Decentralization
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Cryptocurrencies owe their success primarily to the fact that they are decentralized. Fiat currencies, such as the dollar, the ruble, or the euro, are highly centralized: they are completely dependent on their issuer-the state. Users have no choice to trust fiat currencies or not. At best, they can invest their money in the currency of a foreign country if it seems more stable.
Cryptocurrency, on the other hand, does not depend on anyone but its users. Its appeal and reliability rest on the fact that it is independent of the sometimes dubious decisions of the authorities. But how decentralized is the cryptocurrency market really?
Yes, it is independent of states, but there can be a threat to decentralization from the other side – concentration of the lion’s share of coins in the hands of a few holders. Such large holders are called “whales,” and our job is to figure out how big these mammals can grow to.
Recently, Coin Kickoff analysts did a study on what market share whales. Whales in their understanding are holders who own 1% or more of the total number of coins in circulation. Such investors play a huge role in determining the value of a cryptocurrency, due to the fact that small players are guided by their activity, taking it as an omen of price change.
Analysts at Coin Kickoff found that in 36 of the 50 largest crypto-assets by capitalization, whales collectively own more than half of the coins, with 13 of those holders owning more than 90% of the tokens.
Whale dominance
Whales’ share was highest in the Bitfinex exchange token UNUS SED LEO (LEO), with 98.95% of LEO owned by just two people. The reason for this is the special nature of the token. It was created to cover Bitfinex’s deficit, and its smart contract calls for tokens to be burned as the exchange redeems them, thereby covering its debt.
Huobi BTC (HBTC) is in second place in this ranking with 97.49% of tokens in whale hands, while Tether Gold (XAUT) is in third place with 97.16%.
Notably, of the top 50 crypto-assets, almost half – 23 – have 70% of coins in the hands of big players. Notable among them are Axie Infinity (AXS) with 94.88%, Gemini Dollar (GUSD) with 92.17% and Cronos (CRO) with 91.49%.. There is also Curve DAO (CRV) with 82.76%, The Sandbox (SAND) with 78.98% and Polygon (MATIC) with 71.15%. They are followed by Shiba Inu (SHIB) with 68.87%, True USD (TUSD) with 67.77% and wrapped tokens SETH and WBTC;
AAVE, Chainlink (LINK), Uniswap (UNI) and Maker (MKR) are also among the 36 crypto-assets with the majority of tokens in whale hands.
It is Bitcoin that is the most decentralized – whales own only 1.15% of BTC. This, of course, is due to the specifics of the study, for which a “whale” is someone who owns 1% or more of all coins;
Bitcoin turned out to have only one whale – Satoshi Nakamoto, who owns 1.15% of all existing BTC. Moreover, Satoshi never used or moved these coins. And there is a high probability that these BTCs will never move, because many believe that Satoshi is dead.
As for ETH, the whales own 22.25% of the coins, which is much higher than BTC. DASH, LTC, USDC and USDT also account for less than 30%, while DAI and BCH account for less than 40%.
Bitcoin is the most decentralized cryptocurrency
The Coin Kickoff study led to two very important conclusions. First: The vast majority of cryptocurrencies (at least among those with the largest capitalizations) are dominated by whales. Second: bitcoin is the most decentralized of the reviewed cryptocurrencies, it is far ahead of its competitors in this sense;
It is the only cryptocurrency with a whale share of less than 2%. In second place – Dash with 8%. However, the Dash is now a project that, judging by some indicators, is “fading,” while Bitcoin continues to develop and dominate the market. Moreover, only BTC and DASH showed the result below 10%, because the third in the ranking is ApeCoin (APE), where the whales have already 11.46%.
It turns out that the concentration of bitcoins in the hands of whales is almost seven times less than the second least concentrated cryptocurrency, and almost ten times less than the third. With ether, the difference is huge – more than 19 times.
Study disproves myth of Bitcoin’s whale population. It proves the opposite – BTC is much more decentralized cryptocurrency among all its counterparts.
Concentration risks
The more coins a whale owns, the more it can affect the market price of the cryptocurrency, for example, by quickly selling a huge number of tokens. In particular, those who own more than 1% of all existing coins of any cryptocurrency can quite easily have a significant impact on its value.
It is true that there are cases where whales are both issuers of. Then the risks are somewhat lower, because when selling coins en masse, the whales will hurt themselves first. But if there are many whales, and they are not among those who run the coins, the risks are more than real. It has already happened many times that the price of cryptocurrency has fallen after massive sales by whales.
Even in cryptocurrencies like ETH, where in total the whales own less than a quarter of all coins, they can still seriously collapse the price at will.
On the other hand, since the only major whale in the Bitcoin network shows no signs of life, such risks to BTC are much lower. However, we should not forget that there are other, smaller whales, which own less than 1% of coins, and they can influence the price, although to a much lesser extent. Nor should we forget that mass sales by small or medium-sized holders can have a similar effect if they are done at the same time.
This material and the information in it do not constitute personal or other investment advice. The views expressed herein are those of the author, research portals and experts and do not necessarily reflect the views of the publisher.