FDV is a Meme
Most people don't uderstand what is the Full Diluted Valuation (FDV) in crypto. They are making wrong investment decision based on low or high FDV.
Let's me explain how to understand FDV.
/THREAD
Most people don't uderstand what is the Full Diluted Valuation (FDV) in crypto. They are making wrong investment decision based on low or high FDV.
Let's me explain how to understand FDV.
/THREAD
Basics.
To understand FDV we need to start with the basics of tokenomy.
Demand & Supply => Price
Changes in price are caused by the demand and supply forces.
Demand⬇️ OR Supply⬆️ => Price⬇️
Demand⬆️ OR Supply⬇️ => Price ⬆️
/1
To understand FDV we need to start with the basics of tokenomy.
Demand & Supply => Price
Changes in price are caused by the demand and supply forces.
Demand⬇️ OR Supply⬆️ => Price⬇️
Demand⬆️ OR Supply⬇️ => Price ⬆️
/1
Supply.
We have 2 main supply metrics:
• Circulating Supply - Number of available tokens on the market
• Max Supply - Theoretical max token amount
We will use them to calculate Market Capitalization.
/2
We have 2 main supply metrics:
• Circulating Supply - Number of available tokens on the market
• Max Supply - Theoretical max token amount
We will use them to calculate Market Capitalization.
/2
Valuation.
By multiplying the price by supply we get the token's Market Cap (MC):
• MC = Circulating Supply * Price
• FDV = Max Supply * Price
FDV is higher or equal to MC:
FDV >= MC
/3
By multiplying the price by supply we get the token's Market Cap (MC):
• MC = Circulating Supply * Price
• FDV = Max Supply * Price
FDV is higher or equal to MC:
FDV >= MC
/3
High FDV.
Many people are concerned when:
FDV >> MC
This means that in the future more tokens will be available (higher Circulating Supply) which will have an impact on the price, because:
Supply⬆️ => Price⬇️
/4
Many people are concerned when:
FDV >> MC
This means that in the future more tokens will be available (higher Circulating Supply) which will have an impact on the price, because:
Supply⬆️ => Price⬇️
/4
New tokens.
These tokens can be available as a part of the vesting schedule and released too early investors.
In this case, our number of tokens will be diluted, because we will have more of them on the market.
So, high FDV is bad for investors?
/5
These tokens can be available as a part of the vesting schedule and released too early investors.
In this case, our number of tokens will be diluted, because we will have more of them on the market.
So, high FDV is bad for investors?
/5
Price.
As said, price is affected by two forces:
Demand & Supply => Price
so to evaluate the impact on the price, we will have to check how the demand for a token is changing.
/6
As said, price is affected by two forces:
Demand & Supply => Price
so to evaluate the impact on the price, we will have to check how the demand for a token is changing.
/6
Demand vs Supply.
New tokens will be released after some time.
During this period we can also have changes in demand and 3 different price effects:
Supply⬆️ & Demand⬇️ => Price⬇️
Supply⬆️ & Demand⬆️ => Price❔
Supply⬆️ & Demand⬆️⬆️ => Price⬆️
/7
New tokens will be released after some time.
During this period we can also have changes in demand and 3 different price effects:
Supply⬆️ & Demand⬇️ => Price⬇️
Supply⬆️ & Demand⬆️ => Price❔
Supply⬆️ & Demand⬆️⬆️ => Price⬆️
/7
Price⬇️.
This is the most common scenario, especially with farm tokens.
I wrote a thread explaining this mechanism. This is also the main reason why sometimes we have incredible high APY in #DeFi:
/8
This is the most common scenario, especially with farm tokens.
I wrote a thread explaining this mechanism. This is also the main reason why sometimes we have incredible high APY in #DeFi:
https://twitter.com/CryptosEngineer/status/1481319609005445126?s=20
/8
Price⬆️.
Some projects are able to deliver more value over this. This increases demand for a token and caused its price.
The perfect example of it is... $BTC.
Every year we have more #Bitcoins and more people want to but it.
Price is rising.
/9
Some projects are able to deliver more value over this. This increases demand for a token and caused its price.
The perfect example of it is... $BTC.
Every year we have more #Bitcoins and more people want to but it.
Price is rising.
/9
Price❔
For many projects we don't know if high supply will be mitigated by even higher demand.
As a rule of thumb assume that for most of the projects with high FDV, we will see lower prices over time.
/10
For many projects we don't know if high supply will be mitigated by even higher demand.
As a rule of thumb assume that for most of the projects with high FDV, we will see lower prices over time.
/10
What next?
Tokenomics is a broad topic. You can follow these accounts to learn more:
@Route2FI
@thedefiedge
@phtevenstrong
@mikocryptonft
@lemiscate
@MiddleChildPabk
@RDM_41
@JackNiewold
@milesdeutscher
@TaschaLabs
/11
Tokenomics is a broad topic. You can follow these accounts to learn more:
@Route2FI
@thedefiedge
@phtevenstrong
@mikocryptonft
@lemiscate
@MiddleChildPabk
@RDM_41
@JackNiewold
@milesdeutscher
@TaschaLabs
/11
If you enjoyed this and want to learn more about investing, cryptocurrency & finance:
✔️ Follow me @cryptosengineer for more threads like this.
✔️ Check out some of my other threads:
/12
✔️ Follow me @cryptosengineer for more threads like this.
✔️ Check out some of my other threads:
https://twitter.com/CryptosEngineer/status/1516477478474289162
/12
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