Behind the Market Cap Expansion of the Solana Ecosystem: Beware of Investment Approaches Solely Focused on TVL
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Behind the Market Cap Expansion of the Solana Ecosystem: Beware of Investment Approaches Solely Focused on TVL
In a typical Uniswap 50/50 liquidity pool, only 50% of the hard assets are needed to double the DEX's TVL.
Navigating Web3 tides with focused insightsWritten by: Defilgnas
Compiled by: TechFlow
Cryptocurrency is a fascinating money-printing machine.
We’ve created money out of thin air—something even central banks might envy.
I can issue a token with 1 billion units and, by selling just one unit at $1, give it a market cap of $1 billion.
This is how Total Value Locked (TVL) can grow even without any real dollar inflows into the ecosystem.
As new tokens launch, they are paired in liquidity pools with harder assets like Bitcoin, Ethereum, or Solana.
Thus, in a typical Uniswap 50/50 liquidity pool, I only need 50% of hard assets to double the TVL on a decentralized exchange (DEX).
We’ll soon see this type of TVL growth within Solana as tokens like $PYTH, $JUP, $DRIFT, $JITO are launched.
These tokens will be paired with hard assets on Orca DEX, boosting both Orca’s and Solana’s TVL.
In effect, the overall market cap of the entire Solana ecosystem will increase.
These newly minted tokens may have high market caps, but don’t confuse them with harder assets like Bitcoin, Ethereum, or Solana.
They aren't as liquid and can crash to zero just as fast as they pump. This is why two DEXs with identical TVL but different ratios of hard currency should not be valued equally.
For example, DEX1 with a $1 million ETH/USDT pair is more valuable than DEX2 with a $SHITCOIN/USDT pair.
Therefore, calling these tokens "money" isn't entirely accurate. However, in this context, I refer to them as "money" because they create a wealth effect for holders, boost ecosystem TVL and trading volume, and most importantly, elevate SOL's valuation. This was exactly how FTX inflated its balance sheet using illiquid $FTT.
During bull markets, ecosystems launching the newest tokens will expand fastest—but they’ll also contract the most when bear markets arrive.
Solana is just one of many ecosystems rolling out exciting new tokens.
Others include Injective, Celestia, Kujira, and BRC20 on Bitcoin.
Even ecosystems like $SEI, $SUI, and $APTOS will inflate similarly when they launch popular Ethereum-based DeFi primitive dApps. In summary, $1 in TVL does not equal $1—we must also consider the ratio of hard assets.
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