Searching for Solana's Unrealized DeFi TVL

Looking at the default TVL for Solana, it seems like the chain is in dire straits. However, the rest of the numbers show this is not the case. Time to deep dive into the data.

Searching for Solana's Unrealized DeFi TVL

Note: This article is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.

Solana has been racking up wins lately. Major decentralized physical infrastructure (DePIN) projects, like Helium and Render, are moving to the network to take advantage of its speed and transaction costs; at the same time, communities from projects that have left Solana are venting their angst over the UX on other chains, which have proven to be slow and expensive.  

That being said, an albatross still hangs from Solana's neck. Since reaching an all-time high of around $15 billion in 2021, Solana's total value locked (TVL) in decentralized finance (DeFi) smart contracts, according to some of Crypto Twitter's more pointed keyboard warriors, has reached head-shaking lows.  

The DeFi community tends to focus on a chain's TVL more than the fact that its validators are processing at least 10x more daily transactions than any other similar distributed network. Consequently, this Kamino Data Report will concentrate on TVL over network performance.

More to the point, this data report will zone in on some discrepancies in reporting Solana's TVL, reporting that can skew opinions about the network. Specifically, this report will use data to explain how the chain's TVL can be misrepresented by at least 3x in value—more so than any other chain in this study—due to the network's extreme composability.

Solana's DeFi TVL is Performing Much Better Than You Think

There's a huge difference between what you see reported when casually browsing DeFi Llama's TVL rankings, where Solana sits at #12, with less than $300 million deposited in its smart contracts...

...and what you see when you toggle the TVL to include a few more categories—facets of DeFi which are highly indicative of a blockchain's DeFi composability. The list of data sets that go uncounted by default includes:

After flipping those switches, some chains make major gains in TVL, and some chains barely budge. Solana is one of the movers, and it jumps four spots into the Top 10 with nearly $1 billion in TVL, including the largest multiplier gains of all chains surveyed when adding categories normally hidden from TVL (by 3.4x).

While Solana may not have one of the highest reported TVLs in DeFi, economic activity on the network hasn't fallen off the proverbial cliff. In fact, the following data show that Solana is hosting one of the most composable ecosystems in DeFi.  

What's the Rationale for Including or Excluding Liquid Staking and Double-Counts?

DeFi Llama is one of the most widely used DeFi dashboards reporting TVL for multiple blockchains, and its definition of TVL will be the focus of this report. By default, the site excludes several categories of TVL from its charts and tables, which is noted below in a tweet about toggles.

It's anectdotally impossible to report TVL in a way that makes everyone happy. As a compromise, DeFi Llama allows users to toggle which categories to include or exclude from TVL, augmenting its default reporting system.

Here are the categories that DeFi Llama normally excludes from TVL reporting, including a rationale for why we're toggling them on in this report. The quoted clauses are copied from the tooltips provided on DeFi LLama.

✅ Staking

The staking category includes "governance tokens staked in the protocol." Excluding this count means excluding staked $GMX or $CRV, which is preposterous. These tokens, and others like them, play an integral role in DeFi, so they're getting counted.

✅ Pool 2

Here we have "staked LP tokens where one of the coins in the pair is a governance token." This excludes yield farming from TVL, e.g., $RAY pairs on Raydium. Although yield farming Pool 2 has fallen out of fashion with most protocols and users, it's still a pretty big part of the DeFi story.

✅ Borrows

This metric covers "borrowed coins in lending protocols." Tokens are borrowed through DeFi smart contracts, and then they are mostly used in DeFi smart contracts, so why not count these toward a chain's TVL?

✅ Liquid Staking

DeFi Llama defines this category as "rewards/liquidity for staked assets." Generally, we're talking about tokens like liquid staked tokens like stSOL and mSOL, which are part of the 2nd largest sector in DeFi. Hello, we’re counting this.

✅ Vesting

DeFi Llama doesn't tooltip define vesting, but it explains in a tweet that "if a team locks a share of their tokens in a vesting contract, we won't count these as TVL, since these tokens haven't been issued yet."  Well, since those tokens are held in a DeFi smart contract, after all, we should probably include vesting.

✅ Double-Count

Known as the "TVL of protocols which feeds TVL [sic] into another protocol." This metric was once entirely removed as a toggle option on DeFi Llama after Ian Macalinao's unpublished diary, which discussed his penchant for creating double-counting protocols, was made public. It has since returned as a toggle switch.

Double-counting is a tricksy category to include in TVL, since two or more smart contracts can be counted as responsible for the same tokens. On the one hand, this wouldn't be a problem in TradFi, where institutions are not subtracting capital deployed with other institutions from their AUM. On the other hand, the transparency of DeFi makes it look like ecosystems are juking their stats.

The trouble is, if we cast off double-counts, then we're throwing out the composability baby with the bathwater. For example, in the following screenshot, every yield project with a question mark (?) next to its TVL doesn't count toward Solana's overall TVL.

This means Kamino Finance ($7M) doesn't count towards Solana's TVL, since it feeds liquidity to Orca and Raydium*; other projects that go uncounted are Francium ($16M), Tulip ($12M), and Meteora ($3M). On Ethereum, we say goodbye to Convex ($4bn) and Yearn ($427M) by avoiding double-counts, since both projects deploy capital on other projects for yield.

*This has changed since this article was first written. Kamino's TVL is no longer considered a double-count, and the protocol has been categorized as a "liquidity manager" instead of "yield." The yield projects mentioned are still double-counts.

What Happens When We Count All the DeFi TVL Categories?

Following DeFi Llama’s most conservative records, which we'll call TVL Lite, Solana is #12 for DeFi TVL ($275.7M). If we factor in liquid staking and other categories besides double-counts for a Mid-TVL the network shoots back into the Top 10, at #9 ($883.1M).

If double-counting is allowed, then Solana’s Max-TVL reaches $941.9M, putting the network in eighth place. That’s a 3.4x gain in TVL.

It should be noted that these gains can be seen on a few other chains. For instance, Ethereum's TVL Lite ($29.3bn) doubles when factoring in Mid-TVL categories ($56.4bn). Moreover, another $9bn appears on Ethereum when adding double-counts ($65.5bn).

For its Max-TVL, Ethereum does a 2.2x.

Avalanche is another chain that gains more than 2x when counting additional DeFi categories, but the rest are making gains of 1.6x or less. Compared side-by-side, it's possible to see a large difference in gains across major chains, which is most likely attributed to the level of DeFi composability on each network.

The following chart compares the TVL Lite to the Mid and Max-TVLs for a dozen top chains on DeFi Llama. A clear distinction can be made between which ecosystems gain significant DeFi TVL when counting composable DeFi categories, and which ones do not.

Take, for example, a chain like TRON, which was earlier reported to have an extremely low DeFi Velocity of .003. This velocity exhibits very little DEX trading activity, even though the network has one of the highest TVLs in DeFi ($5.2bn).

The difference between TRON's TVL Lite and Max-TVL is also quite low. When factoring in staking, liquid staking, borrows, and even double-counts—DeFi stuff—TRON's TVL increases by only 2%.

In stark contrast, Solana's Max-TVL increases by over️ 340%.

This means that when we count TVL that includes DeFi primitives like protocol token staking, liquid staking, borrowing, and vesting contracts—not even including double-counts—the Top 3 chains for TVL gains are:

#1. Solana: +320%

#2. Avalanche: +215%

#3. Ethereum: +192%

Solana's TVL increases by a value more than 100% greater than the runner-up chain, Avalanche. Additionally, and this cannot be stressed enough, the Mid-TVL count does not include the dreaded double-count, but maybe it should.

Are Double-Counts a Sign of Composability or Pumping Stats?

Some might scoff at double-counts being added to a chain's TVL. Certainly, the Macalinao fiasco didn't help the optics for double-counting assets that are used by more than one protocol, so it's understandable.  

However, double-counting shouldn't be a problem if protocols offer real utility. Double-counts are just something that will happen in a highly composable DeFi ecosystem where protocols are working together and calling each other's contracts.

For instance, there’s a 31% jump in TVL on Ethereum from its double-counts. The TVL rises from 192% to 223% by double-counting on the OG DeFi-chain, where it would be an incredibly expensive farce to launch smart contracts for the sake of pumping double counts—it's rather just a sign of how DeFi became so interconnected so early through smart contract composability.

As a matter of fact, Ethereum makes the most gains of any blockchain from double counts by about 10%. Solana comes in second place for the largest jump from Mid-TVL (no double-counts) to Max-TVL (with double-counts), nearly tied with Polygon at a rounded 21.3% increase.

Surveying the chart above, it's possible to see which ecosystems support protocols that are building on top of each other, which is essentially the hallmark of DeFi composability: "money Legos." With a healthy headstart in DeFi, it's no wonder Ethereum is at the top of the list for TVL from double-counts.

Spotlight on Solana: What Else is Missing from Reported TVL?

Now that it's been established that a lot of Solana's DeFi TVL is hidden behind toggles, let's see what else is missing. Hint: There's quite a bit more than what you'll find tucked in the couch cushions.  

Solana's NFT Ecosystem

While NFT x DeFi, or NFTfi, has exploded on Solana, there are only two NFTfi protocols represented on DeFi Llama. Take note that this lack of representation rests on a few projects for not reaching out and supplying their APIs, not a toggle switch on the DeFi Llama platform.

Still, the gap between NFTfi activity and what is publicly reported is huge. The entire Solana NFTfi sector seems to contribute just $5.2 million to the Solana DeFi ecosystem, which can be seen below with FRAKT and Citrus reporting, but this only scratches the surface of what's there.

There are 331,296 SOL ($6,708,744) that are not counted from SharkyFi.

And there are 573,333 SOL ($11,609,993) missing from hadeswap, which isn't even Solana's biggest NFT AMM (automated market maker).  

There is a lot of capital held in NFTs on Solana. According to the hyperspace NFT marketplace, around $569 million worth of NFTs are held on Solana, and an increasing amount of this value is entering DeFi as users swap and borrow against the value of their NFTs.

Infrastructure on Solana

It will be interesting to see what parts of Helium's contribution to Solana's TVL will be reported once it goes live on the network. It begs the question if Helium counts as DeFi, or if certain parts of it do, at least.

What we do know right now is that around half a billion dollars worth of value on Solana goes unreported with just one project, Squads, a multi-sig wallet for teams, DAOs, and institutions. A tweet from February confirms this TVL:

If Squads doesn't count as DeFi, it's going to be hard telling what does, and it seems like it's already difficult enough trying to figure out what a chain's true TVL might be. Regarding Solana's00000000000 DeFi TVL, though, the network is doing much better than reported.