Reflection on the "1800BTC Incident": What exactly is the "fake TVL" in the Bitcoin ecosystem?

Teacher Happy proposed a possibility of TVL data falsification: the same UTXO was repeatedly counted as the TVL of different projects due to multiple approvals.

Here is an opportunity to discuss and learn from each other:

First of all, from a technical point of view, UTXO cannot be approved for use multiple times. Even with a hash time lock, it can only be locked once. Therefore, the same UTXO cannot be counted as the TVL of multiple project parties, that is, it can only be counted once at the same time.

More importantly, the actual situation is: generally the project party will make the pledge address public. Even if it is not public, it can be found out based on the on-chain fund flow.

The staking addresses disclosed by the project party are not only for users to see, but also for investors to see. Investors will verify whether the project party has control over these addresses.

Therefore, the TVL data mainly focuses on these addresses.

Generally, project owners will join hands with some big investors to invest funds to increase their TVL. For big investors, project owners will promise them a guaranteed rate of return.

Whether it is the ETH ecosystem or the BTC ecosystem, whether it is a European or American project or a Chinese project, DeFi projects will have such operations, which can be said to be a win-win situation.

The project team obtained TVL and good-looking data, and large investors obtained high returns, which ultimately attracted more retail investors to join in and pay.

Take Merlin as an example. It adopts a more common model: using MPC wallet to achieve multi-signature. Large investors do transfer funds to the address of Merlin's MPC wallet, but the funds are jointly managed by large investors and the project party.

The MPC wallet achieves multi-party collaborative management through multiple private key shards, which means that no single party can use funds unilaterally.

From an external perspective, these addresses do belong to the project party, but the project party does not have absolute control over the funds on the addresses.

This is where Merlin’s so-called “fake TVL” came from.

So what exactly is fake TVL?

We still need to clarify the concept of "fake TVL": fake TVL does not mean falsified data, but that these TVLs are dead funds and cannot truly create value. They are only used to attract subsequent retail investors' funds and create momentum for the project.

TVL can be divided into real TVL and fake TVL.

Real TVL is the liquidity that can actually be utilized, such as lending projects or swap projects. The liquidity is high and users can use the product better. However, fake TVL just lies there and there is no liquidity being used, such as staking projects.

For staking projects, it is very different from other types of DeFi projects. In fact, it is not suitable to look at TVL. The good-looking TVL data is completely "false fat physique". TVL is just for show and has no actual role in the operation of the product itself.

Our industry has always been based on TVL supremacy, but not all TVL is valuable.

I hope that ordinary users and investors will return to the real value of the project: Can it solve the problem for users? Can it have positive cash flow to prove the feasibility of the business logic?

Only projects that can bring value to users and to the industry are truly good projects.