Dilution
Dilution is the potential loss of value or ownership share for existing token holders when additional tokens enter circulation, because the same project is then split across more tokens.
How dilution happens
Tokens can enter circulation in several ways: scheduled unlocks for the team and early investors, emissions paid as staking or liquidity rewards, treasury sales, grants, or new minting decided by governance. Each adds supply without, by itself, adding value to the project.
If demand does not grow at least as fast as supply, the price per token tends to come under pressure. Even if the price holds, your share of the total supply shrinks, which matters for governance votes and for any claim on protocol revenue.
A worked example
Say a token has 100 million units in circulation and you hold 1 million, which is 1%. Over the next year, unlocks and rewards add 50 million new tokens. If you do nothing, you now hold 1 million of 150 million, about 0.67%. For your holding to keep its dollar value, the project's total market value has to grow by 50% just to keep up with the new supply.
How to spot it in advance
Compare circulating supply with total and maximum supply. A large gap means many tokens are still to come. Fully diluted valuation, the price multiplied by the maximum supply, shows what the market cap would be if every token were already out. Vesting schedules and emission rates, usually in a project's documentation, show when the new supply arrives.
When dilution is a problem
Not all new supply is harmful. Rewards that pay people for securing a network or providing a real service can be a fair cost of running it. Dilution becomes a problem when rewards are high mainly to attract short-term capital, when large insider unlocks meet thin demand, or when holders earn a yield that is fully offset by the inflation that pays for it. A staking reward of 5% means little if supply grows by 5% too.
Ask Coach about it
Coach is the AI on AtenaCrypto. It explains crypto with live market data, in plain words.
How can I estimate how much a token's upcoming unlocks and emissions will dilute existing holders?Ask Coach →
Frequently asked questions
Does dilution always make the price fall?
No. Price depends on demand as well as supply. Dilution creates pressure, but strong demand growth can absorb it.
Can I avoid dilution by staking?
Staking rewards are often paid from new issuance, so stakers can keep their share of supply while non-stakers are diluted. It offsets dilution rather than removing it.
Is dilution the same as inflation?
They are closely related. Token inflation describes supply growth, while dilution describes its effect on existing holders.
Related terms
Learn it step by step
AC Learning explains these ideas in interactive lessons — the first eight sections are free.
Open AC Learning → Create a free accountAll glossary terms · Educational reference only — not investment, legal, tax or financial advice.