Market Capitalization Dilution

Market Capitalization Dilution occurs when the total value of a project's tokens is spread across a larger number of circulating units. This often happens when new tokens are minted for rewards, team allocations, or venture capital unlocks.

If the project's total network value does not increase proportionally to the increase in supply, the price per token will decline. This is a common concern for investors in early-stage crypto projects with high inflation rates.

It is important to differentiate between market cap growth driven by organic demand and growth driven by supply expansion. Effective analysis requires tracking the unlock schedule and understanding how the circulating supply will change over the coming years.