How fully diluted market cap matters in crypto.

A thread for (retail) investors.
1/ At the negotiation table, investors that tend to be longer term focused often ask about fully diluted valuations (s/o @santiagoroel) vs. investors who are not.

This is because founders can count on them to stick around long enough for inflation to matter.
2/ Inflation impacts a project& #39;s valuation significantly. As an exaggerated example, look at $CRV 12 hrs ago.

At $2M market cap, you think @CurveFinance is undervalued.

You& #39;re right - $2M prices each dollar of value in Curve at a 100x discount to @MakerDAO.
3/ So you& #39;ve found the next gem! You& #39;re a real big boi investor now https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤩" title="Vom Star geblendet" aria-label="Emoji: Vom Star geblendet">

Anons on Twitter are telling you to ignore the weird "fully diluted" number, which claims $CRV is valued at almost half of $BTC.

"That& #39;s stupid lmao," you said.

You market buy $CRV https://twitter.com/mrjasonchoi/status/1294107229944082432?s=20">https://twitter.com/mrjasonch...
5/ You go on the feed of the anon who shilled this shit to you.

They& #39;ve already exited their bags hours ago.

And turns out, all of them farmed the coins and acquired $CRV at near 0 principal. You were their exit liquidity.
6/ This is an exaggerated example since $CRV books are thin inflation is high, full dilution takes 300 years, no real price discovery bla bla bla bla...

But stretch this out on a longer horizon (months, years) - you begin to see how inflation impacts your crypto investments.
7/ There are a few ways people think about the value of a crypto network today. The most relevant ones are:

- Circulating cap = price of token * tokens that have been minted and are not locked up

- Fully diluted cap = price of token * all tokens that will ever be released
8/ Circulating cap is what most retails follow since it& #39;s what& #39;s most commonly cited on @CoinMarketCap, and it allows retails to justify higher valuations vs. fully diluted cap in a bull market.

But circ cap is dependent on inflation, vesting etc...which vary across networks.
9/ So maybe fully diluted cap is a more objective way to *compare* token value.

But what about tokens with perpetual inflation?

Does it mean they& #39;re worth infinite!?

Or projects with long inflation schedules?

Why should I care what it& #39;s worth in 2300!?
10/ This is where "fully diluted" needs some nuance.

As a solution to allow for investors to compare tokens on a more apples:apples basis, @MessariCrypto has "Y2050 mcap" - which projects supply out 30 years to Y2050 for every token.

This is an ok workaround.
11/ What about staking?

How can the yield be valued?

The staking "yield" you receive on PoS networks is simply to counteract network inflation.

The real yield is [staking rewards] - [inflation tax], which should be >0 assuming <100% of network is staked.
12/ For simplicity sake, let& #39;s say staking fully counteracts the effects of network inflation.

That means your % claim to a network will always remain the same.

The only thing you have to think about then is how much the network is worth at the end of your investment horizon.
13/ For investors who intend to hold something for 10 years (long term VCs), having a rough idea about where a token should be worth in 10 years is probably most relevant.

In this case, perhaps a 10-year diluted market cap makes the most sense.
14/ On the other end, if you have a shorter term orientation/ want to trade retail mania, circulating market cap may make the most sense.

For something like $CRV, even weeks to months make sense. But dilution should *never* be ignored.
15/ tl;dr - investors have different horizons.

a16z may be willing to buy a network at $1B because in 10 years it may be worth $100B.

Short term vol is not a concern to them because they have the clout and track record to attract long term, patient, locked up capital.
16/ A hedge fund with monthly mark favor Y+1, +2, +5... valuations, and hence may prefer a lower price, lower quality project.

Lastly, beware shillers who tell you to ignore inflation/ dilution. You may still make money in a bull market buying their bags - until you don& #39;t.
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