Token dilution occurs whenever the circulating supply of a token increases without a proportional increase in the protocol's underlying value or demand. Sources include scheduled vesting unlocks (team, investor, ecosystem allocations), ongoing staking or liquidity mining emissions, airdrops, and treasury spending. Each new token that enters circulation makes every existing token a smaller fraction of the total supply. The practical impact on price depends on the balance between supply growth and demand growth. A protocol adding 15% to its circulating supply annually through emissions needs its demand (measured by transaction volume, TVL, or active users) to grow at least as fast to avoid downward price pressure. This is why dilution analysis requires context — a high emission rate paired with rapid adoption may be less harmful than a moderate emission rate in a stagnant ecosystem. Dilution compounds over time, making long-term projections critical for position sizing. A token with 40% of its supply still locked represents significant future dilution that the market may or may not have priced in. Comparing market cap (current circulating supply × price) against fully diluted valuation (max supply × price) reveals how much dilution the market expects. A wide gap between these two metrics signals substantial locked supply that will eventually enter circulation.