Sovrin, a BTC money market protocol built on bitcoin-based smart contract platform RSK, has been shooting through the decentralized financial rankings recently.
On June 9, bitcoin commentator, Anthony Pompliano, shared data from decentralized financial data aggregator, DeFi Lama to its one million followers, indicating that the protocol had accumulated a total closing price (TVL) $1.95 billion – Ranked 14th for this sector and DeFi beloved Uniswap v3.
Sovryn has higher TVL than Uniswap V3.
I keep telling everyone that DeFi infrastructure on bitcoin is the worst opportunity in the market.
proceed as you wish https://t.co/YZpcSrXW9D
— Pomp (@APompliano) June 9, 2021
Pomp and many of his followers are upset that Ethereum-focused platforms such as DeFi Pulse do not list bitcoin DeFi projects such as Sovrin and Stax, with the influencer stating:
“One will be in the top 15 of the TVL list and the other will be in the top 25. Why not include them?”
Pomp’s post about Sovrin drew criticism from supporters of the Ethereum ecosystem, who refuted the idea that Sovrin collected ten-figure TVL. “ChainLinkGod” suggests that staking governance tokens may have contributed to an exaggerated TVL estimate.
— ChainLinkGod.eth 2.0 (@ChainLinkGod) June 9, 2021
Since Pomp’s original post, DeFi Lama has adjusted its data for Sovrin, now listing the project as a TVL of only $52 million. The updated data now matches the TVL provided by Sovrin wiki.
In a June 10 statement, DeFi Lama confirmed that its previous estimate of Sovrin’s TVL was approximately $2 billion, which resulted from actually including the capitalization of the assets at stake. The data aggregator said it will soon release an update on its website that will allow users to choose whether the assets at stake are included in the TVL data.
About the recent controversy over Sovrin:
1. We have removed staking from their TVL
2. We will release an update to the site that will allow anyone to choose whether they want to include or exclude a stake on TVL
3. We will re-add sovereign staking after the update
— DefiLlama.com (@DefiLlama) June 9, 2021
As the popularity of decentralized finance has exploded during 2020, TVL has emerged as the key metric by which to measure the success of a protocol.
However, many analysts have argued that TVL is reductionist and should not be considered the only measure of DeFi project progress.
Speaking to Cointelegraph, CoinGecko co-founder Bobby Ong said that just as market capitalization has become the primary measure of the success of a token or coin, TVL has grown in popularity due to its simplicity, “a number to compare”. For “emphasis on the convenience of setting up. All DeFi protocols.”
“It’s not the right solution […]But this is the most direct solution for people to understand and use as a benchmark,” he said.
Ong believes that total trading volume should be the primary metric that is measured by decentralized exchanges (DEXs), noting that volume “drives protocol revenue.” For that reason, he argued that lending volume should be the principal measure of money market protocol.
Ong also recommended that analysts place more emphasis on combining TVL with other key metrics to clarify capital efficiency Of liquidity locked in a given protocol:
“For a DEX, looking at trading volume/TVL will measure how efficiently liquidity is used to raise fees for protocols and LPs.”
ONG also argued that dividing a project’s TVL by its market cap or Fully Diluted Valuation (FDV) is useful for comparing DeFi protocols operating in the same segment.