Fully Diluted Valuation (FDV) in Crypto: What is It?

Fully Diluted Valuation (FDV) is a key metric in the cryptocurrency space. It estimates the total value of a crypto project if all its tokens were in circulation. By considering the maximum potential supply of tokens, FDV provides a broader view of a project's market value.

Why FDV Matters

FDV helps investors gauge the long-term potential of a cryptocurrency. Unlike market capitalization, which only reflects the value of circulating tokens, FDV takes into account the total supply. This makes it an essential tool for evaluating the scalability and growth of a crypto project. For example, if a large portion of tokens is yet to be released, FDV can highlight potential risks or rewards tied to future supply changes.

How Does FDV Differ From Market Cap?

While market capitalization focuses on the current supply of tokens in circulation, FDV looks at the full potential supply. Here's a simple comparison:

• Market Cap = Current Price × Circulating Supply
• FDV = Current Price × Total Supply

Market capitalization (market cap) is one of the most commonly used metrics to assess the value of a cryptocurrency. It is calculated by multiplying the current price of a token by the number of tokens currently in circulation. This gives an estimate of the project's present value based on actively traded tokens but does not account for future token releases that could affect supply and price.

Total supply on the other hand refers to the number of tokens that exist within a cryptocurrency project. This includes tokens currently in circulation and those set aside for future distribution. However, it does not count any tokens that have been permanently removed (or burned) from supply.

For example, in the chart above, the current price of SUI (at the time of writing) is $2.18, while the circulating and total supply is 3.16B and 10B tokens, respectively. This brings the market cap for SUI to $6.93B while the FDV would be $2.18 x 10B (i.e 21.87B). 

If a large number of tokens are locked, unreleased, or reserved, the FDV might be significantly higher than the market cap. This distinction is important when assessing a project's future value and token release schedule.

Why Some Investors Prefer FDV

FDV provides insights into the long-term prospects of a token. It allows investors to assess whether a project is overvalued or undervalued relative to its total supply. For instance, if a project has a high FDV but limited utility or adoption, it may signal overvaluation. On the other hand, a low FDV with strong fundamentals could indicate an opportunity for growth.

How Can Token Supply Affect FDV?

Changes in token supply directly impact FDV. If additional tokens are released into circulation, the FDV increases, which could dilute the value of existing tokens. Monitoring tokenomics, such as vesting schedules, staking rewards, or token burns, is crucial as they can influence both FDV and market cap.

Risks of Ignoring FDV

Overlooking FDV can lead to poor investment decisions. A project with a low market cap but a high FDV might seem undervalued at first glance. However, if a significant number of tokens are yet to be unlocked, the influx could lead to price drops. Investors should always consider FDV alongside other factors like adoption, utility, and token distribution.

Staying informed about metrics like FDV helps you make better decisions in the ever-dynamic cryptocurrency market. Whether you're an experienced trader or a beginner, taking a closer look at FDV can provide a clearer picture of a project's potential.