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

Teacher Happy raised the possibility of TVL data fraud: the same UTXO is repeatedly calculated as TVL for different projects through multiple approvals.

Here we take the 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. Then there is no TVL for the same UTXO counted as multiple project parties, that is, It can only be counted once at the same time.

More importantly, the actual situation is: Generally, project parties will make the pledge address public. Even if it is not public, it can be found out based on the capital flow on the chain.

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

Therefore, TVL data mainly focuses on these addresses.

Generally, project parties will unite some large investors to invest funds to increase their TVL. For large investors, the project side will promise them a guaranteed rate of return.

Whether it is the ETH ecosystem or the BTC ecosystem, whether it is European and American project parties or Chinese project parties, 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 yields, which ultimately attracted more retail investors to join in and pay.

Take Merlin as an example. It adopts a relatively common model: using an MPC wallet to implement multi-signature. The large user does transfer funds to the address of Merlin's MPC wallet, but the large user and the project party jointly manage the funds.

MPC wallet achieves multi-party collaborative management through multiple private key sharding, that is, no party can unilaterally use funds.

From the outside, these addresses do belong to the project side, but the project side does not have absolute control over the funds on the addresses.

This is the origin of Merlin's so-called "false TVL".

So what exactly is false TVL?

It is still necessary to understand the concept of "false TVL": False TVL does not mean that the data is falsified, but that these TVL are dead funds and cannot truly create value. They are only used to attract subsequent retail investors' funds and build momentum for the project.

TVL can be divided into real TVL and false TVL.

Real TVL is the liquidity that can really be utilized, such as lending projects or Swap projects. The liquidity is high and users can better use the products; while the fake TVL is just lying there, and then there is no liquidity that is used, such as Pledge project.

For pledge 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 "puffy and fat". TVL is just for appearance and does not play an actual role in the operation of the product itself.

Our industry has always been TVL-first, but not all TVL is valuable.

We hope that ordinary users and investors will return to the real value of the project: can it solve problems for users? Can there be positive cash flow to prove the feasibility of business logic?

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