Meme Insider
Hey there, crypto enthusiasts! If you’ve been keeping an eye on the latest trends in the blockchain world, you’ve probably noticed that the way we calculate a cryptocurrency’s market cap can sometimes feel a bit… off. That’s where Jeff Dorman from Arca steps in with an exciting proposal in his recent thread on X (starting here). He’s calling for a shake-up in how we value tokens, introducing the "Adjusted Market Cap" to bring more clarity and accuracy to the crypto market. Let’s dive into what this means and why it could be a game-changer!
Why Current Market Cap Formulas Fall Short
If you’ve ever checked sites like CoinGecko or CoinMarketCap, you might have noticed some wild swings in a token’s valuation. This happens because the traditional methods—focusing on either the "float" (tokens actively trading) or the "Fully Diluted Valuation" (FDV, based on max supply)—can be misleading. Here’s the breakdown:
- Float Underestimates Value: It only counts tokens that are currently trading, ignoring locked tokens held by venture capitalists (VCs) or teams. This can make a project look smaller than it really is.
- FDV Overestimates Value: This method assumes all possible tokens will be issued, which can inflate the valuation by billions, even if those tokens aren’t in circulation yet.
As Jeff points out, this inconsistency creates confusion for investors. To illustrate, he shares an image comparing traditional finance’s "outstanding shares" approach (issued minus treasury shares) with crypto’s current metrics. Check it out:
Enter the Adjusted Market Cap
So, what’s Arca’s solution? The "Adjusted Market Cap" aims to strike a balance. It includes tokens that are issued and outstanding (even if locked) while excluding unallocated or unminted tokens. Think of it as a middle ground between float and FDV, with a simple rule: Float ≤ Adjusted Market Cap ≤ FDV. This approach aligns more closely with how traditional finance calculates market caps, making it easier for investors to compare crypto and stocks.
Jeff provides a handy table to clarify which tokens should be included:
- Tokens like community rewards or ecosystem allocations? Included if distributed and unlocked.
- Buybacks or treasury-held tokens? Excluded unless they’re back in circulation.
Real-World Examples
To make this concrete, Jeff walks us through some examples:
Bitcoin (BTC): With transparent issuance, the float, adjusted market cap, and FDV are pretty similar, so there’s no major issue here.
Ethena (ENA): The float ignores locked investor tokens, while FDV assumes all unissued tokens hit the market. The adjusted market cap offers a more balanced view.
Hyperliquid (HYPE): Huge gaps between float and FDV due to unallocated rewards are bridged by the adjusted market cap.
TIA & SUI: These projects show massive discrepancies, but the adjusted market cap helps clarify their true value with proper disclosures.
The Path Forward
Jeff isn’t just throwing ideas out there—he’s calling for action. He suggests that exchanges, token issuers, and data providers (shoutout to CoinGecko, CoinMarketCap, and Messari) need to step up with transparent data on issued, outstanding, locked, and treasury-held tokens. Investors, too, should demand this clarity. The goal? A standardized framework that could mirror the maturity of traditional finance (TradFi).
You can dive deeper into Arca’s full guide here, where they lay out the details. It’s a collaborative effort, with support from folks like Katie Talati and the Arca team, pushing for a more trustworthy crypto ecosystem.
Why This Matters for Meme Tokens
At Meme Insider, we’re all about keeping you in the loop on meme tokens and blockchain trends. While this thread focuses on broader crypto valuations, the Adjusted Market Cap could have a big impact on meme coins too. These tokens often have wild supply dynamics—think locked rewards or unissued tokens—that can skew their perceived value. A clearer metric could help meme token enthusiasts make smarter investments, especially as the market grows.
So, what do you think? Is the Adjusted Market Cap the future of crypto valuation? Drop your thoughts in the comments, and stay tuned to Meme Insider for more blockchain insights!
