Crypto market size overestimated by $10 billions (11%)

Crypto Market Size Estimation: Circulating Supply vs. Outstanding Coin Supply

• Market Capitalization of top-20 coins shown on CoinMarketCap is overestimated by 10.87 billion US dollars (11%)
• It is incorrect to calculate market capitalization based on circulating supply
• Outstanding coin supply should be used instead

In this article we explain why Market Cap of crypto networks must be calculated based on Outstanding coin supply.

We proceed with detailed computation of outstanding supply and Market Cap for top-20 cryptocurrencies.

Correct Market Cap values for top-20 coins can be found on our crypto price aggregator THE SILICOIN (https://thesilicoin.com/).

Glossary

Total coin supply — all coins that exist now.

Protocols may emit new coins. For instance, Bitcoin protocol emits coins as a reward to miners. Coins that were not emitted yet are not included in total supply.

Maximum coin supply — all coins that will be emitted by the protocol.

Some protocols have an encoded limit on the number of coins that may ever come to existence. Bitcoin protocol is set to emit almost 21 million coins — that is the maximum coin supply for Bitcoin.

Other protocols do not have a limit on the number of coins (e.g. Ethereum). For such protocols maximum coin supply is not defined.

Note that that maximum supply is a deterministic figure. If maximum # of coins that will eventually exist depends on some future uncertain events, maximum supply is deemed not defined. That is the case for Dash as explained in the respective section of this article.

Outstanding coin supply — all coins that count towards market capitalization of the crypto network.

Definition of outstanding coin supply is akin to that of shares outstanding. It has some differences though and therefore should be defined separately.

Outstanding coin supply includes all coins of a network that (1) exist now and (2) are entitled to ultimate beneficiaries.

Coins that cannot be sold for some period of time (i.e. locked-up) but entitled to ultimate beneficiaries must be included in outstanding coin supply.

Outstanding coin supply does not include treasury coins.

Treasury coins are coins that (1) exist now and (2) are held by organisations that promote development of the network (e.g. Ripple Labs, Stellar Development Foundation, Tron Foundation, etc.).

Treasury coins are spent to increase value of the crypto network. When treasury coins are spent by development organisations, they become outstanding coins.

Why we must use outstanding coin supply and not circulating supply to calculate market cap?

Short answers is that circulating supply is fundamentally inappropriate here.

Let’s examine why.

Here is CoinMarketCap’s explanation for usage of Circulating Supply (see item 7 of their methodology):

“We have found that Circulating Supply is a much better metric than Total Supply for determining the market capitalization — Coins that are locked, reserved, or not able to be sold on the public market, are coins that cannot affect the price and thus should not be allowed to affect the market capitalization as well. 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.”

Public float approach cannot be used to measure size of companies. Analogously Circulating Supply cannot be used to measure size of crypto networks.

Have you ever seen Amazon, Microsoft, Google or Apple compared by public float capitalization? No.

Companies are compared by market capitalization of all shares outstanding.

Public float (or most widely called “free float”) approach is indeed used by all major stock indices incl. S&P 500 and MSCI. Here is why:

Index funds are major consumer of stock index data.

Until 2004 S&P 500 index was weighted by total market capitalization. Then they transitioned to free float adjustment. Here is how S&P Index Committee chairman explained the transition to free float adjustment:

“The sense of most index users is that float adjustment reduces the costs of running index funds and ETFs because stocks with less float — and therefore less liquidity — have lower weights in the index,” said David Blitzer, chairman of the S&P Index Committee, in an interview.

In other words — index funds have to copy the composition of index that they track. If a corporation with 10% free float is included in the index fully, it will be hard for funds to buy sufficient # of shares of this corp because only 1/10th is available for purchase.

If we are to create a crypto index, then circulating supply is a proper metric to weigh index constituents. In other cases we must use outstanding shares to calculate Market Cap of crypto networks.

1. Bitcoin

As of 11 January 2019 there are 17,475,975 BTC released by the protocol.

Maximum supply of Bitcoin is encoded in the protocol. It will converge to 21 million coins.

However, it is common knowledge that some Bitcoins are permanently “lost”. Strictly speaking, private keys to some Bitcoin wallets are lost.

There is no way to restore a private key of a Bitcoin wallet. Therefore, lost Bitcoins become permanently unusable. In other words, they seize to exist.

The most reliable estimate of the # of lost Bitcoins is provided by Chainalysis. According to their research, 2.3–3.7 millions Bitcoin are lost.

Recent research by Delphi Digital uses data from Chainalysis, which seems more up to date. Their estimates of # of lost Bitcoins are approximately the same.

Chainalysis qualifies BTC lost if coins did not change wallets for over 5 years. Chart below shows coin distribution by time since they were moved for the last time. Intense blue area depicts lost coins.

Source: Delphi Digital research

Despite we do not know the exact # of lost Bitcoins, it is reasonable to assume that c. 3 million BTC seized to exist.

All services that we are aware of calculate market capitalization of Bitcoin by multiplying price by all 17.5 million emitted coins. That is incorrect.

Real market cap of Bitcoin should be calculated as price multiplied by outstanding coins, i.e. circa 14.5 million.

Total supply and maximum supply of Bitcoin should be adjusted accordingly.

Source: THE SILICOIN analysis, CoinMarketCap

2. Ethereum

As of 11 January 2019 there are 104,315,205 ETH released by the protocol.

Some # of ETH is obviously lost. Unfortunately we are not aware of any reliable reports on the # of lost ETH.

The problem of lost private keys is applicable to virtually all coins (unless a coin has tools to recover lost keys like EOS’s). However, the magnitude of this problem is likely very different. While we showed that lost coins constitute 21% of Bitcoin’s outstanding supply — for younger coins (except Bitcoin forks), # of lost coins is likely negligible. That is the case for Ethereum.

Unlike Bitcoin, Ethereum has treasury coins held by Ethereum Foundation.

Ethereum Foundation does not disclose # of ETH it holds. The only source of information is this Reddit thread. In May 2017 Vitalik Buterin claimed that Ethereum Foundation holds ~800,000 ETH.

We also know the smart contract address that received 12 million ETH at the time of Ethereum ICO. As of 11 January 2019 this contract holds 651,492.84 ETH.

It is safe to assume that Ethereum Foundation spent ~150k ETH since May 2017. Therefore contract 0xde0B295669a9FD93d5F28D9Ec85E40f4cb697BAe indeed holds Ethereum Foundation’s coins.

Ethereum Foundation’s holdings should be deemed treasury coins and excluded from calculation of Ethereum’s Market Cap.

Source: THE SILICOIN analysis, CoinMarketCap

3. XRP

Market saw heated debates on XRP circulating supply. Fortunately most market participants got it right.

There are 99,991,724,864 initially created (see “total” field). Out of this amount only 41,040,405,095 XRP are distributed to the ultimate holders (“distributed” field). The remainder is kept by Ripple (escrowed or undistributed).

Escrowed and undistributed XRP are treasury coins. Therefore, they do not count towards market capitalization.

Source: THE SILICOIN analysis, CoinMarketCap

4. Bitcoin Cash

As of 11 January 2019 there are 17,560,502 BCH released by the protocol.

Bitcoin Cash was forked after most Bitcoins were lost.

Therefore, # of lost BCH can be safely assumed to be equal to # of lost BTC — c. 3 million coins.

In addition to lost coins, some BCH were not claimed since fork. According to some estimates, approximately 9.26 million BCH were claimed.

However, all Bitcoin holders who have access to their BTC can still claim BCH. Therefore, it is incorrect to exclude unclaimed coins from outstanding supply.

Source: THE SILICOIN analysis, CoinMarketCap

5. EOS

As of 11 January 2019 there exist 1,028,677,308 EOS.

CoinMarketCap reports total supply 1,006,245,120 EOS, which is clearly outdated.

EOS circulating supply on CMC is 100 million less than total supply. That is obviously Founders’ Tokens that are held by Block.one (see item 4 of EOS F.A.Q. for more details about Founder’s Tokens).

Block.one is the ultimate beneficiary of these coins. However Block.one cannot immediately sell these coins due to lockup condition. Coin lockup is similar to stock lockup pursuant to IPO.

Block.one is a for-profit developer that gets paid to develop EOS. Therefore, Block.one’s EOS holdings do not qualify for treasury coins.

Should we exclude locked coins from outstanding coin supply? No.Only treasury coins and lost coins should be excluded.

So outstanding supply of EOS is 1,028,677,308? Not exactly.

EOS has a special eosio.ramfee account that collects 0.5% fee from all RAM transactions. It is still not clear whether these coins will be burned or redistributed.

We believe that it is worth assuming that the initial plan to burn these coins will be enacted. In this case we should exclude these coins from all EOS supply metrics.

As of 11 January 2019 there were 1,941,498 EOS in eosio.ramfee account (less than 0.2% of total # of EOS).

Source: THE SILICOIN analysis, CoinMarketCap

6. Stellar

As of 11 January 2019 there exist 104,622,670,393 XLM.

Only 19,126,368,543 XLM are not held by Stellar Development Foundation (SDF).

We noticed a strange thing about XLM — there is a huge difference between Distributed Lumens (8.65 billion) and Available Lumens, i.e. not held by SDF (19.16 billion).

Source: Stellar dashboard. Retrieved on 4 January 2019

As per SDF mandate, foundation can spend 5% of 100 billion Lumens on operational needs. On top of that it is clearly stated that SDF handed 2 billion XLM to Stripe.

That totals 7 billion. Plus 8.65 billion distributed gives us total # of available XLM 15.65 billion. That is 3.51 billion less than the Available number provided on the dashboard. Where did these 3.5 billion XLM go?

We did not find the answer. Reddit users seem to be concerned about this issue as well.

Stellar is the 6th largest crypto network. And no one knows where 3.5% of its coins went. Crypto wild west..

At least Stellar’s market capitalization is correct.

Source: THE SILICOIN analysis, CoinMarketCap

7. Litecoin

As of 11 January 2019 there exist 59,972,225 LTC.

Litecoin Foundation does not disclose its LTC holdings. We are not aware about any options to track how many LTC are in Foundation’s disposal.

It is common knowledge that Litecoin founder Charlie Lee sold all his LTC in December 2017.

We can extrapolate this information to the Litecoin Foundation which Charlie Lee chairs. Therefore, all emitted LTC should be assumed outstanding.

Source: THE SILICOIN analysis, CoinMarketCap

8. Tether

As of 11 January 2019 there exist 1,940,407,128 LTC (see total liabilities line).

Note that there is no API to retrieve circulating supply of Tether. Therefore, supply number on price aggregating sites may be slightly outdated.

Source: THE SILICOIN analysis, CoinMarketCap

9. Bitcoin SV

As of 11 January 2019 there exist 17,559,714 BSV.

Just like with Bitcoin and Bitcoin Cash, some BSV are lost. The best estimate is 3 million.

Source: THE SILICOIN analysis, CoinMarketCap

10. Tron

As of 11 January 2019 there exist 99,245,561,553 TRX.

Tron divided its coins into 3 buckets:

1. Foundation reserve — 32,599,211,655
2. Tronics support plan — 652,719,724
3. Other — 66,646,353,546

Bucket 1 refers to coins held by Tron Foundation. These are treasury coins, which should not be included in outstanding supply.

Bucket 2 refers to coins handed to people who made donations to Tron Foundation. These coins are subject to lockup period. However they are owned by ultimate beneficiaries. Therefore, they should be included in outstanding supply.

Interestingly, Tron continues to receive “donations” in exchange for Tron coins. This mechanism looks very much like ICO to us (not a legal opinion whatsoever).

Bucket 3 are coins held by users.

Source: THE SILICOIN analysis, CoinMarketCap

11. Cardano

As of 14 January there exist 31,112,484,646 ADA. This # is fixed until minting is activated.

Initially Cardano distributed 25,927,070,538 ADA to ICO participants. On top of that, 20% of distributed amount or 5,185,414,108 ADA were handed to three entities within Cardano ecosystem — IOHK, Emurgo and Cardano Foundation.

IOHK is the for-profit developer of Cardano protocol. It owns 2,463,071,701 ADA. IOHK ADA holdings should be treated similar to holdings of EOS by Block.one. Developers are ultimate beneficiaries of coins distributed to them. Therefore, these coins should be included in outstanding supply.

Exact amount of ADA holdings by Cardano Foundation and Emurgo are not known. That caused a dramatic discontent within the community and resulted in IOHK sending an open letter to Cardano Fiundation.

Cardano community members went as far as to guess the account addresses of Cardano Foundation and Emurgo on Cardano blockchain. Despite the probability of coincidence is very low, account addresses are still not confirmed.

Emurgo’s ADA holdings should be regarded similar to those of IOHK. Emurgo is a venture fund that invests funds in Cardano related projects. Despite Emurgo’s investment mandate is not fully transparent, it is likely that they are a for-profit investment fund. Therefore, they are the ultimate beneficiary of allocated funds.

If Cardano Foundation worked as supposed, its holdings should have been regarded as treasury coins. However, taking into consideration the controversies around Cardano Foundation, designation and amount of ADA in Foundation’s disposal remains unclear. Therefore, Cardano Foundation’s ADA holdings should be treated as outstanding.

CoinMarketCap calculates Cardano’s market capitalization based on 25,927.07 million outstanding supply. Following the explanation provided above, the correct # of ADA that should be used is 31,112.48 million ADA.

Source: THE SILICOIN analysis, CoinMarketCap

12. IOTA

As of 14 January there exist 2,779,530,283,277,761 IOTA. This # is fixed.

All IOTA were initially distributed to crowdsale participants.

Subsequently IOTA founders asked IOTA holders to donate tokens to the IOTA Foundation. IOTA foundation was established in November 2017. Around 5% of total IOTA supply is reportedly held by IOTA foundation.

As noted by IOTA co-founder (video starting from 29:40), with IOTA protocol one cannot use private keys several times because of data leaks. Because of it there is no fixed wallet address that holds IOTA foundation’s coins. We are not aware about IOTA Foundation disclosing its IOTA holdings.

IOTA Ecosystem development fund holds 21,695,582,234,595 ADA. This amount is only a small part of total Foundation holdings.

As far as we are aware, uses of funds by IOTA foundation are not made available to public.

Based on available information, 5% of total IOTA supply should be deemed treasury coins until further information.

Source: THE SILICOIN analysis, CoinMarketCap

13. Monero

As of 14 January 2019 there exist 16,697,486.93 XMR.

Monero does not have any dedicated development institutions. All XMR in existence should be deemed outstanding.

Source: THE SILICOIN analysis, CoinMarketCap

14. Binance Coin

As of 14 January 2019 there exist 190,799,308 BNB (see total supply field of the contract).

Total amount of BNB coins is gradually decreasing as Binance burns some coins every quarter (for instance see 5th burn announcement). Starting # of BNB was 200 million. Thus 9.2 million were burnt so far.

80 million BNB were initially allocated to the founding team. 48 million of them are still locked within the contract. You can verify that by inserting the address from “owner” field (0x00c5e04176d95a286fcce0e68c683ca0bfec8454) to the freezeOf field of the contract.

48 million locked coins do not qualify for treasury coins as they are held by ultimate beneficiaries.

Therefore, BNB outstanding supply equals total # of coins in existence.

CoinMarketCap calculates market cap of Binance Coin based on 130.80 million circulating supply. This number seems to be calculated assuming 60 million coins under lock-up. This assumption is outdated and incorrect per se.

Source: THE SILICOIN analysis, CoinMarketCap

15. Dash

As of 14 January 2019 there exist 8,571,303.69 DASH.

DASH has a built in treasury system. 10% of block rewards are automatically allocated to treasury. Every month DASH community votes on the investment proposals that may be funded from treasury. At the end of each month, coins for the approved proposals are created and allocated to the respective teams. Note that coins are not created until the disbursement event. If # of disbursed coins is below the # of treasury coins accumulated during the previous month, redundant coins are not created.

Therefore, the most accurate estimate of DASH outstanding supply is the current total supply plus the # of DASH that will be distributed to approved proposals at the end of the month (see “Allocated funds” field in the image below).

CoinMarketCap uses total supply figure. At the beginning of the month outstanding supply is equal to total supply. Therefore, market cap discrepancy will never be higher than total monthly DASH treasury balance.

Source: DashNexus Leaderboard

Maximum supply of DASH is not deterministic. It depends on treasury allocation and network’s hash rate. Maximum supply of DASH is assumed to range from 16 to 21.3 million coins. Maximum supply requires a deterministic figure. Hence, this metric is not applicable to DASH.

Source: THE SILICOIN analysis, CoinMarketCap

16. NEO

As of 14 January 2019 there exist 100,000,000 NEO.

50 million were allocated to the participants of crowdsale. The remainder is held by the NEO Foundation and is subject to lock-up provisions (NEO Council was restructured into NEO Foundation 1 April 2018).

50 million NEO held by NEO Foundation should be deemed treasury coins because they should be spent on the development of the protocol (see Distribution Mechanism section of whitepaper).

However, we are not aware of NEO Foundation providing reports on the usage of its tokens. That means that it is impossible to find which NEO treasury tokens should be included in the outstanding supply and which are still in the treasury.

It is generally known that 15 million NEO were released to NEO Council on 16 October, 2017. Every year additional 15 million will be released from lock-up until all 50 million are made available to the council.

NEO council made many investments through NEO Global Capital. Based on this information we believe that that the majority of NEO Foundation’s tokens were distributed to ultimate beneficiaries.

Therefore, NEO treasury coins released from lock-up should be assumed to be outstanding.

CoinMarketCap calculates NEO market capitalization based on 65 million coins outstanding. This figure is outdated as on 16 October, 2018 additional 15 million NEO treasury tokens should have been released from lock-up.

Source: THE SILICOIN analysis, CoinMarketCap

17. NEM

As of 14 January 2019 there exist 8,999,999,999 XEM.

To calculate NEM Market Capitalization CoinMarketCap uses the total supply of XEM. That is incorrect.

From the genesis large # of XEM was allocated to internal funds to provide financing for the development of the protocol and the community. One may find the details of XEM allocation to funds here.

Fund accounts still hold a substantial # of XEM. These coins will be used for the development of the protocol some time. Therefore, they should be deemed treasury coins.

As of 9 January 2019, 3.42 billion XEM or ~38% of total supply was held within fund accounts. NEM Rich List was retrieved here, account balances verified here.

Source: XEM Rich ListSource: THE SILICOIN analysis, CoinMarketCap

18. Ethereum Classic

As of 14 January 2019 there exist 107,514,064 ETC.

Unlike in case of Ethereum, maximum supply of Ethereum Classic is capped at 210 million coins.

Following The DAO hack, some people claimed that funds stolen from The DAO are kept on this ETC address. This address still holds 3.36 million ETC. The last outgoing transaction from this address took place on 7 December 2016.

Two years is not enough for these coins to qualify for “Lost”. So they should be included in outstanding supply until further clarification of their status and ownership.

The research on lost coins on Ethereum Classic network should be performed to adjust outstanding supply figure.

Source: THE SILICOIN analysis, CoinMarketCap

19. Maker

As of 14 January 2019 there exist 1,000,000 MKR.

Maker DAO Foundation holds 271,772.23 MKR. This information is confirmed by Maker representatives in this Reddit post. They are treasury tokens as the goal of the Foundation is to develop Maker protocol and ecosystem.

Source: THE SILICOIN analysis, CoinMarketCap

20. Zcash

As of 14 January 2019 there exist 5,670,443.75 ZEC.

ZCash mainnet was activated on 28 October 2016. For the first 4 years (until 28 October 2020), 20% of all ZEC mined will be allocated to the Founders’ Reward pool.

The two largest beneficiaries of the Founders’ Reward are the Zcash Company strategic reserve receiving 1.19% and the non-profit Zcash Foundation receiving 1.44%. The strategic reserve fund will go towards new projects to increase the value of the Zcash Company and the Foundation fund will benefit the maintenance and evolution of the Zcash protocol in the interests of all users, present and future (see Zcash FAQ).

As of 14 January 2019 1,134,088.75 ZEC were allocated to Founders’ Rewards.

Coins held by the Foundation should be deemed treasury coins. However, the Foundation does not report when it uses funds and what are the remaining balances. Foundation’s wallet address is not known.

Therefore, we should assume that ZEC transferred to the Foundation are spent as received and request further clarification from the Foundation.

Maximum supply of ZEC is 21 million (see Economics section of Zcash FAQ).

Source: THE SILICOIN analysis, CoinMarketCap

We encourage community input to find correct outstanding supply figures for all major coins.

If you have questions or comments on this article, feel free to contact us in Twitter or by email.

Transparently yours,THE SILICOIN team

Crypto market size overestimated by $10 billions (11%) was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.