What Token Market Cap Means and How It Can Mislead
A token's market cap is its price multiplied by the number of tokens counted as circulating supply. It is meant to show how large a token is, but on new tokens it can be badly misleading: a tiny trade can set a high price, and a high price multiplied by a huge supply produces an impressive number that nobody could actually sell into. What does a token's market cap actually measure? Market cap is a calculation, not a pool of money. The formula is simple: take the latest price of one token and multiply it by the supply that is treated as circulating. If the price is a fraction of a cent and the supply is very large, the result can still look like a serious figure. Three things matter in that formula. The first is the price, which comes from the most recent trade on a decentralized exchange or from an average across venues. The second is the supply figure, which depends on who is reporting it and how they define circulating tokens. The third is the assumption that every token coul...