How Is the Market Cap to TVL Ratio Used in Valuation?

The Market Cap to TVL ratio (MC/TVL) is a comparative metric used to assess whether a DeFi protocol's token is over or undervalued relative to its peers. A lower MC/TVL ratio suggests the token is potentially undervalued, as it captures a smaller market capitalization for the same amount of locked assets compared to a competitor.

Conversely, a high ratio may indicate overvaluation or strong future growth expectations. It is a quick snapshot of market sentiment versus protocol adoption.