Dilution frequently occurs when a company issues additional shares. This reduces existing shareholder’s voting rights and proportional ownership of the company. The sale of additional shares is more frequent for small capitalization stocks and penny stocks. Companies that struggle gain access to capital by issuing additional shares, greatly impacting the investment by prior shareholders.

Dilution can occur via secondary offerings, exercising of stock options, or the conversion of convertible bonds into equity. Dilution is also prevalent in the crypto market in which struggling projects issue many more tokens and thereby dilute the investment of prior token owners (#tokenomics).

Dilution is not to be confused with Stock Splits (in which also additional shares are issued). Stock Splits are neutral to existing shareholders.

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