Blockchain/Level IX · Speed and spectacle/9.1 The confusion in between/Lesson 1
Low float, high FDV
The arithmetic of dilution: circulating supply versus total issuance
MaterialsA block explorer (Solscan or Etherscan) to verify total supplyThe project’s official documentation page detailing tokenomics and vestingA calculator for computing FDV-to-market-cap ratios
Wonder
- Why can a token with a $1 billion market cap have a fully diluted valuation exceeding $10 billion?
- What specific data points reveal the gap between current liquidity and future insider sell pressure?
- How does the timing of vesting schedules alter the effective cost basis for early backers compared to public buyers?
Explore
- Since 2021, a dominant launch pattern has emerged: tokens debut with a small fraction of their total supply in circulation. The remainder is allocated to founders, venture capital firms, and strategic partners who purchased these units at significantly lower valuations during private rounds. This structure creates an immediate asymmetry between the public market price and the entry cost for those holding the locked majority.
- Fully diluted valuation (FDV) multiplies the current token price by the total maximum supply, including all locked or unmined units. Market capitalization multiplies price only by circulating supply. When circulation is low, FDV vastly exceeds market cap. This discrepancy signals that a large amount of potential selling pressure exists behind the current price point, waiting for vesting conditions to be met.
- Binance Research data from May 2024 indicates that tokens launched in that year averaged approximately 12.3% circulating supply at launch. The study further projected that roughly $155 billion worth of token unlocks would occur between 2024 and 2030 across major projects. This volume of impending supply represents a structural headwind for price stability, as holders with low cost bases may choose to sell upon unlock.
- Vesting schedules typically release insider tokens over periods ranging from six months to several years. During this time, the circulating supply grows mechanically regardless of demand. As new units enter the market, they dilute the value of existing holdings if price remains static. Retail participants often purchase during these windows without accounting for the expanding denominator in the valuation equation.
- Buyers in the public market therefore face a known schedule of new supply. Unlocks are either linear, releasing tokens steadily, or cliffs, releasing a large block on one date; both are usually published in advance, so the coming supply can be read before buying.
- To verify this dynamic independently, open a token’s documentation or a block explorer to locate its total supply figure. Compare this against the current circulating count listed on major aggregators. Calculate the FDV by multiplying the live price by the total supply. Then, review the project’s treasury disclosures for vesting milestones. The ratio of FDV to market cap provides an immediate indicator of future dilution risk.
Key facts
- Tokens launched in 2024 averaged approximately 12.3% circulating supply according to Binance Research.
- Fully diluted valuation (FDV) includes all locked and unmined tokens, while market cap includes only circulating units.
- Approximately $155 billion in token unlocks were projected for the period between 2024 and 2030.
- Venture capital and founder allocations are typically subject to vesting schedules that release supply over time.
- A high FDV-to-market-cap ratio indicates significant future selling pressure from locked insider holdings.
- Circulating supply increases mechanically as vesting milestones are reached, diluting existing holders if price remains constant.
Exercise nine, six, three, one
9CollectList 9 distinct components of a token’s economic structure: total supply, circulating supply, FDV, market cap, vesting schedule, unlock cliff, linear release, private round allocation, and public sale allocation.
6ClusterGroup these 9 components into 6 categories based on whether they represent current liquidity, future dilution potential, or historical cost basis data.
3DistillReduce the 6 groups to 3 primary metrics that an investor should check before purchasing a token with a low float.
1CrystallizeWrite one sentence explaining how a linear vesting schedule differs from a cliff release in terms of daily sell pressure on the market.
Fact check
Dates, figures and claims checked against the published sources listed below.
- Binance Research, 'Low Float & High FDV' (May 2024)
- Token-unlock trackers and project vesting disclosures
- CoinGecko and CoinMarketCap circulating-supply data