The decentralized finance market generates a huge amount of information: capital deposited in protocols, transactions, fees, revenue, liquidity, and yields.
Making sense of all that data can be difficult without tools to organize and compare it.
In this context, DefiLlama has become a go-to platform for analyzing the DeFi ecosystem.
Its main advantage is that it lets you access information on hundreds of protocols and blockchains in one place, without needing to sign up or pay to view their key metrics.
But knowing the platform is not just about seeing which protocol has the most capital locked in. What matters is understanding what each indicator represents and what information it can provide about a project’s actual activity.
WHAT IS DEFILLAMA AND WHAT INFORMATION DOES IT OFFER?
DefiLlama is an analytics platform that collects data from decentralized protocols and presents it through statistics, rankings, and charts.
Its main sections include:
- TVL: shows how much capital is deposited in protocols.
- Fees: shows the fees users pay to use a platform.
- Revenue: tracks how much of those fees goes to the protocol.
- Stablecoins: lets you analyze the circulation and distribution of stablecoins.
- Yields: brings together information on the returns offered by different pools.
- DEX Volume: lets you track trading volume on decentralized exchanges.
It also provides information on bridges between networks, token unlocks, project funding, and security events.
TVL: ONE OF THE MOST IMPORTANT METRICS.
TVL stands for Total Value Locked and represents the value of assets deposited in a protocol or DeFi ecosystem.
It is one of the most widely used indicators for assessing a project’s size. A high TVL may reflect a significant amount of deposited capital and user participation.
However, there is an important detail: TVL is generally expressed in dollars.
This means it can decrease when the prices of deposited cryptocurrencies fall, even if users keep their positions in the protocol.
Therefore, looking only at changes in TVL can lead to incorrect conclusions. It is worth comparing its movement with asset prices and, where possible, analyzing the quantities of tokens deposited.
It is also important to avoid adding figures from different protocols without accounting for reused deposits, since the same capital may be represented on multiple platforms.
FEES AND REVENUE: TWO INDICATORS THAT DO NOT MEAN THE SAME THING.
Another relevant section of DefiLlama is the one covering fees and revenue.
Although they are often confused, they represent different concepts.
Fees show how much users pay to use a protocol. Revenue, on the other hand, indicates how much of that money ultimately goes to the project itself.
The distinction matters when analyzing a token.
A protocol may record millions of dollars in fees but distribute nearly all that money to liquidity providers and other participants.
Therefore, a high level of activity does not necessarily mean the project is generating revenue for its owners or that there is a value-capture mechanism for its token.
STABLECOINS: A WAY TO OBSERVE LIQUIDITY.
DefiLlama also lets you analyze the stablecoin market and check their circulation across different blockchains.
This information is useful for seeing how liquidity is distributed across the ecosystem.
An increase in supply may be linked to new issuance and greater capital availability. Conversely, a decrease may reflect redemptions or a contraction in supply.
It also lets you compare the market share of issuers such as Tether and Circle and see which networks their coins circulate on.
This is an interesting indicator for assessing how liquidity is changing, although on its own it cannot show how much of that capital will ultimately be used in DeFi transactions.
YIELDS: HOW TO ANALYZE RETURNS.
The Yields section brings together information on the returns available across different protocols and pools.
It lets you check the APY, deposited capital, the relevant blockchain, and the composition of returns.
The last point deserves SPECIAL ATTENTION.
A yield may come from interest and fees generated by protocol activity, or from rewards distributed in tokens.
The difference is significant. If a large portion of the APY depends on token incentives, a drop in the token’s price may reduce the actual return earned by the user.
Therefore, before evaluating an opportunity, it is worth reviewing the base yield, pool size, available liquidity, and risks associated with the protocol.
A high percentage does not guarantee that the strategy is sustainable.
SIX MISTAKES TO AVOID WHEN USING DEFILLAMA.
To get the most out of the platform, be aware of some common misconceptions that can distort your analysis:
1. Interpreting a drop in TVL as an outflow of capital: price changes also affect this metric.
2. Adding together the TVL of different protocols: this can lead to double counting when the same asset is used across multiple platforms.
3. Confusing exchange reserves with DeFi capital: these are different categories.
4. Treating fees as revenue: not everything users pay goes to the protocol.
5. Assuming high APYs are sustainable: you need to identify where the rewards come from.
6. Confusing TVL with market capitalization: one measures deposited assets, while the other measures the market value of tokens.
HOW TO USE DEFILLAMA TO ANALYZE A PROJECT.
A practical way to get started is to visit DefiLlama and select the protocol you want to research.
First, it is worth checking its TVL and seeing how it has changed over different periods. Then compare its share within the blockchain where it operates and check the fees and revenue it generates.
The next step is to analyze whether there is enough economic activity to justify the project’s operation and what portion of that activity directly benefits the protocol.
It is also useful to look at how stablecoins are changing and the liquidity available in its ecosystem.
Finally, if the project offers yield opportunities, it is worth reviewing the APY composition and the risks of each pool.
CONCLUSION:
DefiLlama provides access to information that helps users better understand decentralized finance activity. Its indicators can be used to compare protocols, identify changes in liquidity, and assess whether there is economic activity behind a project.
The platform’s usefulness depends mainly on interpreting each data point in context. TVL, fees, revenue, and yields answer different questions, and analyzing them together provides a much more complete picture of any DeFi ecosystem.
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