Fully Diluted Valuation (FDV) is a metric in the cryptocurrency that represents the maximum value of a cryptocurrency project if all its tokens were in circulation. The FDV provides insight into the potential market value of a particular project.
FDV as a metric is very important to investors as it provides information on the long-term potential of a crypto project which informs the risk associated with investing in the project.
It is common practice for substantial portions of a token to be locked up and kept out of circulation. FDV provides insight into a project’s potential when all its tokens are in circulation.
It is to be noted that the total supply of tokens may change due to the minting of new tokens, or due to token burning, which removes tokens from circulation.
This means that FDV is a projection and could change over time giving a variation in the total supply of Tokens.
Why is FDV important?
Fully Diluted Valuation projects the value of a crypto project assuming all its tokens are already a circulation. This information is vital to investors in their risk assessment of crypto projects. The metric helps investors see beyond the current market situation of a project and peek into the future of the project to determine whether it is a worthy investment or not.
For example, if the current market cap of a new crypto project is relatively small compared to the market caps of top crypto assets but the FDV of the Crypto project is as big as the market cap of those top crypto assets, this may indicate that the project in question is currently overvalued.
The FDV is an important metric because it helps investors fish out shitcoins with inflated value which might make a very bad investment over time.
How to Calculate FDV
FDV is simply calculated by multiplying the Total Supply by the Token price.
FDV = Total Supply x Token Price
FDV is often compared with Market Capitalization, another important metric that measures the value of a project by multiplying the token’s circulation supply by Token Price.
Market Capitalization = Circulating Supply x Token Price
FDV differs from market capitalization because it is a projection, a forward-looking metric, unlike Market capitalization which provides information on the current market situation of a project. Crypto data sites like CoinmarketCap and Coingecko can help with checking the FDV of a project.
Token Supply Changes and its Impact on FDV
Since the Fully Diluted Valuation of a project heavily depends on its Total Token Supply, a change in the token supply will also affect the FDV of the project and its projected value.
Factors affecting total token supply include the minting of new tokens, which increases the token supply, or token burning, where tokens are permanently removed from circulation, effectively reducing the supply.
These two factors affect FDV directly because they alter the number of total tokens.
Conclusion
FDV is a very important metric for investors, especially in areas of overvaluation. A project might appear undervalued when evaluated solely by its market cap.
However, if the project has a high FDV, the eventual release of new tokens could dilute the token’s price, leading to definite losses for investors who did not factor in the FDV in the initial assessment.