The TVL Debate: On-Chain Truth vs. Off-Chain Reality

In September, a public spat between fintech firm Figure and data aggregator DeFiLlama spotlighted a core question for DeFi: what counts as “Total Value Locked” when assets live off-chain? Figure claimed over $12 billion in real-world asset (RWA) value on its blockchain, but DeFiLlama refused to list it. The reason: almost none of that value was verifiable on-chain. DeFiLlama’s team found only ~$9 million of actual crypto tokens on-chain, versus billions claimed via off-chain loans and internal records. They noted suspicious patterns – token transfers that looked like database entries rather than user transactions, an in-house stablecoin too small to facilitate real flows, and no on-chain repayment activity for those loans. In other words, Figure’s “TVL” was largely an off-chain mirage mirrored onto a blockchain ledger.

The episode quickly escalated. Figure’s CEO accused DeFiLlama of bias and censorship, while DeFiLlama’s 0xngmi retorted with a detailed “The Problem in RWA Metrics” report, laying out the discrepancies. Prominent voices in the community (like @ZachXBT and @jconorgrogan) backed DeFiLlama’s insistence that only 100% verifiable on-chain assets be counted.

As one observer summed up, this controversy highlighted “on-chain verifiability versus off-chain mapping logic” essentially, the clash between DeFi’s transparency ethos and TradFi’s habit of using off-chain records. DeFiLlama’s stance was understandable: if you can’t prove the assets are on-chain and in user-controlled contracts, can you really call it “locked” value? In their view, a claimed $12B that cannot be independently seen on-chain might as well be $0. And indeed, without clear standards, allowing unverifiable numbers to count as TVL would erode trust – a point underscored by the swift backlash against Figure’s claims.

Why the Old Definition Doesn’t Work Anymore

Yet, this black-and-white approach – either an asset is fully on-chain and counts, or it’s ignored – is starting to show its limits. The Figure incident is a wake-up call: as DeFi reaches into real-world assets, our traditional definition of TVL needs an upgrade. Total Value Locked was conceived for crypto-native protocols where value is on-chain by definition. With RWAs, value straddles on-chain and off-chain domains, making the old all-or-nothing logic too crude a filter. It’s not wrong to be skeptical – the Figure case shows why healthy skepticism is necessary – but going forward, simply labeling RWA-based TVL as “valid” or “fake” isn’t sufficient. We need a more nuanced framework for measuring TVL in RWA protocols, one that preserves transparency without dismissing the legitimate growth of real assets on-chain. In short, we need to move from a binary debate to a spectrum-based understanding.

RWAs on a Spectrum of Liquidity & Accessibility

Real-world assets come in many flavors on-chain, with varying degrees of liquidity (how easily they can be traded or converted to cash) and accessibility (how freely DeFi users can hold and use them). Not all RWAs are created equal – some function almost like native crypto tokens, while others are essentially illiquid paper claims. As Julian Kwan our CEO put it, real-world assets effectively “live in two places at once” – partly on-chain via smart contracts, and partly off-chain in banks, trusts or registries. How “real” a protocol’s TVL is depends on where an asset sits on this on/off-chain spectrum.

For example, tokenized cash and treasuries offer high liquidity and are often on-chain redeemable, backed by safe assets with regular attestations. Private credit and illiquid loan tokens provide moderate liquidity, involving on-chain deposits that fund off-chain assets through legal structures. Public equities and synthetic assets vary, with wrapped versions offering some collateralization but regulatory limits, while synthetics rely on oracles without true underlying assets. Attestation-only or “mirrored” assets have zero liquidity, existing primarily off-chain with minimal on-chain utility.

The RWA Spectrum: From Liquid to Illiquid

The above spectrum shows that not all RWAs are equal. A dollar of tokenized T-bill is not the same as a dollar of a private credit token locked in a slow-moving loan, and certainly not the same as a “dollar” in a database that’s merely echoed on-chain. Recognizing this spectrum is the first step.

The second step is figuring out how to measure and report TVL in a way that accounts for these differences. Right now, most dashboards use a binary inclusion rule (either an asset counts in full, or it doesn’t count at all). But as RWAs proliferate, that approach is too coarse. We shouldn’t be afraid to question the inclusion of certain assets in TVL – skepticism is healthy – but we also shouldn’t ignore real on-chain value just because it originated off-chain. The answer is to refine our definition of TVL for RWAs, not abandon it. Let’s talk about what that refinement could look like.

A New Taxonomy for RWA TVL - Nuance Over Binary

To better capture the nuances above, at IXS Finance, we propose a new framework for real-world assets in TVL calculations, essentially a weighted approach based on two key metrics: Total Funds Raised and Total Value of Assets. Its goal is to be a pragmatic middle ground: stricter than blindly counting everything that calls itself “TVL,” but more accepting of RWAs than a purist “on-chain only” stance. In other words, we maintain DeFi’s emphasis on transparency and on-chain control, while also borrowing from TradFi’s playbook of risk-weighting assets by quality.

Total Funds Raised aggregates capital secured via primary issuances, equity or debt financing, and platform deals. Similar to Capital Raised in TradFi, it highlights inflows driving growth. Total Value of Assets measures the gross value of tokenized and managed assets from those funds, akin to Gross Asset Value (GAV) in TradFi without liability deductions. It’s like a project’s total market cap, factoring in supply, price, and real-world elements such as appraisals or market forces.

Combining these metrics provides a simple yet comprehensive view of adjusted TVL, merging onchain data with real-world fundraising and valuations.

Why is this framework a “pragmatic and conservative” solution? It’s pragmatic because it acknowledges reality: DeFi is increasingly intertwined with real assets, and we do want to measure that! Ignoring all off-chain value would be purist but impractical – it would make TVL an incomplete indicator as RWA usage grows. On the other hand, it’s conservative in that it doesn’t stretch the definition of TVL beyond recognition. We still anchor on on-chain verifiability as the north star. The more an asset behaves like traditional DeFi collateral (transparent, liquid, user-controlled), the more generously we count it. Conversely, the more an asset relies on trust and TradFi processes, the more we downweight or segregate it in our metrics. This approach hews closely to longstanding DeFi values (don’t trust, verify) while meeting traditional finance halfway (acknowledging that a T-bill is much safer and more liquid than a random unsecured loan, just as banks do with risk weights).

Bridging DeFi Principles and TradFi Standards

By adopting this spectrum-based TVL framework, the DeFi community can reclaim control of the narrative around real-world assets. Instead of polarizing debates (valid vs. invalid TVL), we can talk about degrees of confidence in TVL. This nuanced view will be especially valuable for institutional investors dipping their toes into DeFi.

They will appreciate that the industry isn’t naively counting IOUs as equal to cash. In fact, this mirrors how institutions themselves evaluate assets. A bank would never treat a speculative private loan equal to a Treasury bill on its balance sheet – it would hold reserves against the loan and maybe sell it at a discount if needed. Similarly, a DeFi protocol and its analysts shouldn’t treat a claim on a private credit deal as identical to stablecoins sitting in its smart contract. By aligning our TVL calculations with these intuitions, we make the metric more informative and robust.

From the DeFi principles side, this framework upholds transparency. We are essentially saying:

“Show us on-chain proof, and we’ll count it (fully if it’s truly on-chain, partially if not). Show us nothing, and we count nothing.”

This guards against the kind of “virtual TVL” hype that could cause the next trust implosion. Remember, TVL is not just a number - it’s a shorthand for how much trust users have placed in a protocol (by depositing assets). If protocols could pump that number with unverifiable claims, it would defeat the purpose. Our conservative treatment ensures that TVL remains a trust metric, not a marketing gimmick. At the same time, the framework doesn’t penalize projects that are bringing real assets on-chain in good faith. Those who have gone through the effort of audits, legal structuring, or providing liquidity outlets get their due recognition – with appropriate context. This encourages a race to quality among RWA protocols. Instead of merely chasing the largest AUM number, they know they’ll be evaluated on how that AUM is integrated on-chain. Are they issuing tokens people can actually use in DeFi? Are they providing regular proof of reserves or cash flows? The better they do on those fronts, the higher the confidence in their adjusted TVL.

Translating TVL into Institutional Terms

From the TradFi standards side, we’re speaking a language institutions understand. Risk-weighting, haircuts, asset quality - these are concepts banks and asset managers use every day. In fact, institutional DeFi investors will likely do this internally even if we don’t; they will mentally (or literally) adjust a protocol’s TVL to account for asset quality.

By building it into our metrics, we make their job easier and signal that DeFi is maturing. We can even draw parallels to regulatory capital: for example, a DeFi lending protocol with mostly verifiable assets might be seen as lower risk (akin to a well-capitalized bank), whereas one with a lot of hybrid assets might be treated more cautiously. This doesn’t mean one is “good” and the other “bad” – it just reflects different business models. But having that differentiation visible makes discussions more productive. It moves us away from blanket statements like “RWA TVL is fake” or “DeFiLlama is unfair” to more nuanced analysis: e.g., “Protocol X has $200M in adjusted TVL, with a strong mix of capital inflows and asset value.”

It’s worth noting that some in the community have already suggested additional metrics to capture asset quality. For instance, one idea was to track “active TVL” – essentially measuring what portion of a protocol’s TVL is actually utilized or changing over time, as opposed to sitting idle. In the Figure case, active TVL was near-zero, since funds weren’t moving on-chain. Combining such metrics with our framework could give a fuller picture: one metric for quality (adjusted TVL via funds raised and asset value), and another for activity (how dynamic that TVL is). Together, they would tell us not just how much value is ostensibly locked, but how real and how active that value is. A protocol that scores high on both is truly bringing something new to DeFi.

By implementing this RWA TVL framework, data platforms like DeFiLlama, CoinGecko, or others can present a more granular leaderboard. Imagine a dashboard where you can toggle “Include hybrid RWAs” on or off, or see a breakdown of a protocol’s TVL by funds raised and asset value.

This would immediately defuse disputes like Figure’s. There would be no argument to have on Twitter/X – the numbers would speak for themselves, with transparency around why certain value is or isn’t counted. Over time, as RWA tokenization models improve (perhaps achieving legal on-chain enforcement in more jurisdictions), the framework can evolve. Our taxonomy is flexible to accommodate that – it’s not stuck in today’s state of affairs, but gives a general conservative lens that can be relaxed as warranted.

Conclusion: Shaping a More Reliable RWA TVL Metric

Real-world assets are set to change the game for DeFi, but they also challenge us to uphold the integrity of our metrics. The Figure vs. DeFiLlama saga was an early test, revealing that simply porting TradFi balances onto a blockchain does not equal DeFi value. The solution is not to reject RWAs in DeFi – it’s to measure them intelligently. By embracing a more nuanced, spectrum-based framework centered on Total Funds Raised and Total Value of Assets, the DeFi community can welcome the influx of real-world value responsibly.

We don’t have to choose between on-chain purism and off-chain optimism - there is a principled middle ground. Such an approach will strengthen the credibility of DeFi’s metrics and narratives, ensuring that as DeFi grows to encompass traditional assets, it does so without compromising the qualities that made it successful: openness, honesty, and empowerment of the end-user. It’s an evolution of our mental model - and one that positions the ecosystem for sustainable, well-understood growth in the years ahead.