rooms and the ‘Mutual Benefit’ Game with Large Investors

In practice, the addresses of project rooms can be tracked through on-chain capital flows. Investors can verify whether the project team has actual control over the addresses associated with the project room. During this process, certain patterns often emerge.

Project teams actively recruit large investors to inflate TVL figures, offering them promised yields. Whether in the ETH ecosystem, BTC ecosystem, European/American projects, or Chinese projects, this practice is widespread. It forms a clear ‘mutual benefit’ structure: project teams aim to secure high TVL and favorable data, while large investors obtain promised high returns. Ultimately, more retail investors are attracted by these attractive figures and flow into the project.

Merlin’s MPC Wallet: A Typical Case of Fake TVL

A prime example illustrating this mechanism is the Merlin project. Merlin adopts a relatively common model of multi-party computation( MPC) wallets to implement multi-signature management. When large users transfer funds to Merlin’s MPC wallet address, the funds are jointly managed by the large users and the project team.

MPC wallets achieve multi-party management through shared private keys, preventing any single party from unilaterally using the funds. From an external perspective, this address appears to belong to the project, but in reality, the project team cannot fully control the funds. This is the core mechanism behind the creation of fake TVL. The project calculates the balance of this address as TVL, but in fact, it cannot freely utilize these funds.

The Fundamental Difference Between Actual TVL and Fake TVL

To accurately understand TVL, one must distinguish between real TVL and false TVL. An important point is that false TVL does not simply mean ‘data manipulation.’ Instead, false TVL essentially represents dormant funds that do not generate real economic value but are numerically used to build the project’s momentum.

Real TVL refers to actively functioning liquidity—such as in lending projects where users borrow against their assets or in swap projects where actual trading occurs and fees are generated. This type of TVL directly contributes to the project’s operations.

On the other hand, consider projects like Zilling( Pledge). The TVL in such projects is entirely different. Assets are merely deposited but not actively used. Viewing such TVL is not suitable for assessing the project’s real value. It is only inflated and exaggerated on paper.

True Value Judgment: Going Beyond TVL Figures

The industry has long regarded TVL as the top indicator. However, not all TVL is meaningful. Moreover, we need to move beyond the trap of relying solely on metrics and return to the core principles.

Investors and users should evaluate the true value of a project—whether it genuinely solves user problems, whether its business logic is sound, and whether there is a normal cash flow. If funds do not generate real economic activity and only contribute to numerical increases, they do not represent genuine value creation.

Ultimately, only projects that can deliver real value to users and the industry are truly good projects. TVL is merely a reference metric and should not be the sole criterion for project evaluation. Shifting this perspective is crucial for the healthy development of the DeFi ecosystem.