Tldr; Chainlink Labs reports TVE of ~7tn YTD [1]. Chainlink Labs seems to overstate its TVE by ~13x, leaving an unexplained $6.45tn TVE discrepancy. We highlight and respond to 2 possible errors in our methodology and 3 unconvincing responses thus far. We hope to motivate a more sensible and transparent discussion of Chainlink TVE. This is a living document, and we more than welcome feedback/comments.
Research Question: Do Chainlink Labs’ TVE figures accurately represent Chainlink’s true TVE?
Definitions:
- Total Value Enabled (TVE): TVE is the total US dollar-volume of transactions facilitated by Chainlink. TVE includes Avalanche, BNB Chain, Ethereum, Fantom, Gnosis, Heco, Optimism, and Polygon.
- Total Value Secured (TVS): TVS is the total US dollar value of assets deposited into applications secured by Chainlink oracles.
Methodology:
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We should expect similar ratios of Chainlink TVE / TVS to DeFi Volume / TVL.
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TVE should be proportional to DeFi Volume because it reflects the aggregate sum of volumes for transactions invoking Chainlink oracles.
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TVS should be roughly equal to DeFi TVL since it is the aggregate sum of TVL for applications using Chainlink.
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We can therefore estimate Chainlink TVE by calculating Chainlink TVS x DeFi Capital Efficiency or Chainlink TVE = Chainlink TVS x DeFi VolumeDeFi TVL.
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Note 1: In fact, the ratio of Chainklink TVE/Chainlink TVL should likely be lower than the ratio of DeFi Volume/DeFi TVL. While TVS includes all TVL for applications consuming Chainlink Price Feeds, Chainlink’s TVE is only a small fraction of total volume for price feed-consuming applications. These applications tend to use only a few Chainlink price feeds, and they may even use several different oracle providers.
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Note 2: We are solving for expected Chainlink TVE. We know Chainlink TVS and DeFi TVL with reasonable confidence; however, DeFi Volume is somewhat trickier.
Results:
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Chainlink TVS: Chainlink’s YTD average TVS is $23bn [2].
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DeFi Capital Efficiency: First we narrowly define DeFi to include DEXs and lending protocols. This will simplify our volume and TVL calculations.
- DEX Capital Efficiency = YTD DEX Volume / Average YTD DEX TVL = $1,250bn / $36n = 35 [3], [4].
- Lending Capital Efficiency = YTD Lending Volume / Average YTD Lending TVL = $206bn / $25bn = 8 [5], [6].
- DeFi Capital Efficiency = (YTD DEX Volume + Lending Volume) / (Average YTD DEX TVL + Lending TVL) = ($1,250bn + $206bn)/($36bn + $25bn) = 24
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Chainlink TVE: We can now solve for TVE using Chainlink TVS and DeFi Capital Efficiency:
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Chainlink TVE = Chainlink TVS x DeFi Volume / DeFi TVL = $23bn x ($1,456bn / $61bn) = $549bn.
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Therefore, we should expect Chainlink TVE in the ballpark of $549bn YTD.
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Said differently, if Chainlink represents 38% of average DeFi TVL, then we should expect that Chainlink TVE equals something like 38% of YTD DeFi Volume. This yields $549bn.
Conclusion:
- Chainlink Labs’ reported TVE of ~$7tn is nearly 13x the expected $549bn in TVE YTD. In other words, expected TVE is only 8% of reported TVE. The difference between Chainlink’s reported TVE and expected TVE is $6.45tn!
- Reported TVE reflects 5x the aggregate YTD volume of DEXs and lending applications.
- Chainlink’s reported TVE implies Capital Efficiency of 292. This is 12x what we should reasonably expect given DeFi Capital Efficiency of 24.
Possible Errors:
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DeFi Volume: It’s possible that we substantially underestimate DeFi Volume.
- We narrowly define DeFi in terms of lending and DEX protocols. These categories represent 67% of total DeFi TVL, and 65% of Chainlink TVS. However, for the overall DeFi Capital Efficiency Ratio to equal Chainlink’s Capital Efficiency Ratio of 292, the Capital Efficiency Ratio for non-DEX and non-lending DeFi applications must exceed 836. This is nearly 35x the Capital Efficiency Ratio for DEXs and lending applications. While it’s possible that other DeFi categories exhibit higher Capital Efficiency Ratios, it seems unlikely that we will find ratios sufficiently large.
- Popular estimates of DeFi volume can differ. For example, Venus Protocol’s YTD Borrow Volume is $39bn according to Messari vs. $7bn according to Token Terminal. Moreover, Borrow Volume only represents 22% of all Venus Protocol volume according to Messari [7], which means Messari’s Total Volume estimate for Venus Protocol is 30x Token Terminal’s Borrow Volume estimate. This is particularly important given that Lending TVL represents 63% of Chainlink TVS. We are confident that TokenTerminal’s data is more accurate than Messari’s, especially as Messari’s Protocol Metrics dashboard is still in beta, but is there a better source for DeFi Lending Volume that explains $6.45tn in missing volume?
(So far) Unconvincing Responses:
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Derivatives: In theory, DeFi derivatives could explain much of the $6.45tn discrepancy. dYdX is the largest DeFi derivatives platform and a Chainlink Price Feed consumer. However, Chainlink enables a very small percentage of dYdX volumes. dYdX only uses one Chainlink Price Feed, LINK/USD, which represents $2.52bn of $457.14bn (0.55%) in dYdX YTD trading volumes. Therefore dYdX’s consumption of Chainlink Price Feeds can only explain ~0.05% of the $5.22tn TVE discrepancy [8].
- CEX Volume: CEX spot and futures volume is >$27tn YTD. The $6.45tn discrepancy would disappear if it were the case that Chainlink enabled 24% of CEX spot and futures volume. However, Chainlink CEX TVE is negligible given that Huobi, Coinbase, Gemini, and Bybit only use 7 feeds collectively [9]. Moreover, Binance, which represents 63% of monthly spot and futures volume, is not a user.
- NFTs: NFT sales volume is ~$21bn YTD, so NFTs could only explain at most 0.33% of the discrepancy, assuming Chainlink were responsible for enabling 100% of NFT sales volume [10].