When you start to look a cryptocurrency for invest some stats can be confusing. One of them is the related with the token valuations. Today I plan explain the different types of token valuations and give you a clear way to understand them. First, you must understand that every website or plataform have their own metrics so they can offer you one or another measure. Ideally you will have all. Let’s break it down.
Fully Diluted Valuation (FDV) can inflates valuations because count the supply that won’t enter the market anytime soon. In some cases this can mislead you. That happen because tokens with low market cap or float can have a massive FDV because a huge chunk of supply is locked or vested in: foundation & treasury reserves, ecosystem allocations, team/validator stakes, tokens burned or permanently locked (yes. FDV count them), etc. In other words these tokens exist but they’re not will be avaible the market soon (or ever). This means that FDV overstates value.
In the counterpart of FDV is Market Cap. This metric understates the token value because it only counts circulating tokens. It is more insightfull than FDV, but neither tells how much of the supply is truly economically relevant in the present.
Then is when it comes the Outstanding Token Value (OTV).This is a metric that some index websites are introduce that gives you a more solid view of a cryptocurrency real economic value. This data reflects a valuation based on tokens actually accessible or expected to circulate in the near future. This mean that OTV excludes the tokens permanently locked, burned, reserves with no plan to circulate, long-term foundation/treasury allocations, etc. OTV fits because helps you understand the valuation based on supply that actually matters.
Each metric fit a purpose, we can pick one according our interest but the better way to investigate a cryptocurrency is combine them all to get a objective and solid analysis.
