People talk too much about TVL(Total Value Locked) while another important force has always been overlooked - Capital Efficiency. This concept refers to how effectively capital is being utilized to generate returns or output. If liquidity is the lifeblood of DeFi, capital efficiency is the heartbeat, driving how productively assets are deployed.
When evaluating the efficiency of DEXs, the key metric to watch is Liquidity Turnover Ratio (LTR) = Trading Volume (24hr)/TVL.
This ratio indicates how much trading volume is generated for every dollar of liquidity locked in the protocol. A DEX with higher capital efficiency achieves more trading volume with less liquidity, and vice versa.
Imagine a DEX with good capital efficiency like a well-oiled machine, where every moving part is optimized to generate maximum output with minimal effort. In contrast, an inefficient DEX is like a rusty old one, wasting fuel for poor performance. As decentralized exchanges continue to evolve, capital efficiency is now the driving force that’s redefining the competitive dynamics in the space.
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