Low Float, High FDV (Fully Diluted Valuation) and its impact on price formation:

A low float refers to a situation where only a small portion of a cryptocurrency’s total supply is in circulation or available for trading. This small "float" of available tokens can lead to significant price volatility due to the limited supply. Prices can increase quickly with relatively small amounts of demand since there aren't many tokens available to buy or sell in the open market.

The Fully Diluted Valuation (FDV) is the market capitalization of a cryptocurrency if all of its tokens were in circulation. In the case of a high FDV, it means that there are many tokens that have yet to be released, which could be locked in vesting contracts, held by insiders, or allocated for future use in the protocol. High FDV often signals a large amount of future token issuance.

In a Low Float, High FDV scenario, price formation becomes complicated due to several factors:

1. Artificially Elevated Prices: Since only a small fraction of the total supply is available for trading (low float), demand can drive prices up quickly. This can create an artificially inflated market value that doesn't accurately reflect the full supply. Prices can rise disproportionately because the supply in circulation is limited, while the actual valuation, when taking into account the FDV, would be much lower.

2. Price Volatility: With low float, price swings can be dramatic. If a few large holders decide to buy or sell, it can have a big impact on the market. Additionally, speculative traders can manipulate the price more easily because the supply is so constrained.

3. Dilution Risk: High FDV means there is a large supply of tokens waiting to enter the market. When these tokens are eventually released, they dilute the value of the existing tokens, leading to potential downward pressure on price. Investors need to be aware of this dilution risk, as the current price may not be sustainable when the additional tokens flood the market.

4. Misleading Market Cap: A low float with high demand can create a misleadingly high market capitalization based on the circulating supply. However, the fully diluted valuation (FDV) paints a different picture, reflecting the eventual impact of releasing all tokens. Investors could be misled into thinking the project is worth more than it actually is in the long term.

5. Difficulty in Valuing the Project: Price discovery in a low float, high FDV environment becomes less reliable. The market price is based on a very limited supply and often doesn't take into account the future supply entering circulation, making it harder for investors to assess the true value of the project.

The listing of EigenLayer is a clear example of this phenomenon. Restaking has been one of the strongest narratives of the year, and the project currently manages $12 billion. It's a new primitive that has come to eclipse liquid staking projects. At this moment, it is difficult to anticipate the additional yield that Restaking will offer, especially for the significant capital currently deposited. It has the potential to redefine the infrastructure for building decentralized trust. EigenLayer is launching with a real value of $7 billion, but the price formation may be somewhat distorted due to liquidity.

Understanding both float and FDV is critical for evaluating long-term token sustainability and avoiding unexpected price corrections.

In summary, while a low float can create short-term price increases, a high FDV poses risks of dilution and volatility, complicating price formation and potentially leading to sharp price corrections once more tokens are released into the market.

Low Float, High FDV (Fully Diluted Valuation) and its impact on price formation:

A low float refers to a situation where only a small portion of a cryptocurrency’s total supply is in circulation or available for trading. This small "float" of available tokens can lead to significant price volatility due to the limited supply. Prices can increase quickly with relatively small amounts of demand since there aren't many tokens available to buy or sell in the open market.

The Fully Diluted Valuation (FDV) is the market capitalization of a cryptocurrency if all of its tokens were in circulation. In the case of a high FDV, it means that there are many tokens that have yet to be released, which could be locked in vesting contracts, held by insiders, or allocated for future use in the protocol. High FDV often signals a large amount of future token issuance.

In a Low Float, High FDV scenario, price formation becomes complicated due to several factors:

1. Artificially Elevated Prices: Since only a small fraction of the total supply is available for trading (low float), demand can drive prices up quickly. This can create an artificially inflated market value that doesn't accurately reflect the full supply. Prices can rise disproportionately because the supply in circulation is limited, while the actual valuation, when taking into account the FDV, would be much lower.

2. Price Volatility: With low float, price swings can be dramatic. If a few large holders decide to buy or sell, it can have a big impact on the market. Additionally, speculative traders can manipulate the price more easily because the supply is so constrained.

3. Dilution Risk: High FDV means there is a large supply of tokens waiting to enter the market. When these tokens are eventually released, they dilute the value of the existing tokens, leading to potential downward pressure on price. Investors need to be aware of this dilution risk, as the current price may not be sustainable when the additional tokens flood the market.

4. Misleading Market Cap: A low float with high demand can create a misleadingly high market capitalization based on the circulating supply. However, the fully diluted valuation (FDV) paints a different picture, reflecting the eventual impact of releasing all tokens. Investors could be misled into thinking the project is worth more than it actually is in the long term.

5. Difficulty in Valuing the Project: Price discovery in a low float, high FDV environment becomes less reliable. The market price is based on a very limited supply and often doesn't take into account the future supply entering circulation, making it harder for investors to assess the true value of the project.

The listing of EigenLayer is a clear example of this phenomenon. Restaking has been one of the strongest narratives of the year, and the project currently manages $12 billion. It's a new primitive that has come to eclipse liquid staking projects. At this moment, it is difficult to anticipate the additional yield that Restaking will offer, especially for the significant capital currently deposited. It has the potential to redefine the infrastructure for building decentralized trust. EigenLayer is launching with a real value of $7 billion, but the price formation may be somewhat distorted due to liquidity.

Understanding both float and FDV is critical for evaluating long-term token sustainability and avoiding unexpected price corrections.

In summary, while a low float can create short-term price increases, a high FDV poses risks of dilution and volatility, complicating price formation and potentially leading to sharp price corrections once more tokens are released into the market.