Fully Diluted Value (FDV)
What Is Fully Diluted Value (FDV)
Fully Diluted Value (FDV) is an important metric in the cryptocurrency and financial markets. It shows the total market capitalization of a cryptocurrency or token, assuming all potential tokens or shares have been issued and are in circulation. FDV offers a clearer view of a project’s future value by including both the current circulating supply and the total number of tokens that could be released later. This is particularly useful for investors, as it helps them understand the long-term value of their investment and the potential risk of dilution.
To grasp FDV, it’s essential to understand market capitalization, which is calculated by multiplying the current price of a cryptocurrency by the number of tokens in circulation. However, many projects have more tokens that aren't in circulation yet. These extra tokens might be held for the project team, future development, or rewards for staking. When these tokens enter the market, they can dilute the value of existing ones and affect the token's price.
FDV takes this into account by showing what the market capitalization would be if all tokens were circulating. It’s calculated by multiplying the current price of the token by the total supply, including both circulating tokens and those yet to be released. For instance, if a token has 1 million tokens in circulation, a total supply of 10 million tokens, and a current price of $10 per token, the market cap would be $10 million, but the FDV would be $100 million. This highlights the potential dilution that could happen if all tokens were released.
FDV is useful for two main reasons. First, it helps investors understand the future value of a project by factoring in the impact of future token releases. This helps them assess the risk of dilution and make more informed decisions. A project with a low circulating supply but a high FDV might signal significant future dilution, which could lower the token's price over time.
Second, FDV is important in initial coin offerings (ICOs), initial exchange offerings (IEOs), and other fundraising events. These events often involve selling part of the token supply, with the rest being released over time. Knowing the FDV helps investors gauge how future token releases might impact the project's overall value, allowing for better investment decisions.