The concept of fully diluted valuation (FDV) is commonly used in evaluating traditional stocks, and it has increasing relevance in analyzing the potential of cryptocurrency projects as well. As more complex tokenomics and vesting schedules come into play, properly assessing valuation metrics becomes critical.
Fully diluted valuation refers to the total valuation of a crypto project if all existing tokens were in circulation. This includes coins that have been mined or issued, as well as those locked up or vesting. The FDV provides the most expansive view of a network's value by calculating market cap at maximum possible dilution from all sources.
For example, a project may have issued 50 million tokens out of a maximum supply of 100 million. If the price is $1, the circulating market cap is $50 million. But the FDV would be $100 million, representing the market cap if all 100 million coins were circulating.
While FDV projects future value assuming full unlock, market cap reflects live valuations based on current circulation. Market cap will generally be lower than FDV, sometimes substantially so if a large portion of supply is vested. Comparing market cap to FDV helps gauge whether substantial growth could occur as more coins unlock.
The basic formula for calculating a cryptoasset’s fully diluted value is:
Fully Diluted Valuation = Token Price x Total Supply
Total supply encompasses all mined and issued coins, including vesting allocations.
Analyzing FDV becomes very relevant for cryptocurrency projects that use tiered distribution models over multi-year vesting schedules. Mainnet launches often come with only a fraction of supply circulating initially.
For example, a new smart contract platform may issue only 10% of the total 100 million supply at genesis. If those 10 million coins valued the project at a $100 million market cap, the FDV hints at a $1 billion network valuation once fully diluted.
Another relevant metric is comparing FDV to total value secured on a network - the Total Value Locked (TVL) in DeFi protocols. This FDV/TVL ratio assesses potential growth headroom based on how diluted current valuations look relative to capital deployed.
Higher FDV/TVL hints at speculation driving up valuations. Lower ratios suggest room for coin prices to increase as more value flows onto the network.
The concepts of pre and post-money valuations also apply to FDV analysis of crypto projects:
Fully Diluted Pre-Money Valuation - The existing FDV before a new fundraising round. Represents the network's worth before new funds dilute holdings.
Fully Diluted Post-Money Valuation - The updated FDV after the fundraising round, accounting for dilution from new coins issued to investors.
Observing how these valuations evolve over funding rounds indicates investor confidence.
While FDV does not predict actual future valuations, it helps gauge upside if demand absorbs new coin issuances without downward price pressure. Analysts suggest looking at:
to assess whether substantial multiples above the circulating market cap seem reasonable. Integrating these across valuation frameworks helps build conviction in long-term crypto holding decisions.
In summary, fully diluted valuation presents a projection of maximum network value potential for cryptoassets as coin distribution reaches concluded states. While no valuation approach leads to foolproof predictions, contextualizing FDV metrics provides another analytical lens for investors to evaluate possibilities.
Join The Leading Crypto ChannelJOIN
Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
Your Genius Liquid Loans Knowledge Assistant