Market capitalization is the latest aggregated price multiplied by the number of units considered to be in circulation. It is useful for putting assets on a comparable scale and for ranking them. It is not the amount of money that entered the asset, not the amount that could be realized on exit, and not a valuation in the sense the word carries for a company.
Both inputs are contestable
The price input is an aggregate whose construction varies between providers, as the earlier lesson on reading prices set out. The supply input is more contestable still, because circulating supply is a judgment rather than a measurement. It normally aims to exclude units locked by contract, held by a foundation and unavailable, or provably burned, and to include everything else.
The awkward cases are decided by rule rather than by observation: tokens held by an issuing team but not contractually locked, units bridged to other chains where they exist twice in raw data, and coins in addresses untouched since the earliest years and widely presumed lost. Total supply counts everything created and not burned, and maximum supply is the protocol ceiling where one exists, which for many assets it does not. The gap between circulating and total is where providers disagree most, and where two sites can differ by a large percentage while each states its rule honestly.
Four things the figure is not
It is not money invested. Market capitalization changes whenever the marginal trade changes, regardless of that trade's size. A modest purchase that lifts the price across a thin book raises the stated capitalization of every unit outstanding, including units that have never traded at all. Cumulative net flow is an entirely different quantity, and realized capitalization, which values each unit at the price it last moved on-chain, is a closer if imperfect attempt at the aggregate cost-basis question.
It is not what the supply could be exchanged for. Exit value depends on market depth, and depth in most assets is a small fraction of capitalization. Attempting to realize a large position moves the price adversely, which is the everyday meaning of liquidity risk and the reason a paper figure and a transactable figure diverge most for exactly the assets where the paper figure looks most impressive.
It is not comparable to equity market capitalization. A company's capitalization sits inside a structure that includes debt, cash and enterprise value, and its shares represent a residual claim on audited earnings. A token's capitalization sits in no such structure: there is no balance sheet, no net debt to adjust for, and no residual claim, so the analogy imports assumptions that do not exist rather than merely simplifying them.
It is not stable with respect to supply schedules. Where issuance continues, capitalization grows mechanically at an unchanged price, and issuance net of any burn determines how fast. A rising capitalization can therefore reflect new units rather than new demand, and the two are separable only by looking at supply directly.
Fully diluted valuation, and what it assumes
Fully diluted valuation multiplies today's price by the maximum or eventual supply. It answers one narrow question: what capitalization would be if every unit existed and the price did not change. That final clause does enormous work, since new supply arriving is precisely the sort of event that affects price, and for assets whose issuance runs for decades the figure applies no discount for time.
It remains worth reading, because the ratio between the two figures shows how much of the supply story lies ahead. Fully diluted valuation against market capitalization near one means most units are already out; a large multiple means most are not, and the unlock schedule becomes the document that matters. An unlock is a scheduled fact rather than a forecast, and where insider allocations are large, the identity and lock terms of the recipients are part of the picture.
| Figure | What it multiplies | Question it answers | Main distortion |
|---|---|---|---|
| Market capitalization | Price by circulating supply | Scale at today's marginal price | Circulating supply is a judgment; a thin float inflates it |
| Fully diluted valuation | Price by eventual supply | Scale if every unit existed now | Assumes an unchanged price and ignores time entirely |
| Realized capitalization | Each unit by its last on-chain move | Aggregate on-chain cost basis | Transfers internal to exchanges are invisible to it |
| Total value locked | Deposited assets by their prices | Assets a protocol currently holds | Double counting through wrappers; falls when prices fall |
Float, concentration and comparability
Two assets with identical capitalizations can have entirely different ownership structures. Where a large share of supply sits with founders, a foundation or a handful of early participants, the tradable float is small, and a small float raises capitalization for a given amount of purchasing pressure while making the figure less informative about what the market as a whole believes. Concentration is partly observable on-chain, which is one advantage this field has over private markets, though addresses are not identities and clustering is inference rather than fact.
Comparability across categories fails for a different reason. A stablecoin's capitalization is close to its outstanding supply because the price is anchored by redemption, so ranking it beside a native asset on the same column compares a balance-sheet quantity with an opinion. Sorting a single table by capitalization across every category produces an ordering that means several different things at once.
Ratios built on capitalization, and their limits
Market cap to fees looks like an earnings multiple and is not one. Fees are gross payments by users rather than profit; no accrual accounting stands behind them; no entity is obliged to collect or distribute them; and the split between block producers and holders can change through governance or a client upgrade. NVT, which relates capitalization to transferred value on-chain, is sensitive to how transferred value is defined and to internal movements that are not economic activity in any ordinary sense. Market cap to value locked compares an opinion-driven numerator with a price-driven denominator, so it moves sharply without any change in usage.
Dominance, the share of aggregate capitalization held by one asset, inherits every problem above and adds one of its own: the denominator changes as new assets are listed and old ones are dropped, so a dominance series is partly a statement about coverage rather than about the asset.
The supply pages carry issuance and unlock timetables, valuation sets these ratios out with both inputs shown, and compare places two assets side by side with identical definitions applied to each. The final lesson in this track collects the vocabulary used across all of those pages.