Circulating Supply Definition

TLDR

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:

  1. To increase the coin’s market cap and therefore coin ranking on sites like CoinMarketCap.
  2. 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.

Next Steps

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.

EDITS:

  1. Updated the link to CoinMarketCap’s definition.
  2. 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.
  3. Updated expected change in circulating supply based on more recent data.
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@Kyle_Langham very illuminating post (even if it illuminated the varieties and vagueness of industry at times). I do like things going towards simple.

Clarifying Question: I understand from your post that the locking/unlocking or staking/dissolving of tokens into neurons would not affect circulating supply under proposed definition (and general standards). Did I get that right? No bias either way, just wanted to confirm I understood as intended.

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@Kyle_Langham can you elaborate on the definition of “Liquid Tokens owned by DFINITY”?

What are all of the different pieces that would make up this definition? Are the 4xxx neurons that have unlocked/dissolved part of the circulating supply?

Also, what is the end goal here - to raise the ICP market cap as shown on Coinmarketcap?

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@diegop My understanding is that this the only changes would be for ECR/Seed investors who make an active “lock” or “increase dissolve delay” action.

@Kyle_Langham is this right?

Hi @diegop, that is correct. Everything staked on the NNS (whether dissolving or locked) would be considered circulating under the proposed definition. The argument is that it would align with our understanding of “circulating in the market”. Given that ICP can be used as a governance token, all staked tokens are being used for intended market action.

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“Liquid tokens owned by DFINITY” would be all tokens not staked on the NNS in which DFINITY has legal ownership and full control.

The 4xxx neurons would be considered circulating under the proposed definition by nature of them being staked on the NNS. (See my response to Diego just above).

In terms of end goal - we want to simplify the CS definition (as it stands today it is extremely challenging to understand and therefore useless in decision-making) and we want to standardize to common industry practices (as best as possible) to allow crypto stakeholders to compare apples to apples.

Edit: I have a personal desire to simplify the CS definition because I get asked often about the definition and (a) have trouble explaining it and (b) have trouble justifying it. A simpler and more meaningful CS definition will make my job easier :slight_smile:

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Why are these not considered part of the circulating supply? It seems like they could “technically” be sold at any point, no?

Also, what is the total amount of this liquid token supply owned by DFINITY (what impact would it have if it was considered part of the circulating supply)?

My understanding is that this is @Kyle_Langham suggesting going along with the approximation of an industry definition for “apples to apples”, which seems to remove foundation tokens from CS (for whatever reason). Is that right, Kyle?

Why are these not considered part of the circulating supply? It seems like they could “technically” be sold at any point, no?

Yes, that is true, however most leaders in the industry consider liquid foundation tokens to be non-circulating, I believe because they represent “dilution risk”. I know that CoinMarketCap prefers this as well. However, it’s important to say that this isn’t necessarily followed by all coins, as ADA, TRON and Aptos all have circulating supplies >%98, suggesting either their foundations have dumped their tokens or they are not considering part of their circulating supply. Regardless of those coins’ approaches to CS, our intended goal is to match the practices of the industry at large, which involves calling the Foundation’s liquid tokens to be non-circulating.

Also, what is the total amount of this liquid token supply owned by DFINITY (what impact would it have if it was considered part of the circulating supply)?

The foundation currently has 98.8M ICP tokens liquid that it, as of today, owns and controls. It’s worth noting that the foundation also has contractual obligations to disburse some of those tokens at pre-defined dates. I don’t have the details of those obligations. At the time that the foundation fulfills those obligations, that ICP would be considered circulating because it would no longer be owned or controlled by the foundation. Also note, the Foundation has 28M ICP in 8-year neurons.

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@Kyle_Langham, thanks for the post.

I can understand your desire to have a working definition, and CMC’s seems reasonable.

My understanding of DFINITY from public statements is that they officially view themselves as one of many contributors to the IC, in theory no more separated from the general public than any other large contributor that might desire to step up and propose NNS changes. If that is the case, it seems better to include their tokens in the CS, regardless of how other foundations view themselves.

The point on which I’ve seen more criticism is in leaving staked maturity out of the CS. Since staked maturity is used in governance, has value, and can become tradable fairly quickly, what are your thoughts about including it in the CS count?

This topic is very interesting! I think we should keep it simple and see what you really think when you read the " circulating supply"

The simplest thing that occurs to me and I think it is the most accurate is…

The circulating supply is all the coins that could be sold/traded on a DEX or CEX.

Things that are NOT circulating supply: Everything that is staking, everything that is blocked to add liquidity in the dex, everything that for any technical reason cannot be moved or sold.

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@FranHefner Just a quick thought inspired by what you wrote:

I think one of the main realizations @Kyle_Langham has come across in his research and conversations, is that this discussion is partly logic… and partly “how much should ICP community conform to a general status of industry standards so people can compare apples to apples” as much as possible in an imperfect world.

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My understanding of DFINITY from public statements is that they officially view themselves as one of many contributors to the IC, in theory no more separated from the general public than any other large contributor that might desire to step up and propose NNS changes. If that is the case, it seems better to include their tokens in the CS, regardless of how other foundations view themselves.

This is a valid argument. The IC is unique to all other coins because of the NNS’s total control over the protocol code base. I think this requires a little more research on my end.

The point on which I’ve seen more criticism is in leaving staked maturity out of the CS. Since staked maturity is used in governance, has value, and can become tradable fairly quickly, what are your thoughts about including it in the CS count?

Because supply is consistently defined as tokens minted across the industry, we’ve been reluctant to include maturity in any supply metric (since it is not yet minted ICP), including circulating supply and inflation calculations. My two cents is bringing maturity into the definition would take us away from our two goals of (1) creating a simpler definition and (2) aligning with our peers. Although you bring up a valid point that staked maturity does serve a market purpose in governance.

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  1. Circulating Supply is the best approximation of the number of assets that are circulating in the market and in the general public’s hands. We have found that Circulating Supply is a much better metric than Total Supply for determining the market capitalization. The method of using the Circulating Supply is analogous to the method of using public float to determine the market capitalization of companies in traditional investing.
  2. Assets that are locked (via smart contracts or legal contracts), allocated to the team or private investors, or not able to be sold on the public market, cannot affect the price and thus should not be allowed to affect the market capitalization as well. Examples include, but are not limited to, the following:

The quote above I got from CMC definition. Staked ICP would not meet the criteria to be added as circulating supply.

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How about not using this ambiguous phrase and instead using new terms that clarify the specific meaning.

Dfinity foundation liquid tokens: xx
Dfinity foundation 8-year-staked tokens: xx
Total tokens staked for 8-years: xx
Total tokens staked for at least a year: xx
Total tokens not staked: xx
Total staked maturity: xx
Maturity definition: staking rewards with an ability to liquidate subject to a 7 day modulation period.

If the goal is to be clear, then use the clearest terms possible.

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Good question. The intent (I believe) is to surface a definition or number for coin market cap and others. The numbers you mention are all already public info I believe, but the issue is placed like CMC don’t just take these numbers, but ask for an aggregate because they ask communities of L1s to provide their own definition of CS.

Does that make sense?

Where?

If the definitions of CS are different for each coin, then it makes no sense to compare coins using the “CS” which is what CMC is doing with their chart.

If there must be a number, my view is to put the total supply.

They mention in the post, coins held by neurons on the nns(staked) would be considered circulating supply. Liquid, is any coin not held by the DFINITY foundation.

So the market cap will increase to $2 billion within a day? Does nobody see a problem with that?
It’s going to get spammed everywhere that icps circulating supply increased by 35% in a day initially. How many other coins that despise icp will take advantage of this is what I’m wondering.
So if people panic dump we could see the current mcap again which would put the coin a 3.25. We could also panic dump and recover to the current price once every one finds out nothing technically changed. Or we could panic dump and slightly recover to a 1.75 mcap with the new circulating supply.
All I’m saying is if the circulating supply and market cap increase by 35% within a single day and the price is the same people will take advantage of this to cause panic ESPECIALLY with this coin

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All the time was there, in that 35 milion i have around 600 lock for 8 years non disolving, is the people ICP not Dfinity. Many will still keep in maturity and not disolving .