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The surprising irrelevance of total-value-locked on cryptocurrency returns

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  • Brigida, Matthew

Abstract

A common assumption in cryptocurrency markets is a positive relationship between total-value-locked (TVL) and cryptocurrency returns. To test this hypothesis we examine whether the returns of TVL-sorted portfolios can be explained by common cryptocurrency factors. We find evidence that portfolios formed on TVL exhibit returns that are linear functions of aggregate crypto market returns, that is they can be replicated with appropriate weights on the crypto market portfolio. Thus, strategies based on TVL can be priced with standard asset pricing tools. This result holds true both for total TVL and a simple TVL measure that removes a number of ways TVL may be overstated.

Suggested Citation

  • Brigida, Matthew, 2025. "The surprising irrelevance of total-value-locked on cryptocurrency returns," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525005105
    DOI: 10.1016/j.econlet.2025.112673
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    References listed on IDEAS

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    1. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    2. Whitney Newey & Kenneth West, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    3. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-1152, September.
    4. Yukun Liu & Aleh Tsyvinski & Xi Wu, 2022. "Common Risk Factors in Cryptocurrency," Journal of Finance, American Finance Association, vol. 77(2), pages 1133-1177, April.
    5. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
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    Cited by:

    1. Matthew Brigida, 2026. "Crypto Pricing with Hidden Factors," Papers 2601.07664, arXiv.org.

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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