I really don't know how investment definitions break it down but to me, what you are describing would be more like wholesale selling into retail because usually a company desperate to raise capital or a toxic lender dumping share is more like a fire sale to unload shares that they have no intention of re-purchasing at a lower price like a short seller would be looking to do.
My perception of retail sell-off would be if I am selling shares to you or you to me so MMs are't really flooding the market with new shares per say, but as designed function with all else equal they are just facilitating the emotional desires of traders buying or selling in a panic and skimming the cream off in the process by naked shorting along the way. That said, yes a big sell-off can definitely have the same effect of dilution as previous privately held shares start entering the market at whatever alarming rate is dictated by the catalyst that stimulated it.
But, personally I wouldn't really classify it as the standard definition of dilution because the actual share structure never got any bigger and from a supply and demand perspective would typically be a more "temporary" effect as existing shares just got re-distributed into the hands of folks that paid less for them and are likely to take profits but hold some or most for bigger profits depending on if or how rapidly it rebounds. I use "temporary" very loosely as temporary could be years depending on circumstances.
The standard definition of actual dilution should be the same as diluting a concentrate or "watering something down" So although this is not a good analogy since Ice tea is better when it is cold but if you work with it, it kind of makes the point regarding a stock:
So if I have a pitcher of Ice Tea that is half ice and half tea to start with, by the time the ice is melted my ice tea is now chilled and twice the volume so will stay colder longer with the extra mass, but is also watered down and tastes weak, sort of like a stock where the company or toxic lenders just continuously sell shares but never makes any real revenues or efforts of recovering shares.
On the other hand if I have a couple of frozen water bottles that I dropped into a half full pitcher it looks more than it is and will chill the tea but didn't actually water it down so when you pull the now thawed water bottles out, the tea is cold but still has the same strong taste and not watered down. Similarly a large group shorting a stock has sort of the same effect: they are selling shares that they at some point are forced to buy back and return so the temporary illusion and effect is a bigger share structure. But after the stock has chilled and they buy back the shares to return to the lender; the actual concentration of the share structure hasn't changed it just cooled down some until another catalyst warms it back up.
Just my viewpoint
AI
