Teacher Happy proposed a possibility of TVL data fraud: the same UTXO can be repeatedly counted as the TVL of different projects through multiple approvals.
Here, let's take the opportunity to discuss and learn from each other:
First of all, from a technical principle perspective, UTXO cannot be approved for use multiple times; even with hash time locks, it can only be locked once, so the same UTXO cannot be counted as the TVL of multiple project parties, meaning it can only be counted once at any given time.
More critically, the reality is that project parties generally make staking addresses public; even if not disclosed, they can be traced through on-chain fund flows.
The staking addresses disclosed by the project party are not just for users to see, but also for investors, who will verify whether the project party has control over these addresses.
Therefore, TVL data is mainly manipulated around these addresses.
Generally, project parties will join forces with some major players to invest funds to boost their TVL. For major players, the project party will promise them a guaranteed minimum yield.
Whether in the ETH ecosystem or BTC ecosystem, whether for Western project parties or local ones, DeFi projects will engage in such operations, which can be considered a win-win situation.
The project party obtained TVL and impressive data, major players received high yield rates, ultimately attracting more retail investors to join in and pay.
Taking Merlin as an example, it uses a relatively common model: implementing multi-signature with an MPC wallet. Major players indeed transfer funds to Merlin's MPC wallet address, but the funds are co-managed by the major players and the project party.
MPC wallets achieve multi-party collaborative management through multiple private key shards, meaning no single party can unilaterally access the funds.
From an external perspective, these addresses do indeed belong to the project party, but the project party does not have absolute control over the funds at these addresses.
This is the origin of the term 'false TVL' that Merlin initially mentioned.
So what exactly is false TVL?
It is still necessary to clarify the concept of 'false TVL': false TVL does not mean data fraud; rather, it means that this TVL consists of idle funds that cannot truly create value, solely aimed at attracting subsequent retail investors' funds and promoting the project.
TVL can be divided into real TVL and false TVL.
Real TVL is the liquidity that can actually be utilized, such as in lending or swap projects, which have high liquidity allowing users to make better use of the products; while false TVL is just sitting there, unused liquidity, like in staking projects.
For staking projects, which are very different from other types of DeFi projects, it is actually not suitable to look at TVL. Impressive TVL data is merely 'faux fat', and TVL is just for show, not serving any practical purpose for the product itself.
Our industry has always been focused solely on TVL, but not all TVL is valuable.
I hope that we ordinary users and investors can return to the true value of the project: can it actually solve problems for users? Can it have positive cash flow to prove the feasibility of the business logic?
Only projects that can bring value to users and the industry are truly good projects.
