TVL

The headline number overstates capital more often than not, for reasons that are structural rather than dishonest. TVL is denominated in the assets deposited, so it rises when those assets appreciate without a single new deposit. Recursive strategies, where a user deposits, borrows against the deposit, and redeposits the proceeds, count the same underlying capital at every turn. A deposit routed through a yield aggregator into a lending market counts in both.

Protocols denominating a large share of TVL in their own governance token compound the effect, because the token price and the deposits reinforce each other on the way up and unwind together on the way down. Incentive programs attract capital that leaves when emissions stop, which is why TVL is a poor proxy for durable adoption.

More informative measures are TVL net of the protocol's own token, the ratio of fees earned to TVL, and what happened to the number when incentives last ended. A protocol retaining deposits after rewards stop has demonstrated something the raw figure never shows.