How important is FDV in cryptocurrency? Understanding this controversial metric through data

In this bull market, you’ve definitely heard the term “FDV.” But honestly, many people still have only a superficial understanding of it. FDV is a double-edged sword—some use it to evaluate a project’s future potential, while others see it as a synonym for false promises. Today, let’s delve into the truth behind this controversial metric.

What is FDV? A straightforward explanation

FDV stands for Fully Diluted Valuation, which in simple terms means: If all tokens of a project are released into the market, what would be its total market cap.

The calculation is straightforward: FDV = Current Token Price × Total Supply

This looks similar to the market cap formula, but the key difference is: market cap only considers tokens currently in circulation, while FDV accounts for all existing and future tokens that could be created.

For example, Bitcoin is currently priced at $96.31K, with a total supply of 21 million coins, so BTC’s FDV is $1923.94B. This is relatively realistic because BTC’s token supply is mostly fixed. But many new projects are different—large amounts of tokens are still locked, and the timing and speed of release are full of uncertainties.

FDV vs. Market Cap: Looks similar but worlds apart

Many newcomers confuse these two concepts, but they are vastly different:

Market Cap focuses on the present: It only considers the tokens already in circulation. If a project has 5 billion tokens circulating out of a total supply of 10 billion, the market cap is calculated based on the former.

FDV focuses on the future: It includes all tokens that could exist—locked tokens waiting to be released, tokens planned for future mining or minting.

Why is this difference important? Because it directly relates to a key question: What happens when token unlocks happen?

The terrifying moments of token unlocks: Lessons from the ARB bloodbath

In March 2024, Arbitrum experienced an event that caused many holders to suffer losses.

At that time, ARB’s situation was like this: the circulating supply was relatively low, and FDV looked high. But on March 16, a one-time unlock of 1.1 billion ARB tokens occurred—that increased the circulating supply by 76%, nearly doubling it.

Imagine the consequences: suddenly, the token supply in the market surged, while demand didn’t increase accordingly. Investors panicked and started selling to lock in gains before more people did. This triggered a chain reaction—more panic selling, and prices kept falling.

From the charts, ARB was already weakening before the unlock, dropping from the $1.80–$2.00 range. When the unlock actually happened, ARB’s price even fell over 50%. Some might say that the uncertain outlook of ETH also dragged ARB down, but there’s no denying that the large-scale unlock intensified the panic selling.

The RSI indicator instantly entered oversold territory, and technical analysis even showed signs of a death cross—both signals of spreading panic.

Are high FDV projects really reliable? The data speaks

When you see a project with an extremely high FDV but a small circulating supply, be cautious. Data shows that such projects often share a common trait: Token unlocks tend to be followed by price declines.

Why does this happen? There are two main reasons:

1. Anticipated selling Traders are not fools—they can predict when tokens will be unlocked. Once they know a large amount of tokens will be released, professional traders tend to withdraw early to avoid the impending selling pressure. Retail investors see big players selling and naturally follow suit.

2. Panic chain reaction Once selling starts, it’s like dominoes falling. Initial sell-offs depress the price, which then causes more people to fear losses and sell. This self-fulfilling prophecy often has a more severe impact than the token release itself.

The positive side of FDV: Don’t demonize it

But that doesn’t mean FDV is useless. For some investors, FDV does have reference value:

1. Understanding future potential If you’re a long-term holder bullish on a project, FDV helps you understand: if the project succeeds, what could its market cap reach? It helps you envision scenarios 10 or 20 years down the line.

2. Comparing projects When comparing two different projects, just looking at circulating market cap might be unfair—because their release schedules differ. Using FDV allows you to compare their relative scale on a common baseline.

The obvious flaws of FDV: Why some call it a “joke”

Frankly, FDV has its drawbacks:

1. Based on too many assumptions FDV assumes all planned tokens will eventually be released. But project teams can change plans—for example, by burning tokens to reduce total supply. Such assumptions are sometimes unfounded.

2. Ignores the most critical factors FDV only considers token quantity, completely ignoring the project’s actual utility. A coin with a high FDV is worthless if it lacks real use cases, user adoption, or a strong community. Many projects are like this—good stories but little real substance.

3. Easily exploited for hype New projects often set a very low initial price and combine it with a large total supply, making FDV look huge—“Wow, unlimited potential.” But this is often just marketing, with traps lurking behind.

Repeating history: The stories of Filecoin, ICP, and others

Remember Filecoin (FIL)? Or Internet Computer (ICP)? Or Serum (SRM)?

These projects gained popularity due to high FDV, attracting a lot of attention and VC funding. Their early gains were impressive. But later, when people realized their actual utility was limited, market sentiment reversed, and prices plummeted back to lows.

What you see now with hot topics like DePIN and RWA is often a replay of the same pattern. Elaborate stories, grand potential, but limited actual delivery.

How to tell if a project is a “high FDV trap” or a “true potential stock”?

Focus on these dimensions:

1. Token release schedule Does the project have a detailed, transparent release plan? Will tokens be released gradually or all at once? The more transparent and gradual, the safer.

2. Actual utility Aside from FDV, does the project truly solve real problems? Are there real users? Is TVL (Total Value Locked) growing? For Layer 2 solutions like Arbitrum, despite unlock shocks, solid ecosystems and real applications help them survive and recover.

3. Market environment In a bull market, everything tends to rise, and high FDV projects can be hyped up. But when the market cools, these projects are often the first to be hit.

4. Team and investors Are VC backers genuinely optimistic? Or just looking for quick profits? Does the project have real technical expertise? These factors reflect the project’s true quality.

Final words: FDV is not the enemy, just a mirror

Dismissing FDV as a joke is wrong; treating it as gospel is also wrong. It’s just a data point—like the PE ratio—useful but not the sole basis for investment decisions.

The real risk isn’t how high the FDV is itself, but how deep your understanding of the project is. Before jumping into any high-FDV project, take time to research: token unlock schedules, economic models, and market demand.

Don’t be fooled by shiny FDV numbers—what matters is whether the project can survive in real-world applications. That’s the key to its long-term value.