Reading tokenomics and unlock schedules
More tokens die from dilution than from scams. This is the arithmetic that tells you in advance.
Circulating supply versus total supply
Circulating is what exists and trades now. Total is what will eventually exist. If circulating is 10 percent of total, then nine times the current supply is still to arrive, and it has to be sold to someone.
Market cap versus fully diluted valuation
Market cap is price times circulating supply. FDV is price times total supply. A token at a 50 million market cap and a 5 billion FDV is not cheap. It is telling you that at today's price the eventual supply is worth 5 billion, and everyone holding locked tokens is looking at that number too.
Vesting and cliffs
Insiders and investors usually receive tokens on a schedule: a cliff where nothing unlocks, then gradual release. A large cliff is a date on which a great deal of supply becomes sellable at once, and the market usually anticipates it.
Check the unlock schedule before buying. Buying two weeks before a large cliff is a preventable mistake.
Who holds it
- What share went to insiders and investors versus the public?
- At what price did they get it? Someone in at a hundredth of the current price is not a patient holder.
- Is there a treasury, and can it be spent without a vote?
- Does the protocol earn anything real, or is the yield simply new issuance?
Emissions are dilution with a friendly name
If a protocol pays 40 percent yield in its own newly issued token, that yield is dilution. Everyone farming it is selling it. The price falls, so the yield percentage rises, which attracts more farmers who also sell. This is the standard life cycle of a farm and it ends the same way most times.
BEFORE YOU MOVE ON
Common questions
What is fully diluted valuation?
Price multiplied by the total eventual supply rather than what circulates today. A large gap between market cap and FDV means substantial future supply is still to arrive.
Do token unlocks always crash the price?
Not always, and they create persistent selling pressure and the market usually anticipates them. Buying shortly before a large cliff is an avoidable mistake.
Risk warning: crypto is highly volatile and largely unregulated. You can lose everything you put in. Nothing here is financial, investment or tax advice.