How Can a Protocol Artificially Inflate Its TVL without a Corresponding Increase in Utility? ⎊ Path

How Can a Protocol Artificially Inflate Its TVL without a Corresponding Increase in Utility?

A protocol can artificially inflate its TVL primarily through excessive, short-term liquidity mining rewards, which attract "mercenary capital" that leaves as soon as the rewards decline. Another method is through circular lending/borrowing schemes where the same capital is recursively locked and counted multiple times.

While these methods temporarily boost the TVL number, they do not represent genuine, sticky user adoption or sustained demand for the protocol's core utility.

What Is the Role of a ‘Treasury’ in Managing a Token’s Inflation Rate?

How Do Staking Rewards Contribute to a Token’s Inflation Rate?

How Does the Inflation Rate of Staking Rewards Affect the Token’s Intrinsic Value?

How Does a Protocol’s Total Value Locked (TVL) Relate to Its Projected Cash Flows?

How Do “Liquidity Mining” Incentives Affect the Stability of a Lending Protocol?

In a DeFi Lending Protocol, How Is Collateral Custody Managed without Multisig?

What Is the Primary Motive for a Trader to Engage in Wash Trading on a Less Liquid Exchange?

How Do Staking Rewards and Inflation Dilute or Enhance the “Cash Flow” in a DCF Model?

Glossar

Tvl

Value ⎊ The total aggregate worth of all assets deposited into a specific decentralized finance protocol, typically denominated in a stable unit for consistent measurement.

On-Chain Data Analysis

Analysis ⎊ On-Chain Data Analysis is the rigorous examination of transactional records permanently etched onto a blockchain to derive insights into asset distribution, network health, and the actual flow of value, often serving as the ground truth for derivatives valuation.