In traditional markets, it is commonly accepted that the price of a stock is a proxy for the value of the company. Therefore, it makes sense that positive news about performance of the company, like a good earnings call or the launch of a new product, can send the price up.
In crypto, the token price is not always correlated with the value of the project. Even before the project has its token generation event (TGE), projections are made about the token price as well as the Fully Diluted Valuation (FDV), while pre-listing peer-to-peer markets such as Whales.Market facilitate organic pre-launch price discovery. These numbers affect fundraising, market-making, and a number of post-launch considerations.
Fully Diluted Valuation (FDV) is the current price of a token or coin multiplied by the total supply, so it is variable and looks to the future. Other the hand, the token market capitalization (Market Cap) is calculated by multiplying the current price by the circulating supply, so it is a better present gauge of the value of a token. This is often highly controlled by tokenomics as well. A high FDV relative to total market cap is usually concerning, as it shows that the coin will be subject to significant inflation.
A project might appear undervalued when assessed solely on its current market capitalization. However, if it has a high FDV, the eventual release of new tokens could dilute the token’s price, leading to potential losses for investors who did not account for this future supply. Tokens with smaller float tend to have high volatility, while larger float leads to lower volatility. Therefore, it is easier for traders and investors enter and exit positions for projects with larger float.
It is only possible to gauge FDV once the token is live, but it is crucial to have a estimated FDV in mind while preparing for TGE — If the project is choosing a market-maker with a Loan-Call Options model, they will use this projected FDV to price the options. While we all want to have the largest FDV possible, having an accurate FDV means that terms can be negotiated favorably and accurately. Over-estimating FDV might mean misalignment with market-maker, leading to underperformance and other issues.
Based on Last Valuation
Currently, the most common way to determine potential FDV is based on the company’s valuation in the last round. This is typically a series A or B, and it is very rare for projects to raise again after TGE. Depending on the multiplier, and when the project was raised, the valuation may be higher or lower.
Based on Market Comps
Typically private rounds are overvalued, so one must be cautious when determining the projected FDV solely on previous round valuation. It would be more robust to also consider comparable projects, in a similar vertical, with similar traction metrics, launching at a similar point in the cycle.
The Relationship between FDV and Fees Generated
First, we evaluated CoinMarketCap’s Categories to determine a number of verticals that generates fees, whether directly (such as lending) or indirectly (such as L1’s and L2’s). We chose the ones that are widely regarded as substantial projects, and ended up with the following:
| Category | Tokens | Number | Average FDV | Median FDV / Fees |
|---|---|---|---|---|
| DEX | UNI, RAY, SUSHI, CAKE, QUICK, 1INCH, CRV, BAL, SNX, GRAIL, JOE, STON | 12 | $1,071,140,674.54 | 1.025 |
| Perp DEX | JUP, PERP, VRTX, DYDX, GMX, WOO, | 7 | $1,752,013,325.47 | 10.825 |
| Lending | AAVE, XVS, KMNO, COMP, RDNT, JST, SLND, MKR | 8 | $714,305,186.02 | 2.605 |
| Crosschain / Bridges | AXL, STG, DBR, RUNE | 4 | $960,445,538.96 | 27.949 |
Table 1: Unique Stat (Data collected on 31 October)
After collecting data on the fees from DefiLlama, Dune Analytics and projects such as Axelar, we plotted the fees against the FDV, searching for some correlation between the FDV and the commercial value of their activities. In most of these categories, there is only a general positive correlation between the fees generated and their FDV. We also wanted to determine if the variation in FDV between verticals was significant enough to use the classification as a range to determine FDV.
- In relation to the other projects in their categorization, the projects above the midline are overvalued in regards to their FDV, while the one below are undervalued by measurement of their FDV.
- There is not a particularly strong correlation between the FDV and the realized value of the project.
For the analysis of FDV / Fees across multiple verticals
| Category | Tokens | Number | Average FDV | Median FDV / TVL |
|---|---|---|---|---|
| L1s | SOL, XLM, TON, SUI, SEI, MNT, FTM, RON, ZETA, ADA, AVAX, NEAR, APT, FIL, HBAR, INJ, CORE, EGLD, FLR, XTZ, ASTR, GNO, ALGO | 23 | $9,983,085,981.44 | 20.364 |
| L2s | ARB, OP, MANTA, STRK, STX, BLAST, IMX, METIS, TAIKO, BOBA, LRC, MERL | 13 | $2,300,212,752.04 | 10.972 |
| Liquid Staking | LDO, RPL, MNDE, JTO, ANKR, ETHFI | 6 | $948,617,527.191 | 0.175 |
| Restaking | EIGEN, REZ, ETHFI, PENDLE | 4 | $2,049,372,378.58 | 0.364 |
Table 2: Unique Stat (Collected on 31 Oct)
For the analysis of FDV / TVL across multiple verticals
- DEX: FDV / Fees (12 projects)
- Perp Dex: FDV / Fees ( 7 projects)
- L1s: FDV / TVL (23 projects)
- L2s: FDV / TVL (13 projects)
- Lending: FDV / Fees (8 projects)
- Liquid Staking: FDV / TVL (6 projects)
- Restaking: FDV / TVL (4 projects)
- Crosschain / Bridges: FDV / Fees (4 projects)
- Meme: FDV / Followers (8 projects)
For memecoins, since they don’t generate fees, we plotted the FDV against the number of followers, which is used as a proxy for their community.
Conclusion
In evaluating Fully Diluted Valuation (FDV) using value creation metrics like fees and TVL, our analysis across verticals reveals general correlations between FDV and performance metrics. However, the variability within each category suggests investors should adopt a more nuanced approach – such as accounting for technological innovation, community engagement, tokenomics, and potential room for growth.
Moreover, relying solely on past valuations, particularly those from private funding rounds, often fails to reflect market realities. Instead, comparing projects with similar verticals, traction, and market cycles provides a more reliable basis for determining FDV. Metrics like FDV-to-fees or FDV-to-TVL ratios further contextualize a project’s valuation, providing clarity on whether it is overvalued or undervalued relative to its peers.
As the market evolves, FDV should be viewed as a tool for contextual forecasting rather than a definitive measure of value. Combining speculative valuation with real metrics ensures a more grounded understanding of a project’s potential, enabling investors and stakeholders to make informed decisions rooted in both growth potential and actual economic activity.
