Supply-Adjusted CDD accounts for the impact that coin day accumulation by the total supply has on the Coin Days Destroyed metric. As more coins are issued and more coin days are accumulated by the aggregate network, the lower bound of coin days destroyed will increase over time.
This results in a steadily rising 'floor value' and potential for higher 'peak values' of CDD which therefore requires additional consideration in analysis to accurately compare measurements from different points in time. Adjusting for supply aims to provide a more proportional and equivalent view of indicator values over the history of the market.
The rationale behind supply adjustment is as follows:
Early in a protocol's life, coin supply is small and so is the aggregate accumulated lifespan and thus the required adjustment is larger to scale up in line with more recent values.
Later in a protocol's life, coin supply is larger and so is the aggregate accumulated lifespan so the required adjustment is smaller relative to recent values.
In general, horizontal levels and values in supply adjusted metrics are likely to more consistent over time than those for the base metric. The trends, fractals and interpretation remain consistent between both the original metric and supply adjusted variants.
Supply-Adjusted CDD simply divides CDD by the circulating supply (total amount of coins issued).
Hans Hauge (May 2019)
Hans Hauge - Introducing Binary Adjusted BDD