Token Quantity And Price Influence THORchain’s TVL

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Since we already know, when the price of RUNE increases, Liquidity actions increase as well. In order to understand this better, we can take a look at our past article: https://www.techdreams.org/cryptocurrency/thorchain-reflecting-rune-token-price-on-token-swaps/11023-20211103. Furthermore, we already know that the TVL metrics of the past are flawed because they are dependent on both the quantity and the price of the token over time. This metric should be abstracted out of the influence of price.

This can be approached in many ways, but we are going to go about it in this way:

  1. Assume asset and RUNE prices are fixed at their current value, and show THORChain’s TVL over time.
  2. Apply the same methodology, but instead of current prices, fix them at their average price over a certain period of time

As part of this comparison, we would like to compare the actual price liquidity with the price liquidity of the current day and also with the average RUNE price over the past year.

Liquidity Of The Actual RUNE price Versus The Fixed Current Price

Here is a chart that compares the fixed current RUNE price with actual RUNE price liquidity over a period of time. For this example, we will use the Fixed current RUNE price of 7.9$. For this article, I have used the RUNE price I saw the day I wrote it.

When you take the fixed RUNE price and find the liquidity on Thorchain, you get more liquidity than you would if you did it with the actual RUNE price. From April 11, 2021 to April 21, 2022, Actual Price Liquidity was $63.37B. Between April 11, 2021 and April 21, 2022, the Fixed Current Price Liquidity totaled $70.55B. Because of this, we can say traditional TVL metrics are inaccurate since their results are influenced by token price. In this case, they are shown by fixing a RUNE price versus taking the actual RUNE price. 

Liquidity Of The Actual RUNE price Versus Avg. RUNE Price

Here is a chart that compares the Average RUNE price with Actual RUNE price liquidity over a period of time. For this example, we will use the average RUNE price of so far.

When you take the Average RUNE price and find the liquidity on Thorchain, you get a huge amount of liquidity than you would if you did it with the actual RUNE price. From April 11, 2021 to April 21, 2022, Actual Price Liquidity was $63.37B. Between April 11, 2021 and April 21, 2022, the Average RUNE Price Liquidity totaled $8,368.87B. Because of this, we can say traditional TVL metrics are inaccurate since their results are influenced by token average price . In this case, they are shown by average RUNE price versus taking the actual RUNE price. 

To look at the price impact on Thorchain , here we are comparing the average RUNE price with the actual RUNE price liquidity for the past one year . In this process, we can see the average RUNE price liquidity is a very high when compared with the actual price liquidity.

Based on the analysis above, we can conclude that traditional TVL metrics are flawed since they are both affected by quantity and price over time. In other words, the argument is proven by considering the RUNE price liquidity in two ways: by considering the Fixed RUNE price liquidity and by considering the Average RUNE price liquidity. Both of these illustrate a huge increase in Liquidity rather than actual price liquidity.

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