Fully diluted valuation (FDV) may mislead investors and traders


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The so-called fully diluted valuation refers to the market value of all tokens in the total supply of digital assets after issuance.

For example, Uniswap will eventually issue a total of 1 billion UNI tokens in the next four years. If we assume that the price of UNI is US$3, then the Fully-Diluted Value (FDV) will reach US$3 billion. As of October 15, the circulating supply of governance tokens on the decentralized exchange (DEX) was US$185,059,564, and the actual transaction price was US$3.36 per token, giving UNI a market value of US$623 million. There is still a big gap between the current FDV of US$3.364 billion.

The well-known DeFi project currently has a huge difference in the ratio of market value to FDV. For example, Yearn.finance allocates its total supply of YFI tokens within a week, which means that its market value to FDV ratio is equal to 100%. On the other hand, Curve uses liquidity mining to issue 2 million CRV tokens every day, which will gradually expand its supply to a maximum of 3.03 billion CRV, resulting in an extremely low market value to FDV ratio of 2.64%.

In contrast, SushiSwap strictly limited its token supply to 250 million on September 20, and based on the current SUSHI price of $0.76, its FDV dropped to $99 million. This makes Sushiswap’s market value to FDV ratio approximately 76.93% after the supply is reduced. Its main competitor Uniswap has a ratio of approximately 18.51%.

Most fully diluted market capitalizations are higher than current market capitalizations. Source: Coingecko, OKEx

How important is FDV for cryptocurrencies?

The question worth studying here is whether FDV is a key indicator of the cryptocurrency market. Do market participants rationally view the theoretical valuation in the next few years?

To answer this question, we compared the data behind Uniswap, SushiSwap and Curve three DEXs and compared it with the verified cash flow.


The financial data of Uniswap, SushiSwap and Curve show some key differences.

Source: cryptofees.info, CoinGecko, OKEx

First, in terms of price, CRV has the lowest market value to FDV ratio and the worst performance. Its current price of US$0.54 has fallen 99% from the highest of US$54, and the price has not risen much from the bottom.

Among the three DEXs, Curve has the lowest market capitalization to annual fee ratio of 6.26, but the FDV to annual fee ratio is the highest, at 237. Given that its currently locked total value is approximately 53% of Uniswap and its 7-day average fee is 19% of Uniswap, we can infer that market participants are worried about its huge token issuance. We can also see the steep curve of token supply growth. Therefore, the potential daily selling pressure pushes its token price to 16% of UNI.


CRV’s inflation curve is dramatic. Source: gov.curve.fi

Refer to the disadvantages of FDV

In the cryptocurrency field, many people are afraid of an increase in the supply of tokens. Or more accurately, they are worried about radical inflation. In addition, the possibility of major changes in the fundamentals of the project in a short period of time is very low, and the market responds to the ongoing new token issuance by continuously lowering prices.

CRV is a good example. This has caused a strange phenomenon that the society regards Curve as one of the most stable liquid mining platforms, but everyone tries to stay away from buying CRV tokens in the secondary market. With the sharp decline in prices and the intensification of inflation, the market value of Curve has not changed much since mid-September, and even declined.


CRV’s market value has been declining for most of September. Source: CoinGecko

For long-term investors, FDV denomination may be a good measure, because it allows them to better judge whether the value of a project is extremely deviated from the standard. For example, the FDV of CRV climbed to 160 billion US dollars on the day of listing, which is about 65% of BTC. This makes it easy for investors to notice that the price of CRV is overvalued. In addition, it also helps investors avoid valuation traps caused by the low number of initial tokens.

One disadvantage of referring to FDV is that it can misleadingly increase the total value of the project. For example, suppose a project currently has 1 million outstanding tokens. This afternoon, it will announce the issuance of another 10 million tokens in the next three years. Does this mean that the “market value” of the project will increase by 11 times this afternoon? Since the project director can make recommendations to change the supply curve at any time, the current FDV may become irrelevant.

The discussion of valuation methods is ultimately about whether a token is worth buying. Will reducing FDV by reducing inflation lead to an increase in token prices? Sushiswap gave us a good example.

The left circle in the table below coincides with Uniswap’s launch of the UNI token, which caused the TVL of competitor SushiSwap to drop rapidly. The circle on the right coincides with SushiSwap’s decision to rigidly limit its supply to 250 million tokens, which led miners to opt out because they believe that there is too little incentive to continue mining at SUSHI. This means that when rewards are meaningfully reduced, miners will flock to the next project.


After the two announcements, the total value of Sushiswap plummeted. Source: DeFiPulse

In liquid mining, sustainability is the key, because the mining time is not short. For example, Uniswap rewards are divided into 4 years. Reducing the total supply of tokens may increase the price, but it will not change the value of the project. At the same time, this will not make assets suddenly become scarcer.

When comparing these three DEXs, SushiSwap has the best financial status, with the lowest FDV to annual fee ratio of 18.30 and the highest market value ratio of 76.93% because it suddenly reduced the token supply. However, market participants do not agree with its approach, which is reflected in its price. To make matters worse, its price rebounded only 10.26% from the historical low.

Another example is that on September 20, CREAM burned 67.5% of its token supply. The token price should have risen by a factor of three-if the FDV remained unchanged-but the increase was less than 50%. Similarly, for a liquid mining project that takes several years to end, scarcity at the beginning is not a major factor. Therefore, the decrease in liquidity mining output will not significantly affect the price.


The destruction of the supply of CREAM tokens ultimately does not help prevent a general decline in prices. Source: CoinGecko

Cheap FDV itself does not provide symbolic price support

All in all, the CRV case shows us how aggressive inflation rates prevent investors from buying and holding newly issued tokens. On the other hand, the example of SUSHI shows us that although the substantial reduction in supply makes FDV look cheaper, it has little support for prices.

Liquidity mining rewards or inflationary supply play a huge role in acquiring users. It is crucial to be able to attract users to a project and allow the basic value to grow faster than the supply of tokens is diluted.