Summary
Fully Diluted Valuation (FDV) is a commonly used metric to assess the total worth of a project. While most projects release tokens gradually over time, FDV calculates the project’s value by assuming all tokens are unlocked at the current price. This differs from market cap, which uses circulating supply.
The MC/FDV ratio for the top 10 projects launched in 2024 is around 0.12, indicating that only 12% of the total tokens are circulating, and over $60 billion would be needed in the next five years just to sustain the current price. With new projects emerging every day, the market requires increasingly more notional capital inflow to sustain the current growth pace.
While remaining bullish on the crypto’s long-term growth potential, we caution investors to be wary of unlock schedules and valuation metrics to guard against supply pressure. Unlike the past bull market where everything moved together, a different dynamic could emerge, where "just HODL until the bull market" no longer works. The ability to pick winners would become ever more critical under such an environment.
Figure 1: Is FDV a meme?
Source: imglip.com
Similar to the stock market, where not all shares are immediately available for trading, the crypto market sees projects begin with a limited number of tokens in circulation, influencing price actions and creating unique market dynamics not observed in other markets. With this in mind, this article aims to offer a concise overview of what FDV is, the current market situation, and investment implications.
FDV vs MC
When discussing cryptocurrency valuations, market cap (MC) and fully diluted valuation (FDV) are the most used metrics. They both aim to gauge the total worth of a project, but differ in the definition of supply: market cap uses circulating supply, whereas FDV uses total supply.
Market Cap = Token Price x Circulating Supply
Fully Diluted Valuation = Token Price x Total Supply
The difference between circulating and total supply arises due to the vesting schedule in crypto projects. As per today's standard, 10-20% of the total supply is unlocked at launch, and the rest of the tokens unlock linearly over an average span of 3-4 years.
Figure 2: Sample Vesting Schedule
Source: Starknet
FDV & MC distortions: three examples
Understanding the concepts behind the FDV and MC helps you see through distortions and help you identify unsubstantiated market narratives. We list three examples below.
(1) We observe that the top 30 cryptocurrencies vary between market cap and FDV terms. In particular newly launched projects tend to rank high in FDV terms as they have a high price but low circulating supply.
Figure 3: Top 30 Cryptocurrencies by MC vs FDV
Source: Presto Research, Coingecko
(2) When Solana recently reached $200, despite being $50 lower than its all-time high in price terms, it reached an all-time high in terms of market cap and FDV due to an increased circulating supply.
Figure 4: Solana Price vs MC
Source: Presto Research, Tradingview
(3) As a fun fact, when $WLD reached its all-time high price at $11, its market cap was approximately $1.75 billion. However, its FDV stood at $90 billion due to its low circulating supply, surpassing OpenAI's estimated valuation.
Where we stand today
*Disclaimer: For the sake of discussion, the calculation in the following section is kept simplistic and does not account for idiosyncrasies in tokenomics. Some tokens may incorporate deflationary mechanisms or may not release their full token supply schedule.
If we aggregate the top 100 cryptocurrencies by market cap and FDV respectively, excluding stablecoins, the total MC/FDV ratio is around 0.85, indicating that 85% of the supply is circulating.
Figure 5: MC/FDV Ratio of Top 100
Source: Presto Research, Coingecko
However, with the recent bull market, listing activities have been much more active than before, especially with major anticipated projects like Starknet and Wormhole launching their tokens in Q1. If we examine the top 10 crypto projects launched in 2024 by FDV, we can see that the average MC/FDV ratio is 0.12, indicating that only 12% is unlocked as of today.
Figure 6: MC/FDV Ratio of 2024 Launched Top 10
Source: Presto Research, Coingecko
What does this mean? We would need over $60 billion in the next couple of years, most likely within the next 5 years as most projects tend to fully unlock in 2028/2029, just to sustain the current price of these 10 projects. For example, in order for $W to remain at its current price of $0.73 in 2028, we would need $6 billion, and for $ZETA to maintain $1.3 in 2028, an additional $2.5 billion would be required.
Thoughts on valuation, tokenomics, and alt season
Valuation
The primary question arising here is whether FDV accurately reflects a project's valuation and serves as a reliable metric for comparing projects. Two projects with identical FDVs but differing vesting schedules, or one utilizing a "burn" mechanism, may demonstrate significant price divergences over time. Furthermore, as of today, FDV appears to overstate a project's value by assuming that the token will maintain its price despite its inflationary nature. Therefore, when investors evaluate projects, they must consider additional indicators alongside the FDV number, recognizing that FDV serves as just one metric among many for project comparison.
Tokenomics
Determining what constitutes good tokenomics remains a challenge given the crypto industry's relatively short history. Currently, many cryptocurrencies lack tangible utility, essentially functioning like a pseudo-equity instrument. Consequently, continuous dilution exacerbates this issue, placing investors in a precarious position unless the project demonstrates its worth, often resulting in FDV peaking upon the project's release.
To justify value, it's necessary for projects to delve deeper into tokenomics. This entails exploring alternatives to continuous dilution, such as integrating a burn mechanism (like stock buyback), which could create deflationary tokenomics. Moreover, the industry needs to fine-tune the current vesting practice to better align incentives, such as adding a contingency clause on the release so that investors can be safeguarded from extreme dilution where projects get paid without achieving certain milestones.
On this topic, the recent memecoin rally ironically can serve as a model. Unlike cryptocurrencies in other sectors that often suffers from substantial unlocks— for example, those with an initial circulating supply of 10%—most memecoins have 100% unlocked at launch, thus avoiding continuous dilution. While one cannot attribute memecoin rallies solely to their tokenomics, it undoubtedly plays a significant role in their appeal and sustained interest.
Figure 7: Memecoins offers a good lesson
Source: Presto Research, Crypto Narratives
Altcoin season…?
Most investors tend to believe that growth in a project leads to a surge in price, which is true in most markets. However, as mentioned above, the supply schedule of cryptocurrencies is much more extreme, with only 10% to 15% unlocked at the beginning and a continuation of dilution over next 4 to 5 years.
With that in mind, we could see a different dynamic from the past, where all cryptocurrencies showed the same price actions (“BTC Beta”) regardless of their fundamentals. During the last bull market, most cryptocurrencies tended to show high correlation, surging and falling together. However, as more projects launch with low initial circulating supplies, we could start to see their price action de-couple from BTC’s due to the lack of capital inflow required to absorb growing circulating supplies. The strategy of ‘HODLing until the bull market and it will somehow take your bags with it’, will no longer be a winning formula. This is especially true for new projects that seem attractive due to its association with "new technology," but is launched with a low initial circulating supply model that almost certainly spells for huge dilution risk. The ability to pick winners from the crowd has never been more important.