Has Bitcoin DeFi project Sovryn really overtaken Uniswap v3 by TVL?

Sovryn, a Bitcoin (BTC) money market protocol built on Bitcoin-based smart contract platform RSK, recently appeared to be shooting up through the decentralized finance rankings.

On Wednesday, Bitcoin commentator Anthony Pompliano shared data to his 1 million followers from decentralized finance data aggregator DefiLlama, indicating the protocol had amassed a total value locked (TVL) of $1.95 billion — ranking it 14th for the sector and beating out DeFi darling Uniswap v3.

Sovryn has a higher TVL than Uniswap V3.

I keep telling everyone that DeFi infrastructure on Bitcoin is the most mispriced opportunity in the market.

Proceed as you wish https://t.co/YZpcSrXW9D

— Pomp (@APompliano) June 9, 2021

Pompliano and many of his followers are aggrieved that Ethereum-focused platforms, such as DeFi Pulse, do not list Bitcoin DeFi projects like Sovryn and Stacks, with the influencer stating:

“One would be in top 15 of TVL list and the other would be top 25. Why are they not included?”

Pompliano’s post about Sovryn has garnered criticism from Ethereum ecosystem proponents who refuted the idea that Sovryn had amassed a ten-figure TVL. “ChainLinkGod” suggested staked governance tokens may have contributed to an exaggerated TVL estimate.

How is the market price of staked $SOV determined? I can’t find any info on the token pricehttps://t.co/T5ILAtYUiz

— ChainLinkGod.eth 2.0 (@ChainLinkGod) June 9, 2021

Since Pompliano’s original post, DefiLlama has adjusted its data for Sovryn, now listing the project as having a TVL of just $52 million. The updated data now matches the TVL provided by Sovryn’s own Wiki.

In a Thursday statement, DefiLlama confirmed that its previous estimate of Sovryn’s TVL was nearly $2 billion and had indeed resulted from including the capitalization of staked assets. The data aggregator added that it will soon issue an update to its website allowing users to choose whether or not staked assets are included in TVL data.

Regarding the recent controversy on Sovryn:1. We’ve removed staking from their TVL2. We’ll issue an update to the site that allows anyone to choose whether they want staking to be included or excluded on TVL3. We’ll re-add sovryn staking after the update

— DefiLlama.com (@DefiLlama) June 9, 2021

Since decentralized finance exploded in popularity during 2020, TVL has emerged as the dominant metric by which a protocol’s success is measured. 

However, many analysts have argued that TVL is reductionistic and should not be treated as the sole measure of a DeFi project’s progress.

Speaking to Cointelegraph, CoinGecko co-founder Bobby Ong stated that much like how market capitalization has become the primary measure of a token or coin’s success, TVL has risen in popularity due to its simplicity, emphasizing the convenience of establishing “one number to compare against all DeFi protocols.”

“It’s not the perfect measure […], but it is the most straightforward measure for people to understand and use as a benchmark,” he added.

Ong believes that total trading volume should be the primary metric that decentralized exchanges (DEXs) are measured by, noting that volume “drives protocol revenue.” For the same reason, he argued that borrowing volume should be the principal measure of money market protocols.

Ong also recommended that analysts place a greater emphasis on combining TVL with other key metrics to illustrate the capital efficiency of liquidity locked in a given protocol:

“For a DEX, looking at trading volume/TVL will give a measure of how efficiently the liquidity is utilized to drive fees for the protocol and LPs.” 

Ong also argued that dividing a project’s TVL by its market capitalization or fully diluted valuation (FDV) is useful for comparing DeFi protocols operating in the same segment.