New #DeFi and Layer 2 projects can be exciting, but before you jump in, there are a few things to watch out for. Let's talk about FDV (Fully Diluted Valuation) and Liquidity, two factors that can make a project risky. ๐คง๐ฅ
Imagine a Bakery with Limited Donuts: ๐ฉ
FDV is like the bakery saying they could make $100 worth of donuts if they used all their ingredients (all their tokens were released).
Market Cap is the actual number of donuts they have for sale right now (circulating supply).
Liquidity is how easily you can buy or sell those donuts (how many people are buying and selling).
The Problem: ๐ค๐
Some new projects have a HUGE FDV compared to their LOW market cap. This means they're saying they could make a ton of donuts ๐ฉ, but they barely have any for sale right now!
Like a Bakery with Only 1 Donut: ๐ There might be potential for more donuts in the future, but right now, it's hard to know if that 1 donut is worth a lot because there aren't many others to compare it to. This can make investors nervous. ๐คท
The $STRK Example:
#STRK still has a high FDV of $6.25 billion, but their market cap is now around $913 million (better than before, but still a big gap).
They have more tokens circulating now (over 1.46 billion), but that's still a small portion of the total supply. ๐
Why Monitor FDV and Liquidity?
High FDV/Low Liquidity: This can make a project seem overvalued. If all the tokens were released๐, the price could drop dramatically (think $AEVO case recently)๐ฅถ
Low Liquidity: It can be difficult to buy or sell the token because there aren't many available, making it risky for investors. ๐ฅ
The Takeaway:
Don't just get caught up in the hype of a new project! Look at both FDV and Liquidity before you invest. A project with a high FDV and low liquidity might have potential, but there's a higher chance the price could drop in the future.
Remember DYOR and consider the project team, technology, and tokenomics before making any investment decisions! ๐๐ช #altcoins #AEVO
