Token Unlock: Have we misunderstood what FDV is?

During recent market acceleration phases, the concept of FDV is what has become a hot topic of debate among traders. Not because FDV is too complicated, but because it hides risks that many people haven’t recognized. Especially when projects backed by (VC) investment funds keep appearing with sky-high FDV, while circulating token supply remains small.

When Token Unlock Becomes a “Debt Bomb” for Projects

Look at the story of Arbitrum (ARB). In March 2024, the circulating supply of ARB increased by 76% in a single unlock event. This means 1.11 billion ARB tokens suddenly became available for trading—almost double the amount of tokens in circulation before.

The market is not hard to predict: the price of ARB dropped over 50% after this event. Not only because of the sudden supply increase, but also due to spreading fears. Short-term traders started selling before the unlock, then a domino effect triggered panic selling in subsequent waves. RSI indicators fell into oversold territory, technical patterns worsened, and confidence quickly eroded.

Data from analysts shows: projects with high FDV combined with low supply often face downward pressure before unlock schedules. This is not coincidence—it’s market law.

So, What Is FDV? And Why Is It Confusing?

FDV (Fully Diluted Valuation) is calculated with a simple formula:

FDV = Current Price × Total Max Supply

For example, Bitcoin currently priced at $95.79K with a total supply of 21 million results in an FDV of $1.913 billion USD. But this is a potential figure, not the current value.

The key difference: Market capitalization only considers tokens in circulation. FDV includes all tokens—those currently locked, those to be issued later, and even tokens that can be mined or minted in the future.

This is the root of confusion. New traders often see a high FDV and think the project has enormous potential. They don’t realize that the number can be far from reality once a series of locked tokens are released.

When Scarcity Is Just an Illusion

Low circulating supply combined with high FDV creates a dangerous illusion: scarcity. If only 100 million tokens are in circulation but the project’s FDV equals Ethereum, traders might think: “Oh, each token is very rare, the price will soar.”

Not necessarily. When 500 million tokens are locked and will be unlocked in the next 6 months, the market will be flooded with tokens. That scarcity illusion will vanish. The price will no longer be supported by limited supply, and it will decrease to reflect the new supply.

Projects like Filecoin (FIL, FDV $3.06B), and Internet Computer (ICP, FDV $2.35B), experienced exactly this situation in previous market cycles. Initially, they were “stars” loved by many. But when unlock schedules ended and reality hit, prices plummeted.

What Do Data Say About High-FDV Projects?

When examining token unlock scales, a clear pattern emerges:

1. Pre-sell predictions: Professional traders don’t wait around. They sell before unlocks happen, predicting that demand cannot keep up with increasing supply.

2. Domino effect: Once those holding “sensitive strings” start selling, other traders see the price drop and panic. This creates a rapid downward spiral.

3. Fundamentals failure: Many high-FDV projects lack real use cases or a solid community to support the price. When initial excitement fades, there’s nothing to keep it afloat.

It must be acknowledged that not all such projects are destined for failure. Arbitrum, for example, remains an important Layer-2 for Ethereum with a TVL around $1 billion. But even with strong fundamentals, those holding ARB through the unlock event suffered losses of dozens of percent.

Should You Trust FDV or Not?

Confession: FDV is not a meme, but it’s not the whole story either.

What FDV does well:

• Allows comparison between projects with different circulating supplies
• Helps visualize long-term market potential (if the project can deliver on promises)

What FDV misses:

• Does not account for actual demand and user adoption
• Ignores risks from token unlock schedules
• Assumes all tokens will eventually be issued (roadmap can change)

Lessons for Traders Today

If you’re considering a project with high FDV and low supply, ask yourself:

1. How many locked tokens will be unlocked in the next 6-12 months? If that number exceeds 50% of the current circulating supply, be cautious.

2. Does this project have real use cases? High FDV only makes sense if the project can grow and gain market acceptance.

3. What is the development roadmap? Projects with clear roadmaps and reasonable token distribution tend to be less volatile.

Serum (SRM, currently with FDV $13.13M), is a lesson: once hyped up, but ultimately forgotten after the unlocks ended and the project failed to deliver on promises.

Conclusion: FDV Is a Piece of the Puzzle, Not the Whole Picture

FDV is a tool, not a complete indicator. Use it for comparison, but not as a decision-making sole factor. Combine it with analysis of token unlock schedules, real fundamentals, and understanding market needs.

Long-term holders need patience until unlock schedules are over and prices stabilize. Short-term traders should heed warnings from high FDV—because that’s often where the hype begins to collapse.