FDV In Crypto Explained: What It Is And Why It Matters

Fully diluted valuation (FDV) is a metric used to estimate a cryptocurrency’s market value, assuming that all possible tokens are in circulation. 

FDV calculates the total value of a project by multiplying the current token price by the total supply — both circulating and future tokens. This measure provides insight into the potential market cap if all tokens, including those currently locked, reserved, or scheduled for future release, were available on the market.

How FDV works

• Calculation: FDV equals the current token price multiplied by the total token supply. For example, if a token is trading at $5 and the total supply is 40 million tokens, the FDV would be 5 × 40 million = $200million.
• Circulating vs. total supply: The circulating supply represents the tokens available for trading today, while the total supply includes tokens that might enter the market in the future through vesting schedules, mining rewards, or other mechanisms.
• Market insights: Investors use FDV to gauge a project’s potential market capitalization and assess whether the current token price reflects the eventual dilution from additional tokens entering circulation. A high FDV relative to the current market cap might indicate significant dilution risk, whereas a lower FDV could suggest a more conservative future token supply.

Practical example

Consider a hypothetical project called CryptoX:

• Token price: $5
• Circulating supply: 20 million tokens
• Total supply: 40 million tokens (including tokens that will be released over time)

CryptoX’s current market cap is calculated using the circulating supply:
20 million tokens × $5 = $100m.

FDV calculation
Assuming all 40 million tokens are available, FDV is:
40 million tokens × $5 = $200m.

This FDV indicates that if all tokens become liquid, the project’s market cap could potentially double from its current market cap. Investors use this information to understand future dilution and evaluate whether the current valuation adequately reflects the eventual full token supply.

FDV serves as a useful tool, especially in projects with significant token vesting schedules or large reserves held by the team, helping investors anticipate changes in token valuation over time.

To understand this better, let’s consider a real cryptocurrency, such as Ethereum (ETH).

Ethereum’s fully diluted valuation (FDV) is calculated by multiplying its current token price by its total supply. Because Ethereum doesn’t have a fixed maximum supply — instead, its issuance is governed by its tokenomics — the FDV is effectively the same as its current market capitalization.

Based on recent data, with a price around $2,100 per ETH and a circulating supply of approximately 120.6 million ETH, Ethereum’s FDV is roughly between $253bn and $256bn.

This means that if all existing ETH were in circulation at today’s price, the total market value would be in that range.

Why is FDV important in crypto?

FDV is crucial in crypto because it provides a comprehensive view of a project’s potential market valuation, helping investors assess both current and future risk factors. Here’s why FDV matters:

1. Assessing dilution risk: FDV calculates the market value as if all tokens — both circulating and those yet to be released — were in the market. This metric highlights how future token releases may dilute current token value.For example, a project with a low circulating supply but a large number of tokens scheduled for release might show a relatively low current market cap but an extremely high FDV, signaling potential dilution that could impact token price.
2. Informed investment decisions: By comparing the current market cap with the FDV, investors can gauge whether a token is overvalued or undervalued based on its full token economics. If a token’s FDV is disproportionately high compared to its circulating market cap, it may indicate that the project’s valuation is stretched out over future token releases, which could pose risks if the market cannot absorb the additional supply.
3. Comparative analysis: FDV enables investors to compare projects on a like-for-like basis, especially when tokenomics vary significantly between projects. For instance, two projects may have similar circulating market caps, but if one has a much higher FDV due to a larger total supply, investors may conclude that the latter faces greater dilution risk over time.
4. Evaluating token economics: Understanding FDV helps in scrutinizing the token distribution model, including vesting schedules, team allocations, and reserves. This analysis is essential for evaluating how a project’s token supply might impact its long-term valuation and sustainability in the market.

When should a crypto trader consider FDV?

Crypto traders should incorporate FDV in their analysis during both the initial assessment and ongoing monitoring of a token’s investment potential. FDV is particularly useful in the following scenarios:

1. Early-stage projects: When a project has a low circulating supply compared to its total supply due to vesting schedules or reserves, FDV helps identify potential dilution. This insight is critical for assessing whether the current token price is sustainable as more tokens enter circulation.
2. Comparative valuation: Traders often compare similar tokens to determine relative value. FDV offers a standardized metric by showing the hypothetical market cap if all tokens were available, highlighting risks associated with future token releases.
3. Risk management: Traders can gauge dilution risk by comparing the current market cap with the FDV. A large gap between these figures may signal future price pressure, prompting traders to adjust their positions or hedge accordingly.
4. Evaluating token economics: FDV is a tool for reviewing a project’s token distribution model. Traders use it to determine whether the tokenomics align with sustainable growth or if upcoming token releases could undermine the token’s value.

For example, a trader assessing a project with a circulating supply of 10 million tokens at $2 and a total supply of 50 million tokens would note a current market cap of $20m versus an FDV of $100m. This gap alerts the trader to the potential dilution risk if the remaining tokens are released into the market.

Overall, FDV is a key metric that complements other technical and fundamental analyses, allowing traders to make more informed decisions about entry, exit, and position sizing in the dynamic crypto market.

1. 01.

   Is high FDV good for a crypto project?

   

   A high FDV isn’t inherently “good” or “bad.” It reflects the potential market cap if all tokens were circulating. A very high FDV relative to the current market cap can signal future dilution risk if many tokens are locked or scheduled for release.

2. 02.

   How is FDV different from market cap?

   

   Market cap is based only on the circulating supply (tokens currently available for trading), whereas FDV calculates the value assuming the entire token supply is in circulation, offering a more forward-looking perspective on potential dilution.