Circulating Supply Dilution

Circulating supply dilution occurs when the total number of tokens in active circulation increases, typically through inflationary emissions, token unlocks, or vesting schedules. This increase in supply can lead to downward pressure on the token price if the demand for the asset does not increase at a corresponding rate.

For investors, understanding the dilution schedule is critical, as it reveals when significant amounts of new supply will enter the market, potentially creating sell pressure. Many projects utilize long-term vesting schedules for team members and early investors to mitigate the impact of sudden supply shocks.

Analyzing the dilution profile allows market participants to better assess the real-world value of a token, as it distinguishes between current market capitalization and fully diluted valuation.