How do you determine the value (price) and market cap of a token?
To understand the value, or price, of a token, look at the liquidity pool. The price of a token is calculated relative to its pair in the liquidity pool.
Imagine we have a token called TURTLE. We can see that TURTLE is paired with BNB, and the liquidity pool has 1 million TURTLE tokens and 10,000 BNB coins. To calculate the price of one TURTLE token, we’d divide the number of BNB by the number of TURTLE. Ten-thousand divided by 1 million is 0.01.
This means that each TURTLE token is worth 0.01 BNB. This is therefore the price that we’ll swap at given the current liquidity pool values. To find the fiat value of this, we would then look up the price of 0.01 BNB in US dollars. If 1 BNB is worth $400, then our TURTLE tokens would be worth $4 each.
Now, we can take our math one step further to understand the market cap, or market capitalization. The market cap is the total value of all of the tokens. This can be calculated using circulating supply or total supply. Since it can be difficult to determine circulating supply, let’s address the latter case.
Using our TURTLE token example, let’s say we have 5 million TURTLE tokens in the total supply. To find the market cap, we multiply the total supply by the price. With a value of $4 per TURTLE token, we multiply 5 million by 4. This means that TURTLE has a market cap of $20 million.
Of course, as soon as people start swapping and the liquidity pool ratio changes, our price and market cap will both change accordingly.