3 TVL Growth Hacks for DeFi Startups: Insights from Industry Roundtable

On July 9, we gathered with DeFi startups leaders attending EthCC in Brussels to find out the best hacks for TVL boost.

In a the roundtable discussion, several key strategies emerged for increasing Total Value Locked (TVL) in decentralized finance protocols. Here we explore three primary growth hacks that can help DeFi projects attract and retain liquidity, based on the insights shared by industry participants.

Overview:

Total Value Locked (TVL) is a crucial metric in the DeFi space, indicating the amount of assets locked in a protocol. Increasing TVL is essential for DeFi startups to gain traction, attract investors, and ensure the sustainability of their projects. The roundtable discussion revealed that liquid funds, insurance mechanisms, and strategic partnerships play pivotal roles in boosting TVL.

Growth Hack 1: Targeting Liquid Funds

Liquid funds represent a significant source of potential TVL for DeFi protocols. These funds typically operate three types of investment pools, including stablecoin funds, and promise investors the ability to redeem within 7–30 days. To attract liquid funds, DeFi projects should consider the following:

  1. Offer competitive yields: Protocols need to provide returns of 12% or more on stablecoins to be attractive to liquid funds.
  2. Ensure quick redemption: Design the protocol to allow redemptions within 30 days or less, ideally within 7 days.
  3. Meet minimum allocation requirements: Liquid funds often have minimum allocation amounts of around $1 million or more.
  4. Provide risk assessment: Clearly communicate the protocol’s risk profile and mitigation strategies.

Growth Hack 2: Leveraging Insurance Mechanisms

Insurance against smart contract vulnerabilities can significantly increase the willingness of liquid funds to allocate capital to new protocols. Key considerations include:

  1. Explore diverse insurance sources: Insurance can come from private pools, protocol treasuries, or even blockchain networks like Metis.
  2. Highlight insurance coverage: Emphasize the availability of insurance to reduce perceived risk for investors.
  3. Consider self-insurance: Protocols with VC funding might explore self-insurance options to attract TVL.
  4. Understand insurance economics: The cost of insurance for smart contract vulnerabilities is typically around 3% annually, implying a low probability of exploits.

Growth Hack 3: Building Strategic Partnerships and Ecosystem Integration

Attracting TVL involves more than just offering high yields. DeFi startups should focus on:

  1. Develop ecosystem partnerships: Collaborate with other projects to create a robust ecosystem that attracts investors.
  2. Offer unique value propositions: Differentiate from competitors like EtherFi and Buffer by providing novel features or benefits.
  3. Explore collateral listing: For Liquid Restaking Tokens (LRTs), consider getting listed as collateral in money market stablecoins.
  4. Provide de-pegging protection: Implement measures to prevent liquidation due to de-pegging, as seen with projects like Etherfire or Renzo.

Conclusion:

For DeFi startups looking to grow their TVL, the key takeaways are:

  1. Target liquid funds by offering attractive yields, quick redemption options, and meeting their allocation requirements.
  2. Implement insurance mechanisms to reduce risk and attract cautious investors.
  3. Build a strong ecosystem through partnerships and unique offerings that set your project apart.

By focusing on these growth hacks, DeFi projects can create a more appealing environment for investors, from retail to institutional, and potentially see significant increases in their Total Value Locked. Remember, successful TVL growth is not just about incentives, but about creating a robust, secure, and innovative platform that meets the needs of diverse investors in the DeFi space.

If you’re stuck with TVL hacking contact us for help.