When we talk about TVL in blockchain networks, we're actually talking about two fundamentally different concepts that are often confused. Traditional TVL, the kind we see in liquidity pools and lending protocols, makes tokens more liquid but doesn't make them scarcer. This TVL represents tokens that remain in active circulation - they can be traded, borrowed, or withdrawn at any time. Think of it like water in a reservoir that can flow freely through different channels but remains part of the active supply.
Backing TVL through Glue works in an entirely different way. When projects earn revenue and send it to their Glue address, those network tokens become permanently locked. This isn't just tokens sitting in a contract - it's tokens being removed from circulation entirely. The only way to access these tokens is by burning the project's token, and even then, it's a one-way trip. This creates true scarcity in the network token supply.
The real innovation of Backing TVL comes from how it grows. Traditional TVL grows when users deposit tokens into protocols - it's essentially borrowing liquidity from the market. Backing TVL, on the other hand, grows when projects actually earn revenue. When a DEX generates trading fees or an NFT marketplace collects royalties, those earnings can be locked as backing, permanently reducing the network token supply.
This creates a profound shift in how project success affects the network token. With Traditional TVL, a successful project might have billions locked in its protocols, but those tokens remain in circulation. With Backing TVL, success means permanently reducing token supply through earned revenue. The more successful the project, the more network tokens get locked away forever.
Consider a DEX with $10 million in Traditional TVL. Those tokens make trading more efficient, but they're still part of the circulating supply. They can exit the protocol at any time, and their presence doesn't make the network token any scarcer. The DEX might be highly successful, but this success doesn't directly strengthen the network token's value.
Now imagine that same DEX using Glue to lock its trading fees as backing. Every month, as it earns revenue in network tokens, those tokens get permanently removed from circulation. The DEX's success now directly reduces network token supply. This isn't temporary or reversible - it's permanent deflation driven by actual business success.
Traditional TVL plays an important role in network functionality. It provides the liquidity needed for efficient markets and user operations. However, it's Backing TVL that builds long-term value for the network token. As projects succeed and grow, they continuously lock away more tokens, creating an ever-increasing scarcity based on real economic activity.
This difference becomes even more apparent during market downturns. Traditional TVL can evaporate quickly as users withdraw their tokens. Backing TVL, being locked and permanent, remains in place. In fact, market downturns can increase Backing TVL as more users burn tokens to access the backing, further reducing supply.
The introduction of Backing TVL through Glue represents a fundamental evolution in how networks capture value from their ecosystem. Instead of relying solely on liquid TVL to facilitate transactions, networks can now accumulate permanent, revenue-driven backing that actually reduces their token supply.
This creates a natural alignment between project success and network value. The more revenue projects generate, the more network tokens they lock away as backing. This isn't artificial scarcity or temporary lockups - it's permanent supply reduction driven by actual economic activity within the network.
Consider Ethereum's ecosystem. Every day, successful protocols generate millions in fees - DEXs collect trading fees, lending platforms earn interest, NFT marketplaces take royalties. Currently, this revenue circulates or gets distributed, having no lasting impact on ETH supply. But with Glue, this ecosystem success would naturally deflate ETH supply.
When protocols send their earnings to Glue addresses, each successful project becomes an engine of ETH deflation. A major DEX earning 100 ETH daily in fees would lock away 36,500 ETH annually. A successful lending platform earning 50 ETH daily would lock another 18,250 ETH. As more protocols adopt Glue, this deflationary pressure compounds.