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circulating supply
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Circulating Supply
What is circulating supply, and what does circulating supply mean in crypto space? This article breaks down every aspect of the metric, its variations, and viability for existing digital assets.
Circulating supply — an essential indicator for understanding the relative valuation of assets in the cryptocurrency space. This metric represents the unique dynamic of crypto markets compared to traditional asset markets but can be more complicated to calculate accurately in some cases.
What is circulating supply in crypto?
Circulating supply represents the total number of cryptocurrency tokens that aren’t subject to restrictions, lock-ups, and available on the public ledger of the asset. But what does circulated mean?
It means that traders can easily buy and sell the tokens via exchanges, which is why the metric also excludes foundation, project, and founder coins that haven’t been sold yet and units locked by governance protocols or staking.
For investors, circulating supply is an essential metric for defining a relative value of any digital asset by calculating its market capitalization. To establish market cap volume circulating supply has to be multiplied by the price of a single token. Market cap indicator has the same meaning for both stocks and crypto markets, which is evaluating the total value of a company/project.
However, the circulating supply metric is quite different from its counterpart in traditional finance. Float represents the number of tradeable asset units, shares held by the employees and investors of the company excluded. It’s possible to calculate it in a predefined way as restrictions on lock-up of assets are enforced by law. The same doesn’t work for circulating supply yet, even though smart contracts may change it in the future.
Circulating supply vs total supply
While circulating supply refers to the assets currently available for trading, there’s also a metric of total supply, which represents the number of coins in existence. It consists of an available supply of assets and tokens locked through staking, farming, and restrictions. However, the concept of total supply excludes the coins burned previously.
Unlike circulating and total supply, which can be reduced by burning, locking, and staking, max supply quantifies all the tokens that have ever existed and will exist in the future. From the investor’s perspective, it’s convenient to know if the supply of the asset is limited. For example, Bitcoin max supply is strictly capped which means there will never be more BTC than this cap.
Bitcoin circulating supply
One of the main factors that make Bitcoin the most valuable crypto is its scarcity. Satoshi Nakamoto — the developer of BTC — created the digital asset so that there is a hard limit on how many tokens can exist. In addition to the scarcity effect, limited supply allows controlling the inflation rate.
What is the maximum amount of Bitcoins that can be in circulation? The max supply of these tokens is 21 million units. Over 90% of it’s already in the circulating supply, meaning only around 2 million coins are left unmined.
The process of adding new BTC tokens into circulation is called mining. It revolves around verifying and validating blocks of transactions on the blockchain by solving complex mathematical problems with computing power. All the miners receive compensation in BTC in return for the computing power they offer. The average rate of introducing new Bitcoins to the blockchain is 1 block every 10 minutes.
However, the number of BTC tokens in each block decreases by 50% every four years, starting from 50 BTC per block in 2008. This also results in higher requirements for processing power needed to mine a single token. Bitcoin is the lowest circulating supply cryptocurrency, and it may seem like it’s close to reaching the limit. Still, considering the schedule on reducing the rewards for mining and general tendencies, experts predict that the final 10% of the supply will sustain until 2140.
What will happen when the total supply of Bitcoin reaches its limits?
While some analysts argue that Bitcoin will never reach its limit of 21 million due to the bit-shift operator system the blockchain uses, others emphasize that nearly 3.7 million coins of those in circulating supply are actually not available for trading due to reasons like loss of access or private addresses. Ultimately, the Bitcoin network will remain functional as a closed economy even after 2140: no additional BTC will be issued, but the blocks of transactions will be confirmed.
However, the total value of Bitcoin in circulation continues to increase steadily, so here are some of the most important effects industry has to expect from it reaching the limit.
Effect on BTC miners
Block rewards are the main source of revenue for miners of Bitcoin as the high price of the token makes it possible to cover operational costs and obtain profits by selling it on the exchanges. This will no longer be the case when Bitcoin reaches its maximum supply, as rewards will get too small to either cover the miners’ costs or generate any profits.
This is why transaction fees are expected to come upfront as the new main source of revenue. If the BTC network is used as a medium of exchange, miners will receive reasonable fees for enabling BTC use in daily transactions. In case the network becomes the store of value, miners will conduct fewer transactions that will be considerably more expensive.
Another potential outcome is that miners will form a cartel to control supply and set higher transaction fees to secure profits. They can also focus on selfish mining, which delays the production of the last block in the BTC network and guarantees high rewards for the new blocks that are released into the network. Such groups already exist in traditional commodities; for example, OPEC production output has a large influence on oil prices.
Effect on BTC network
Distributed ledger technology is what makes the Bitcoin network so convenient. If the amount of Bitcoin in circulation reaches its limit and BTC becomes commonly used as a medium of exchange, transactions will drastically increase.
This can lead to slowdowns in the network's performance due to its architecture that relies on a distributed database, which sacrifices speed for quality and integrity. This is where Layer 2 technologies become responsible for conducting a major share of network transactions.
An alternative scenario revolves around Bitcoin becoming a reserve asset, which will result in a decreasing number of transactions. BTC trades will be small, and large institutional players and trading companies will dominate the market. There will be significantly fewer trades with much higher transaction fees from miners.
Effect on BTC cryptocurrency
Bitcoin was created as a medium of exchange for daily transactions. However, the high transaction fees and relatively slow processing times combined with volatile price swings due to large speculative investors usually keep serious investors from the asset.
When the number of BTC in circulation reaches its limits, the price will become more stable, and transaction speed will increase due to the development of Layer 2 channels like the Lightning network. It’s also possible that the Bitcoin network adopts a common regulatory system, which will draw the attention of institutional investors to the cryptocurrency domain.
Calculating circulating supply cryptocurrency metric
Bitcoin and Ethereum are working examples of circulating supply metrics. There’s a noticeable difference between the circulating supply schedules of these cryptocurrencies. Messari’s demarcation suggests five inputs of the metric:
- Token Generation. Maximum supply and Initial Generated supply.
- Programmatic Inflation. Inflation policy and forecast, a method for amending policy.
- Programmatic Inflation. Burn policy and loss estimates.
- Founder’s Supply. Liquidity, vesting, and secondary sale policy.
- Community Supply. Liquidity, vesting, and secondary sale policy.
The relevant input for Bitcoin is Programmatic Inflation. All the BTC tokens that have been produced and will ever be in circulation were created through a block reward on a specific inflation schedule. Token Generation input is also relevant to Bitcoin as inflation parameters such as the max supply of 21 million units were decided with production of a Genesis block.
Unlike Bitcoin or some altcoins with limited supply, Ethereum doesn’t have an explicit cap on supply. The supply of ETH in circulation spiked up to 60 million right from the beginning due to distribution among early supporters that invested in the project during the ICO phase. Right afterwards, the creation of the Ethereum development fund brought another 12 million of ETH to the circulation.
The fact that 72 million of Ether tokens were added to circulation at the Genesis block makes it relevant to use token generation input. However, ETH also provides block rewards, which means that its circulating supply also can be characterized by the programmatic inflation input.
Conclusion
Circulating supply is the metric that represents the unique dynamics of the cryptocurrency markets and refers to the number of coins available for trading at the given period. Bitcoin is an example of a fixed supply cryptocurrency that limits the max supply of tokens, while Ethereum doesn’t have an explicit limit on supply. Circulating supply is also essential for calculating the market capitalization of an asset and estimating its relevant value.
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What Is Circulating Supply?
The amount of cryptocurrency coins or tokens in circulation is a fluctuating value that can increase and/or decrease over time.
If a cryptocurrency is mineable, new coins can be created gradually via mining. In the case of a centralized token, the supply can be increased by the developers at will via instantaneous minting.
The supply can also go down: either deliberately via burning, or as a result of accidents, like sending coins to an irrecoverable address or losing access to a wallet where funds are stored.
The network at large has no reliable knowledge of how much of the total supply is in active circulation, making the metric of circulating supply an imperfect approximation.
For example, even though nominally the circulating supply of Bitcoin (BTC) should be over 18 million coins — as that is how many Bitcoin have been mined since the network’s inception — it is estimated that around 4 million BTC have been permanently lost, placing the true circulating supply closer to 14 million.
Circulating supply should not be confused with total supply, which is the number of coins that have been mined so far minus all the coins that have been knowingly burned, and the maximum supply, which is the hard-coded limit that neither total nor circulating supply can ever exceed.
The term circulating supply refers to the number of cryptocurrency coins or tokens that are publicly available and circulating in the market.
The circulating supply of a cryptocurrency can increase or decrease over time. For example, the circulating supply of Bitcoin will gradually increase until the max supply of 21 million coins is reached. Such a gradual increase is related to the process of mining that generates new coins every 10 minutes, on average. Alternatively, coin burn events like the ones performed by Binance, cause a decrease in the circulating supply, permanently removing coins from the market.
The circulating supply refers to the coins that are accessible to the public and should not be confused with the total supply or max supply. The total supply is used to quantify the number of coins in existence, i.e., the number of coins that were already issued minus the coins that were burned. The total supply is basically the sum of the circulating supply and the coins that are locked up in escrow. On the other hand, the max supply quantifies the maximum amount of coins that will ever exist, including the coins that will be mined or made available in the future.
FLOW Token Distribution
The Flow network was designed from the ground up as the foundation for a new digital economy. An economy that is owned and governed by its participants.
The ethos, architecture, and token economics of the Flow network as a whole are covered in previously published documents:
-
: why we created Flow — and what makes it different : deep dive into the unique Flow architecture : sustainable foundation for the new digital economy : technical whitepaper outlining token economics
The FLOW token is the native currency of the Flow network, ultimately required for the network and all the applications on top of it to function. FLOW is designed as a payment method as well as long-term reserve asset for the entire Flow economy. The token is a low-inflation and low-circulating-supply asset that is used by validators, developers, and users to participate in the FLOW network and earn rewards. It is also used to transfer fees, serve as collateral for secondary tokens on Flow, and to participate in future protocol governance.
In the FLOW Token Economics paper, we outline the key principles of the FLOW token: diverse use-cases, broad distribution, and minimal monetary inflation. This paper will focus exclusively on the launch of the Flow network and concurrent distribution of the FLOW token.
While the network is fully functional and the tokens have immediate utility in NBA Top Shot as of day one, all tokens distributed to backers, team members, or the community start fully locked up and can only be used for purposes of staking for at least 12 months. During this period, staking rewards are freely transferable and represent the only circulating supply on the network.
All lockup and transfer restrictions begin at the same moment, making sure pre-launch investors, dev team members, and the early community are all on equal footing. . We have endeavored to be as transparent as possible with respect to these details to provide the best understanding and develop the highest confidence across the community as possible.
Three Phases of Flow
Phase I: Beta Mainnet Live
The Flow Beta Mainnet began operating as of May 15, 2020. On June 15, we invited the first cohort of beta testers into NBA Top Shot. NBA Top Shot was the first application launched on Flow — proving the network’s functionality and business value through real usage.
During Phase I, the network has been operating without a token or staking rewards — users have been primarily using credit cards and non-FLOW cryptocurrencies for payment, and validator node partners have been running their systems without compensation in preparation.
Phase II: Token Generation and Distribution
At the start of this Phase, 1.25 billion FLOW were created. While the network is fully functional and the tokens have immediate utility, all tokens distributed during Phase II will remain fully locked up for one year. The lockup and transfer restrictions begin at the moment of token generation, making sure pre-launch backers, team members, and the early community are on equal footing.
Large & Small Backers
Prior to launch, Dapper Labs closed approximately $24.6M in funding via convertible notes expected to convert into FLOW tokens. All tokens set aside for conversion purposes to pre-launch backers are subject to the same terms and lockups: 24 months with a one-year cliff.
Convertible note backers include the world’s top experts in crypto and entertainment including a16z crypto, Union Square Ventures, Coinbase Ventures, Samsung NEXT, Fenbushi Digital, Accomplice, Venrock, Blockchange, Distributed Global, BlockTower, Valor Capital, and Warner Music Group, as well as leading figures in sports, music, and gaming.
Ecosystem Development
350 million FLOW tokens have been set aside for ecosystem development to help bootstrap network effects and ensure a diverse and accessible community over the long term.
Recipients of Flow ecosystem support include entrepreneurial support organizations, non-profits, and academic institutions including Berkeley, Purdue, UC Davis, and Rochester Institute of Technology. These groups share FLOW credits with their communities and broaden accessibility.
Flow ecosystem development programs are designed to reward the efforts of a decentralized community building sustainable value — not speculation. As a result, FLOW tokens distributed through these programs in the first year will be subject to lockups and transfer restrictions that expire no sooner than the first unlock date applied to early backers and the team. Ecosystem development programs also include token leases for purposes of staking, allowing reputable community organizations to participate in the network and earn rewards.
Development Team
Flow has been developed and brought to market by one of the most innovative and interdisciplinary teams in the world. To date, approximately 95 million FLOW tokens have been granted as incentives or compensation to the
90 individuals from Flow, Dapper Labs, and other firms responsible for building Flow and associated tools and applications to date.
Development team awards vest over 3 years with a one year cliff, ensuring all stakeholders are aligned. Flow team members will not receive tokens in advance of any other network participant.
An additional 130 million tokens are set aside for ongoing grants to support the development of the Flow network and fund ongoing contributions to Flow core as well as other open source components of the Flow ecosystem. All grants from this allocation, once granted to their recipients, will have a three-year vesting period as above.
Dapper Labs
As the corporate entity that funded the development of the Flow technology, Dapper Labs has been allocated 250 million tokens which it intends to hold as part of its long-term treasury.
Phase III: Staking Rewards Begin
Guided by discussions with our early validator community, December 15 is the estimated date when Phase III begins and validator rewards are enabled on mainnet.
At this time, validator rewards will begin being distributed to staked nodes. These reward tokens will be liquid for use on the network as soon as they are withdrawn by the node operator.
On Flow, 100% of inflation is distributed to stakers — meaning holders of Flow will not be diluted as long as you are actively participating. In other words, new issuance is only distributed to validators staking and performing work to support the network, or delegators directly pledging their tokens against a specific validator’s dependability.
The only circulating tokens in the first year are expected to be from rewards paid to validator node operators that are staking their tokens. As a result, Flow will have an elevated inflation rate at launch to kickstart liquidity and increase accessibility to the token. While the community will ultimately be able to adjust reward parameters
Over the long term, Flow is designed to limit new issuance of FLOW tokens as much as possible, with a total target pool established to pay to validators consisting of i) transaction fees paid to the network; and ii) new FLOW tokens instantiated. New issuance is offset by the fees collected by the network. Because of this, high levels of transaction throughput results in lower annual issuance.