Token Dilution Risks

Token dilution risks refer to the potential for an investor's percentage ownership of a network to decrease due to the issuance of new tokens. This happens when the rate of inflation exceeds the rate at which an investor acquires or stakes tokens.

Dilution can lead to a reduction in the relative value of holdings if the market cap does not grow proportionally to the supply increase. Investors must account for dilution when calculating their expected real returns from staking.

Understanding the emission schedule and the total circulating supply is necessary to assess these risks accurately. In many cases, staking rewards are designed specifically to offset this dilution, but if the staking participation rate is low, the impact can be significant.

It is a key factor in long-term financial planning for token holders.