There is no industry standard for defining circulating supply (CS) and coins can vary drastically on their definition due to particularities of the specific coin. At the time of Mainnet launch, DFINITY chose a complicated and conservative definition for circulating supply, and we are now evaluating how to simplify that definition and align closer to the behaviors of major L1 chains. We submit to the community that a reasonable definition of CS for ICP, which both simplifies the definition and aligns with industry practices, is to define circulating supply as total supply minus liquid tokens owned by the DFINITY Foundation.
No Standard Circulating Supply Definition
Definitions for Circulating Supply vary drastically across the industry and are necessarily vague due to the differences between each coin and project. Take a look at this definition for circulating supply:
“The best approximation of the number of coins that are circulating in the market and in the general public’s hands.” - Coin Market Cap
These types of definitions are commonplace among almost every single trusted crypto source. Oftentimes, one source’s definition directly contradicts another source’s definition, for example, the definition found on 21 Shares removes staked tokens out of circulating supply, whereas almost every other definition includes staked tokens in the circulating supply based on some conditions.
The net result is that there is no consensus within the industry on what constitutes circulating supply and each coin more or less determines its own definition, usually with consideration to the expectations of crypto participants like CMC. In most cases, it appears coins typically consider their foundation’s coins to be considered non-circulating, however even that basic standard is only loosely followed.
What Other Coins Are Doing
It’s challenging to find a definition for circulating supply for most coins (for the record - ICP’s current circulating supply definition can be found here). In a lot of cases, we are left having to guess how the coin defined its circulating supply based on the percentage of total minted supply
that is considered circulating. In almost every case, a coin’s circulating supply is at least 70% of total mint and in many cases (such as Cardano, TRON, Aptos and Algorand) the percentage is greater than 96% (which begs the question, how are these coin’s foundations funding themselves?). For comparison, ICP’s current percentage of circulating supply is 59%.
It seems that universally there is a desire to categorize as much of a coin’s supply as circulating for two reasons:
- To increase the coin’s market cap and therefore coin ranking on sites like CoinMarketCap.
- To decrease the appearance of dilution risk.
A good rule of thumb for any crypto project seems to be: maximize your circulating supply.
How is ICP Circulating Supply Currently Calculated?
If you clicked the link above on how to calculate the circulating supply for ICP today, and you are scratching your head trying to understand it, you’re not alone. It’s complicated. This definition was created to provide context on Genesis tokens. However, the definition fails in many fringe cases, such as:
- ECT and Seed round neurons that locked and/or increased their dissolve delay are still considered non-circulating even though their owners performed a market action (extending their dissolve delay) and are participating in governance.
- ICP that DFINITY holds on behalf of other entities are considered non-circulating even though the ICP is owned by those other entities.
- ICP unclaimed (usually ECT and Seed) will always be considered in the non-circulating supply, despite the fact that it is not owned by the foundation and has a high likelihood of becoming dormant. For comparison, Satoshi’s bitcoin (similarly dormant) is considered part of Bitcoin’s circulating supply.
DFINITY’s Proposed Formula
While there are many different definitions for Circulating Supply, DFINITY prefers to align with Coin Market Cap’s definition due to their premier status within the industry. Their definition is: “The best approximation of the number of coins that are circulating in the market and in the general public’s hands.” The two main parts of this definition are:
- “Circulating in the market” - DFINITY understands this to mean tokens being used for a market purpose, such as governance (staked on the NNS), utility (liquidity in applications, payment, etc) or hodling.
- “General public’s hands” - DFINITY understands this to mean tokens not held by the Foundation.
With the above definitions, a very simple definition for circulating supply emerges:
ICP Circulating Supply = [Total Supply of ICP] minus [Liquid Tokens Owned by DFINITY]
We believe this definition both aligns ICP with other L1 blockchain practices, adheres to the best practices from leading crypto voices like CoinMarketCap and provides a simple definition that is easy to understand and is useful for which to base decisions on.
Under this definition, the circulating supply of ICP today would be ~416M ICP. This would put the percent of circulating supply to total supply at ~84%, which is in line with our peers.
Note - in some cases DFINITY has a contractual obligation to transfer ICP to another party. Under this definition, that ICP would remain in non-circulating supply until the date of transfer, at which point it would enter circulating supply.
Benefits of Changing CS Definition
To summarize the above text, DFINITY believes that changing the Circulating Supply definition will have the following benefits:
- The definition will become simpler and easier to understand, enabling better decision-making based on the circulating supply.
- Align ICP’s definition closer to the practices of our peers
- Reduce inaccurate impressions of future dilution
Feedback from CMC:
DFINITY recognizes that CoinMarketCap is looked upon within the industry as the leading source of coin information. We have reached out to them to ensure our intended approach aligns with their expectations and their understanding of similar situations for L1 blockchains. The feedback we received was:
- There are challenges to defining circulating supply due to particularities for each coin
- The community should read this article for context: $10B Mystery: Is OKB Really the 7th Largest Crypto? - Blockworks
- ICP has unique qualities, like on-chain governance, that make a good case for updating the circulating supply
- Token ownership and control are important considerations when determining circulating supply definitions.
- There could be an industry opportunity for a new metric that conveys “what can be sold” based on the industry’s adoption of staking and token-locking contracts but there would be challenges in: 1) using it as a ranking mechanism due to the ease in which a project could allocate all the assets to the team and subsequently unlock everything to manipulate its rank. Hayden from Uniswap is aware of how easy it is to game the system. 2) Tracking unlocked vs locked assets in a programmatic fashion.
- Shared appreciation over DFINITY / Internet Computer’s transparent approach to this discussion and the intent to ratify the definition through a DAO vote.
We will share this forum post and the subsequent comments with Coin Market Cap and invite them to provide feedback on the definition.
DFINITY is interested in the community’s thoughts regarding this topic. After discussion, if the community is in agreement with a definition, DFINITY plans to submit a motion proposal to the NNS for governance approval. If the proposal is approved then DFINITY will update the formula on the dashboard for Circulating Supply and will update any required integrations with external partners like CoinMarketCap.
- Updated the link to CoinMarketCap’s definition.
- Updated the text under “Feedback from CMC” per their feedback after reading the post and subsequent discussion. Note - we will continue to seek feedback from CMC as this discussion evolves.
- Updated expected change in circulating supply based on more recent data.