Crypto Dilution

A closer look at dilution rates of the top 10 cryptocurrencies by market cap

While it’s easy to get caught up in wave-top metrics like price or marketcap in the flash flood that is the crypto market, there are still many variables to consider that are sometimes unique to crypto, and sometimes borrow from more established markets. One such variable is dilution, which is no different than the type of dilution that can occur in a startup for example, but the methods of which it occurs is different in that it is a result of price and supply schedules. While price is determined by the markets, the supply schedules are fixed into the currency itself. As evidenced below, Bitcoin for example, can expect a dilution of approximately 1.2X by 2050 if the price and mining power remains constant. Though both can be expected to change, it is worth noting how supply will change and its effect on dilution.

Dilution Chart

While the supply schedule for Bitcoin is a result of both the generation algorithm and mining power, there are other coins like Stellar (XLM) and Ripple (XRP) that are controlled strictly by their fixed nominal inflation mechanisms. Stellar, for example, has a current circulating supply (as of June 7, 2018) of ~18.6 billion Lumens but a 2050 total supply of ~142 billion according to OnChainFX, creating a projected dilution of 7.7X. While this may seem like a lot, the responsibilities ultimately lie in the hands of the Stellar Development Foundation and it is in their best interest to distribute lumens at a rate that is sustainable for both the utility and value of the their currency.

Disclaimer: I am not a financial advisor, this is not financial advice. These are merely my observations and insights about a market trend.