In this article, I will discuss what FDV is in crypto and why it matters to investors. FDV, or Fully Diluted Valuation, is a key metric that shows the potential total value of a cryptocurrency based on its maximum token supply.
Understanding FDV can help you evaluate a project’s future valuation and assess possible risks like token dilution.
What Does FDV Stand For in Crypto?
FDV in crypto stands for Fully Diluted Valuation. It indicates what a cryptocurrency’s worth would be in case all the tokens were circulating. The calculation is easy: FDV = Maximum Token Supply × Current Token Price.
This metric allows investors to make an evaluation regarding a project’s future market cap. It is particularly important for new or low-supply tokens since it demonstrates the extent to which the dollar value of the token may be diluted due to the eventual release of locked or future tokens.
How FDV Is Calculated
Formula: FDV = Maximum Token Supply × Current Token Price
Maximum Supply: the total number of tokens that will ever exist
Current Price: Market cap per token at the time of the calculation.
Purpose: Makes an estimation about the market value considering all tokens would be issued.
Difference from market cap: Market cap considers circulating supply while FDV considers total supply.
Used for: Evaluation of long-term valuation and dilution risk of a crypto asset.
Why FDV Matters To Investors
Future Valuation Clarity: Offers insight into probable market cap once all tokens enter circulation
Risk of Future Token Unlocks: Emphasizes issues accompanying future token unlocks and potential inflation
Value Assessment of New Projects: Assists in comparing new projects with low circulating supply
Subtokenomics: Prompts additional investigation concerning the schedule of supply and vesting.
Tokenomics Check: Helps revoke the gamble of buying tokens with boundless future dilution
Market Sentiment Gauge: Considerable FDV ratings may have varying impacts on market confidence and token price trend
Limitations and Criticisms of FDV
Overestimates Token Value: Every token is assumed to enter circulation which in most cases will never occur.
Disregards Vesting Schedules: Locked or slowly released tokens are seldom accounted for.
New Projects are Misleading: Early stage tokens can be made to look overvalued as the expectation is FDV will increase.
Context on Token Utility is Missing: There is no actual demand on the use case for the token, but FDV is computed.
Sensitivity to Price Fluctuations: With token price, FDV varies which is always assumed to be exaggerated perception.
Time Factor Lacking: Without indicating the period, rate and speed new tokens will be issued is absent.
Can FDV be misleading?
Indeed, FDV (Fully Diluted Valuation) could misrepresent the project’s value if taken without context. It presumes every token in a project will eventually be circulating and possessed at the market price, which is unlikely. Many tokens are locked, vested, or scheduled for future release, meaning they might never all become accessible.
FDV calculation also ignores the fundamentals behind the project, such as the usefulness of the token, its demand, and how well it is accepted in the real-world. For new projects or those with low circulating supply, FDV can make the token appear overvalued, causing investors to misjudge the actual potential or risk of investment.
Pros And Cons
| Pros of FDV (Fully Diluted Valuation) | Cons of FDV (Fully Diluted Valuation) |
|---|---|
| Provides insight into the token’s total potential value | Can overestimate value if max supply is never reached |
| Helps assess future dilution risk from token unlocks | Ignores token vesting schedules and lock-up periods |
| Useful for comparing early-stage projects | May mislead investors about current market realities |
| Complements market cap to give fuller picture | Doesn’t account for token utility or demand |
| Encourages deeper research into tokenomics | FDV fluctuates widely with token price changes |
Conclusion
FDV – or Fully Diluted Valuation – gives insight into the possible future market value of a cryptocurrency under the assumption all its tokens are in circulation. Although useful in analyzing long term valuation and dilution risks, it needs to be approached cautiously.
Token lockups, vesting schedules and real world utility must be accounted for, or the FDV will be misleading. With the other factors like market cap, tokenomics, and project fundamentals, more complete evaluations can be made relying on FDV.