Key Takeaways
- Fully diluted valuation is an expression of a crypto project’s total market value if all tokens were in circulation.
- It is calculated by multiplying the current token price by the maximum token supply.
- FDV can help traders spot overvalued or undervalued projects, because it allows them to assess the price of a coin against the real value the project is delivering.
- Despite its insights, FDV has limitations because it assumes constant pricing, ignores unlock schedules, and can be misleading for new projects.
Market rewards knowledge, and crypto is no exception: the more you know, the greater your potential to make trading profits. A great way to build valuable insights is to understand trading metrics and what they mean. One of the lesser understood terms is FDV, or fully diluted valuation.
FDV is a way of measuring the potential of a project, and understanding whether its tokens are over or under valued. In this article, we’ll explore FDV in more detail, understanding how it’s calculated, why it matters, and how to use it in your own crypto trading strategy.
What Is FDV in Crypto?
- FDV stands for Fully Diluted Valuation.
- It estimates a project’s total market value if all tokens were in circulation.
FDV, short for fully diluted valuation, is a projection of what a cryptocurrency’s market cap would be if its entire token supply were already issued. While the current market cap of a project reflects only the circulating supply, FDV gives a forward-looking view by assuming that every token that will ever exist is already in play.
This metric helps investors understand the long-term valuation of a project. Once you know this, you can also make a judgement about whether the current price of its tokens is reasonable.
How Is FDV Calculated?
FDV is calculated by multiplying the current price of a token by its maximum total supply. The formula is as follows
Token Price × Max Supply = FDV
This formula assumes that all tokens that could ever exist are already in the market at the current price. While that may never happen exactly, it offers a useful projection for comparison across different crypto projects.
Here’s a step-by-step guide:
- Find the current token price: Use a reliable source like CoinGecko, CoinMarketCap, or an exchange.
- Find the token’s maximum supply: Then, check the token’s max supply under tokenomics or in the project’s whitepaper.
- Get the result: Finally, multiply the two to get the FDV.
Let’s use a couple of real examples to illustrate the point.
FDV of Bitcoin
Bitcoin has a maximum supply of 21 million coins and a current price per coin of roughly $85,000. Multiplying the current price with the current supply will then give us the FDV of Bitcoin:
21,000,000 × $85,000 = $1.78 trillion FDV
Although not all 21 million BTC are currently in circulation, FDV tells us what Bitcoin’s total market value would be if they were.
FDV of Solana
Solana has a maximum total supply of around 565 million tokens. Let’s say SOL is trading at $137. To calculate the FDV of Solana, let’s multiply the circulating supply and the current price:
511,000,000 × $137 = $70 billion FDV
This number is significantly larger than Solana’s current market cap, which only considers the circulating portion. Therefore, FDV highlights how future token emissions could affect investor perception and price performance.
Why Is FDV Useful for Crypto Traders?
FDV helps traders spot overvalued and undervalued projects based on future expectations. A token may seem reasonably priced, but does its FDV match the potential impact of that project?
For example, Project X is a space exploration company with an FDV of $1 Billion. As an investor, you would ask yourself whether the project’s underlying technology or innovation is worth that much. In this scenario, Project X promises to revolutionize the space exploration market, so an FDV of $1 Billion seems modest, and you consider the token price fair.
On the other hand, if the FDV of this same company were $5 Trillion, this could be a red flag – this suggests an extraordinarily high valuation, and it may be a signal that the tokens are overpriced.
This is a very simple example, and there are other factors to consider, such as future token unlocks, which might flood the market and destabilize the token price.
Market Cap vs FDV vs TVL
FDV, as discussed, estimates the market cap if all tokens were released. However, FDV is often confused with similar metrics, such as market cap and total value locked, which measure different aspects of a crypto project’s value. Let’s break them down:
Market Cap
Market capitalization represents the overall value of a cryptocurrency based on its circulating supply. The calculation is as follows:
Price × Circulating Supply = Market Cap
It tells you how much the existing supply is worth but not how much future supply might impact that number. For example, a project with a $10 million market cap might seem small, but if only 2% of the total supply is circulating, the FDV could be massive. Market cap is a quick snapshot of how the market currently values a coin or token.
Total Value Locked (TVL)
TVL measures the total value of crypto assets locked in a protocol, making it especially important in DeFi platforms like lending protocols, DEXs, and yield farms.
A high TVL shows strong user trust and platform usage. As a result, traders often use it to evaluate DeFi project performance and not the token itself.
| Project | Market Cap | TVL | FDV |
|---|---|---|---|
| Ethereum | $242 billion | $53 billion | $242 billion |
| Solana | $70 billion | $7.2 billion | $82 billion |
| Cardano | $25.8 billion | $358 million | $32.9 billion |
| Tron | $21 billion | $4.6 billion | $21 billion |
Limitations of FDV
Despite its usefulness, FDV has limitations that traders should keep in mind.
- FDV assumes constant price: The calculation uses the current token price, but prices are highly volatile. In other words, the actual value at full dilution may be very different.
- Unlock schedules vary: Tokens often follow vesting schedules, but FDV doesn’t tell you when the supply will increase.
- Can be misleading for new projects: Projects with low circulating supply and high FDV may appear inflated, but this might be part of a long-term emission strategy.
Therefore, FDV should not be the only metric when making decisions. It works best in conjunction with other indicators like market cap, TVL, trading volume, and unlock timelines.
Closing Thoughts
Understanding FDV is essential for making smarter, long-term crypto investment decisions. By estimating what a token’s valuation might look like when its entire supply hits the market, FDV provides a forward-looking lens for comparing different assets.
While market cap shows you where a token stands today, FDV gives you a glimpse into its potential tomorrow. However, always use it in context and look at the full picture by including tokenomics, supply schedules, platform usage, and community growth.
