Analyst Note: Market Cap and FDV

Key Insights

• Market caps are important while making investment decisions. They are the “odds” at which an investment decision is valued. A high market cap also fundamentally improves the business through reflexivity.
• In crypto, there is no clear definition of market caps. Currently used fully diluted valuation (FDV) and circulating market cap have limitations and do not fully capture all the nuances of market cap.
• This report proposes that the true market cap of a protocol is its fully diluted valuation, less the value of supply held in its treasury.

Market capitalization is a key fundamental metric for investments but is often not well understood. It is even less clear in crypto, with various definitions further confounding the issue. However, before we get into market caps in crypto, let us first understand what it means in traditional finance and why it is important.

Market Cap in Traditional Finance

As per Investopedia, a company's market cap is the dollar value of its outstanding shares of stock. It is calculated by multiplying the market price of a share with the total number of outstanding shares. In other words, the market cap is the price at which the company can be fully bought.