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What Are the Limitations of Comparing a Layer 1 Blockchain to a DeFi Protocol Using the Same Multiples?

L1s and DeFi protocols have different value drivers (security vs. revenue); L1s need to be compared using metrics like Total Value Secured (TVS).
Greeks.live05.12.25

What Are the Limitations of Comparing a Layer 1 Blockchain to a DeFi Protocol Using the Same Multiples?

Comparing a Layer 1 (L1) blockchain to a DeFi protocol using the same multiples (e.g. MC/TVL) is limited because their value drivers are fundamentally different.

L1s derive value from security, decentralization, and developer adoption (TVS), while DeFi protocols derive value from financial utility and revenue generation (TVL/Fees). A direct comparison is flawed; L1s should be compared based on metrics like Total Value Secured (TVS) or transaction volume, not just locked liquidity.

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How Do Layer 2 Solutions like the Lightning Network Address Block Space Limitations?
How Does Proof-of-Stake Change Validator Revenue Compared to Proof-of-Work?
How Can the MC/TVL Ratio Be Adapted for non-DeFi Protocols?
Differentiate the Network Effect Drivers of Proof-of-Work (PoW) versus Proof-of-Stake (PoS)
How Does the Cost of a Successful Attack Relate to the Total Value Staked?

Glossar

Financial Utility

Function ⎊ Practical applications for digital assets drive organic demand.

Total Value Secured

Collateralization ⎊ Total Value Secured, within cryptocurrency markets, represents the aggregate value of assets deposited as collateral to secure positions in derivative protocols, functioning as a critical metric for assessing systemic risk and protocol health.

Layer 1 Blockchain

Foundation ⎊ A Layer 1 blockchain represents the foundational network where transactions are processed and permanently recorded.

Limitations

Constraints ⎊ The inherent limitations within cryptocurrency, options trading, and financial derivatives stem from market microstructure, regulatory uncertainty, and technological dependencies, impacting model accuracy and execution feasibility.

Defi Protocol

Structure ⎊ A DeFi Protocol is a set of immutable smart contracts deployed on a blockchain that automates financial services, such as lending, borrowing, or derivatives exchange, without centralized intermediaries.

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