Recently, I’ve been researching how to more accurately evaluate crypto projects and discovered that many people actually confuse a key concept — fully diluted valuation, or FDV.

Simply put, FDV is the total market cap calculated by assuming all tokens (including those not yet issued) are in circulation at the current price. It may sound a bit abstract, but understanding it is really important for investment decisions.

Let’s look at an example. Take Bitcoin. Recent data shows BTC is around $70k, with a total supply of about 19.98 million coins. Using the FDV calculation — token price times total supply — Bitcoin’s fully diluted valuation is roughly $1.4 trillion. Its market cap is also close to that number. Why? Because Bitcoin’s issuance is basically fixed, with little room for future release.

But not all projects are like that. Many new projects have only issued a small portion of tokens, with a large amount locked in staking or team reserves. This is where FDV becomes useful. It tells you the potential value of the project if all tokens were to enter circulation in the future.

I’ve also noticed that some projects that seem “cheap” actually have FDV far higher than their current market cap. What does this mean? It indicates that a large number of tokens could enter circulation in the future, diluting the value of your current holdings. So, evaluating FDV isn’t about finding bargains, but about understanding the project’s true potential and risks.

For example, take NEXO. Its current circulating market cap is about $873 million, and its fully diluted valuation is also $873 million, which suggests most tokens are already in circulation. In contrast, if a project’s FDV is three times its market cap, you should be cautious about dilution risk in the future.

But here’s a common trap — many people treat FDV as an absolute truth. In reality, FDV has several obvious limitations. First, it assumes token prices stay constant, which is impossible in practice. When a large number of new tokens enter the market, increased supply usually leads to price drops, which further impacts the validity of FDV. Second, FDV doesn’t consider the actual token release schedule. Some projects gradually release tokens over five years, others do so within one year. The timing differences can significantly change the project’s actual risk.

Moreover, FDV completely ignores real-world factors like market competition, regulatory changes, and project progress. A project with a high FDV can still crash if its technology stalls or market acceptance declines.

Therefore, my advice is that FDV is a useful reference indicator but should never be used alone. You need to consider multiple dimensions such as circulating market cap, token issuance plans, project health, and market competition. Especially when evaluating new projects, compare FDV and market cap differences, and delve into token unlock schedules to make more rational investment decisions. Don’t be fooled by superficial “undervaluation” — true value assessment is much more complex.