Farcaster

Everyone’s “in DeFi” until you ask them:

What's TVL or impermanent loss?

Lol! that’s even me being generous! Ask some folks what a liquidity pool is and watch the confus|on hit instantly. 😭

It's funny how I click into a few bios of some and see giga big titles like:

“Onchain wizard”
“DeFi Maxi”
“APR Apostle”
“Bridge Jumper”
“DEX Dominator”
“TVL Tycoon”
“Protocol Prophet”

The titles are giving wizard, but the knowledge? It’s giving intern on day one. The drip is loud but the DeFi is silent. 🙂‍↕️

The truth is that DeFi has its own language and most of CT are just pretending to speak it.

If you are in this category? It's time to level up! 🙂‍↔️

I cooked up the most commonly misunderstood DeFi terms and broke them down so even your grandma that's not into crypto could get it! 😉

Like, comment, recast, follow and tag a fren who still thinks APR = APY.  🤍

Educator | Researcher | CM | Technical BASE baddie😉

⑶ Impermanent Loss

Impermanent loss is a risk you take when providing liquidity.

When you deposit two tokens into a pool and their prices shift significantly, the value of what you get back might be less than if you’d just held both.

For example:

Let’s say you put in:
→ 1 ETH (worth $1000)
→ 1000 USDC
Total: $2000

Now ETH’s price goes up to $1500.

If you had just held your 1 ETH and 1000 USDC, you’d have $2500 now.

But in the pool, people traded and swapped, so when you withdraw, you might get something like:

→ 0.8 ETH
→ 1300 USDC
Total: a bit less than $2500

Even though ETH went up, you end up with less money than if you had just held your tokens.

That small difference is what we call impermanent loss.

It’s “impermanent” because the loss disappears if prices return to their original ratio, but if you withdraw when prices have diverged then the loss becomes permanent.

Think of it like a penalty for helping others trade when the market moves too much.

⑵ Liquidity Pool (LP)

It’s a pot of tokens that users deposit to enable trading on decentralized exchanges (DEXs).

You provide two assets (like ETH and USDC) and other users can trade between them using your funds while you earn a share of the trading fees. 

Bear in mind that prices can shift while your tokens are in the pool which brings us to impermanent loss.🙂‍↔️

Okay now I learnt something new!

Thank you @iamveektoria 

Wen follow back?🙂‍↔️

⑴ TVL (Total Value Locked)

It might sound like money locked away in a vault, but TVL is really about how much capital users have trusted a DeFi protocol with. It’s the total value of assets deposited whether for lending, staking or providing liquidity.

In short, it shows how much users are willing to commit to a platform!

→ It reflects liquidity and user confidence.
→ A high TVL usually signals strong adoption and trust but not necessarily that users are making profits.

For example: 
If I deposit $1000 of USDC to Aave, it increases TVL by $1000.

I might earn interest by lending it out, so I could profit but TVL only tracks the deposit, not whether I made or lost money.

Think of TVL like a flex for the protocol; a signal to investors that things are looking solid.

For users, it’s a confidence metric a way of saying “If this many people have money in here, it’s probably safe to try.”