DeFiLlama Founder: Aave TVL Calculation Excludes Borrowed Assets, Looping Does Not Inflate Data
DeFiLlama founder 0xngmi clarified that the market's view of Aave's TVL being inflated due to looping is incorrect. The TVL of the Aave protocol only counts assets locked as collateral, and borrowed assets are explicitly deducted, so looping operations do not result in double counting.
He provided an example: User A deposits 1 million ETH, increasing the TVL by 1 million; User B deposits 1 million stETH and borrows 1 million, resulting in a net change in TVL of +1 million - 1 million, ultimately remaining unchanged. Additionally, the DeFiLlama team actively monitors and removes sources of double counting. For instance, after discovering that Ethena deposited collateral into Aave and looped it, they specifically excluded Ethena's deposit from Aave's TVL to ensure data accuracy.
Source: Public Information
ABAB AI Insight
0xngmi's explanation exposes the vulnerability of the calculation mechanism of TVL as a core industry metric in DeFi. Traditional TVL is prone to double or multiple counting due to protocol composability, especially in leveraged looping strategies, where the same capital appears to amplify scale through deposit and borrowing cycles. DeFiLlama's approach of counting only locked collateral rather than borrowed assets, along with manual adjustments for specific protocols like Ethena, effectively shifts TVL from 'nominal scale' to 'actual economic locked capital', reducing the amplification effect of leverage bubbles.
From an industry structural perspective, this method reflects the efforts of crypto finance towards transparency in power and capital redistribution. Accurate TVL helps investors distinguish between real liquidity and artificially leveraged inflation, avoiding misallocation of capital to high-risk looping pools. It also highlights the technological alternative mechanism: when on-chain data can be publicly audited, dashboard teams can gradually reduce blind trust in single protocols by continuously identifying scenarios of double counting, such as bridging certificates and cross-chain deposits, thus promoting the entire DeFi sector's transition from 'nominal growth' to 'net economic value' pricing.
In the long term, such corrections are embedded in the path of DeFi's evolution from early chaotic growth to mature infrastructure. Unified and de-duplicated TVL data will impact capital allocation efficiency and risk pricing: in an environment where productivity improvement relies on real liquidity rather than cyclical inflation, protocol competition will shift towards actual use cases and sustainable yields, rather than short-term TVL rankings. This marks a strengthening of industry institutional constraints, with capital increasingly favoring platforms with high transparency and low double counting, thereby reshaping the flow and concentration of wealth within the DeFi ecosystem.