The Circulating Supply metric is of utmost importance within the crypto asset industry and for good reason. It, along with a crypto asset’s per unit price, allows investors to better understand the relative valuation of different assets. However, the metric has been mired in controversy due to the difficulty, in some cases, of determining an accurate measure of it – this has been a particular problem for crypto assets like XRP and Bitcoin Private. This report will break down the circulating supply metric and then explain its implications with reference to XRP and the metric-related issues it has faced.

Circulating Supply Explanation

The primary utility of the circulating supply metric comes from its ability to help investors calculate the “market capitalization” of a crypto asset, that is, its total supply multiplied by its price. For stocks, the market capitalization measures the total value of a company and the same generally holds for crypto assets. The issue is that, whilst in traditional finance the float – the number of outstanding units available for trade on the market accounting for locked-up shares held by company employees and investors – can be calculated in a pre-defined way and restrictions on unit lock up are enforced by law, the same does not exist for crypto assets. While there is promise of smart contracts enforcing vesting periods in the same way legal guidelines do, this practice is not yet widespread.

Circulating supply can be defined as the total amount of crypto asset units in existence which: is not subject to any programmatic or contractual restrictions or lock-ups; is visible on the crypto asset’s public ledger; and excludes project, foundation or founder units which have not yet been soldⁱ.

Let’s begin with two working examples of the circulating supply metric: Bitcoin and Ethereum. We can break down the differences in the two crypto assets’ circulating supply schedules by appealing to Messari’s demarcation of the metric’s five inputsⁱⁱ:

• Token Generation – (i) Initial Generated Supply, and (ii) Maximum Supply
• Programmatic Inflation – (i) Defined Inflation Policy & Forecast, and (ii) Method for Amending Inflation Policy & Forecast Changes
• Programmatic Deflation – (i) Loss Estimates, and (ii) Burn Policy
• Founders’ Supply (Company & Individuals) – (i) Liquid, (ii) Vesting/Escrow Policy, and (iii) Secondary Sale Policy
• Community Supply (Investors/Partners/Third Parties) – (i) Liquid, (ii) Vesting/Escrow Policy, and (iii) Secondary Sale Policy