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SFM Labs - Whales

Updated: Sep 7, 2022

A quick disclaimer upfront: All information given in this presentation is researched and intended to be educational and illustrative to the specific topic, as always. Any companies, products, people, or other items mentioned do not constitute an endorsement, recommendation, or relationship. Every owner has to do their due diligence, as the decisions and responsibilities about any investment lie with the owner. This information is not financial advice.

What is a whale?

A whale is a holder of a project or a company that owns large shares. In the field of cryptocurrencies, this refers to the number of tokens in relative comparison to the total mass, where a whale is already measured with a mass of tokens in comparison, which no other after him or only a few can reach (whether because of the dollar value or because of the advancing project and the availability). A whale is incidentally also a holder that can influence the actions of the chart through massive trading since it has a certain mass that can lead to changes in the form of rising or falling prices.

How are whales created?

Whales can be created in different ways, but they are always associated with an accumulation of cryptocurrencies.

For example, whales can be created by early entry into a project, because the larger investment at a low price creates a weight within a certain group of investors, who then own a larger share of the project. This can usually occur through a presale, but also through direct purchasing at the early stages of project development.

Otherwise, whales can also be created by investing heavily at an early stage of a project before utilities are announced. the mass accumulated as a result before a rise in the market price is then worth many times more and is no longer accessible for most investors, as the value of any token has risen significantly in comparison.

Different behaviors of whales

There are different behaviors of whales that can appear positively and negatively in a project. The following three behaviors make up the majority of all actions as the overarching action:

1. The dumping whale

This behavior is attributed to a whale that takes advantage of a price increase shortly after a presale or utility announcement to exit directly. In doing so, he usually unloads a lot or almost everything he has acquired and thus sends the chart on a downward spiral.

2. The partially selling whale

This whale partially sells its cryptocurrencies. He waits for a price increase and then dumps a certain number measured by the influence on the chart so that it remains healthy and still continues to grow in pieces. In this way, the whale tries to take a profit little by little in small segments when the short keeps rising, doing here the opposite of a DCA (dollar cost average) holder who keeps adding cryptocurrencies to lower the basic purchase price. This whale thus causes his selling price to rise more and more due to the buying pressure, as he does not stop the chart completely but ensures that it can continue to grow despite "resistance". Thus he gains profit sequentially.

3. The good whale

The good whale is more or less a positive representation of whale behavior. The good here refers to the time of selling because the whale has no intention of achieving short-term profits and thus hinders the market's growth. Instead, he makes sure that he waits until a certain point in time when the price situation is stable or shows only minor growth, and then sells - without doing much harm to the project. It must be emphasized that the word "good" is a subjective perception for investors because it allows those with less investment to see an ever-growing and healthy chart.

Advantages and disadvantages of having whales in a project

Whales have advantages and disadvantages. Many think that there are only disadvantages with a whale in a project since it can both determine the price and manipulate the chart. But this is not the case.

Whales can be very advantageous for the development of a project, for example, if the project gives the benefit of not having to sell cryptocurrencies and passively generate money. The whale then does not have to sell and remains in the system, which ensures the basic stability of the chart. Also, one must not forget that the whales with their investment already in the early stage of a project provide a lot of money, which would not be available to the project under circumstances through a normal trade. In addition, a higher investment also means an opportunity to increase marketing, because with fewer assets in circulation there is also less available for free trade, which increases the price and offers an attractive opportunity for many new investors due to the location to enter before the price rises too far.

But there are also - as mentioned - disadvantages. Power, manipulability, and control are what lead in the decentralized financial market to whales taking advantage of the position to "play" with the currency. In doing so, they generate profits, such as through arbitrage trading or fake trading in the market, which can create panic and push others to sell or buy. This in turn leads to more buying or selling of whales to generate more profit.

What project leaders can do to prevent whales

Project managers can take several steps to prevent whales from abusing the opportunity to profit at the expense of the project's health.

For one, a project can implement a presale limit, so that only a certain number of tokens can be purchased per wallet. Clearly, the quantity can also be purchased with different wallets to get around this, however, it already prevents some investors from acting already, as they do not want to go through the hassle.

On the other hand, a project can also implement an anti-whale limit, which allows sales at a certain amount within a time period. This avoids huge sales that send a chart sharply in the opposite direction after a rise or an announcement of a utility.

Finally, utilities can be built into the contract that gives holders more reason to hold, such as passive rewards. Also, a buy and sell tax can be introduced here, which penalizes every action with a tax and thus also prevents initiating a quick sale when profits are accumulated.

Future outlook on whales

Whales are good and bad for a project. As mentioned above, they bring money, which helps at the start of a project, but can later become a plague, if the position of the whale is used to exploit the project.

In the future, projects will take care to build in hurdles at launch that prevent direct sales or make it difficult for whales to collect. This will ensure the longevity of a project while creating healthier growth. It is important to constantly monitor and adjust the rules if the influence of whales becomes too strong. However, care must also be taken not to manipulate the project design in a way that limits trade too much.



Gandalf - SafeMoon Educator

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