Fully Diluted Valuation (FDV)

What Is FDV in Crypto?

For example, if a token costs $5 and the project has a max supply of 100 million tokens, its FDV is $500 million. FDV gives a "big picture" view of the project’s maximum potential value.

Why Does FDV Matter?

FDV helps you understand how a project’s value might change in the future as more tokens are released. Tokens are often locked up or released slowly over time, like through staking rewards or vesting schedules for team members.

For investors, FDV is like a sneak peek into what might happen down the road. If the FDV seems too high compared to what the project offers, it might signal potential risks, such as future token dilution lowering its price.

FDV vs. Market Cap

• Market cap: Focuses only on tokens currently available for trading.
• FDV: A metric that simulates the value of a project if every token that can exist is released.

For example, a project with 10 million tokens in circulation at $5 each has a market cap of $50 million. But if its max supply is 100 million tokens, the FDV would be $500 million. A big gap between market cap and FDV suggests that there are still a lot of tokens locked up, which might flood the market in the future.

Things to Consider When Using FDV

FDV isn’t a perfect measure and can sometimes give a skewed idea of a project’s value. Here’s what you should keep in mind whenever you use FDV:

• Token releases: Check how and when locked tokens will be added to the circulating supply. If a lot of tokens hit the market in a short period, there is a higher chance of the token price dropping.
• Growing demand: Ideally, crypto projects should keep users interested while finding ways to increase token utility and demand to balance out the effects of new supply.
• Project basics: A high FDV is not necessarily a bad thing, especially if the project has solid plans, innovation, and long-term growth potential.

Besides looking at the FDV value, it’s also helpful to look at the bigger-picture plans of each project to judge if their FDV makes sense.

A Word of Caution

FDV assumes that token prices won’t change when new tokens are released, but this isn’t always true. In fact, crypto markets tend to be highly volatile, and most tokens experience wild price fluctuations. In the long run, if demand doesn’t grow with the token supply, prices are likely to drop.

It’s also worth noting that metrics like market cap and FDV may not always be useful when evaluating small projects or meme coins that have extremely high token supply.

So, it’s better not to rely on FDV or any single metric alone. Consider researching other factors like the team, tokenomics, trading volume, and token adoption to get a better idea of the project’s potential.

Conclusion

FDV is helpful for understanding a project’s future potential but is just one tool among many others. To get a better perspective and reduce risks, it’s better to use FDV with market cap and other metrics when evaluating a crypto project.