It’s not too difficult to figure out how crypto whales came to be named after the biggest occupants of the oceans. After all, when a whale jumps out of the water, it makes waves. A crypto whale has similar power over the crypto markets. A whale holds enough of any given asset that when they decide to jump out of their investment, it makes serious waves in the value of that asset.
This is the core reason why whales, despite their revered status, are dangerous to the broader crypto community. A whale selling off some or all of their holdings in a particular asset can impact the price of the asset itself. If a group of whales comes together and decides to sell in the same period of time, they can bring down the entire market.
Furthermore, a whale holding vast quantities of currency risks decreasing the liquidity of the market for that currency.
Bitcoin has some of the most well-known whales, including the Winklevoss twins and Satoshi Nakamoto himself. However, these whales haven’t really proven to be dangerous so far, mainly because they’re known long-term HODLers and Bitcoin is now so huge that liquidity is less of an issue.
The whales to worry about are the ones who offload their assets to the open market. Last year, two anonymous Bitcoin whales sold off more than 13,000 BTC worth over $100 million, causing the price to drop $200 in just 20 minutes.
More recently, in December last year, a whale moved around 35 million Litecoin, representing 60 percent of the coin’s total market cap! The movements represented more than $1.1bn and resulted in a single whale owning 15 percent of the Litecoin currently in circulation.
This was a buy move, so it didn’t negatively impact the price. But imagine the carnage in the LTC markets if the whale later decided to offload all their holdings in another fell swoop.
EOS has been sitting comfortably in the top 10 cryptocurrencies by market cap since it launched in the middle of 2018. However, that could change very quickly given the token’s dependency on whales.
Just 10 EOS mega-whales control 50 percent of the tokens in circulation, according to Bloomberg. If one or more of them decides to dump, it could wreck the price of EOS for everyone else.
Crypto Whales Aren’t Born, They’re Created
Many of the whales in the older cryptocurrencies like Bitcoin and Litecoin entered the game very early. They bought up large numbers of a token when the price was relatively low. This created a desire to become the next whale, which is partly what fed the ICO boom in 2017. Investors flocked to new projects in the hope that their funds would provide a boost to the next Bitcoin, Litecoin or EOS.
Of course, in the height of ICO mania, many blockchain startup founders didn’t care who was buying their tokens, as long as they got the funds needed to develop their project. But this is short-term thinking. Ultimately, it’s damaging to a project and the broader ecosystem that champion and benefit from decentralization.
If a project or company is funded by just a few investors who buy up all the tokens, the project itself will crash and burn if one of those investors later changes their mind and pulls out.
Even if 50-60 percent of tokens are widely distributed and the remainder is held by whales, the larger group of smaller investors are putting all their hopes into the whales not to stage a token sell-off.
Why Digitex Is Different
You probably noticed DGTX value fell sharply yesterday, which illustrates our point in the most timeliest of ways. One of our initial investors decided to sell 4 million DGTX and that affected the whole community. We don’t want to be in that position again.
At Digitex, we’re taking active steps to deter whales. This is one of the reasons we decided to launch the Digitex Treasury. The Treasury is taking 50 percent of the 200 million tokens we initially set aside for market making and reallocating them to a rolling token sale.
The rationale for this is that 100 million exchange tokens, representing 10 percent of DGTX total supply, is more than enough to ensure market makers can inject liquidity and maintain tight bid-ask spreads.
Furthermore, it allows Digitex Futures to create a sustainable source of funding for marketing and development activities over the next two and a half years, which will enable us to compete with exchanges such as Bitmex and OKEx.
The funding will come from releasing these tokens in a series of 10 tokens sales of 10 million DGTX each quarter.
This staged approach to selling tokens is a deliberate step in line with the strategy of Digitex Futures to operate as a hybrid and democratic exchange, governed by token holders and avoiding a stranglehold by a few rich whales.
The Digitex Treasury Is Anti-Whales
We’re imposing a $50,000 limit on the purchase of tokens to any one buyer in each sale. This prevents any single whale investor from swooping in to scoop up a volume of tokens that could skew the control of the exchange and create illiquidity in the market for DGTX.
By allocating the funds raised from the token sale to further growth, we will increase the number of DGTX token holders overall. This creates greater liquidity for the token and ensures that we achieve our goals for 2019 and beyond.
Given that the entire business model of Digitex Futures is to operate a commission-free service, our main incentive is to drive up the value of the DGTX token through creating demand for the exchange’s services.
We’ll generate this demand through marketing and promotional efforts to a diverse community of users, which will be funded using the sale proceeds from the Digitex Treasury.
All this, without a whale in sight.
If you want to know more about the launch of the Digitex Treasury, check out our launch post, our revenue model recap, and Adam’s AMA. Still got questions? Hop on over to our Telegram group and join the conversation.