It’s the “WHALES” aka people with at LEAST several million dollars worth of cryptos in their possession, in “old school” financial terms these are the people known as “High Net Worth Individuals” (HNWI).
These HNWI’s are whales because whenever they make trades in the market they make huge waves due to the sheer volume they’re transacting with.
But who are these whales??
Well, they consist of the early adopters/hodlers of Bitcoin and other altcoins, Venture Capitalists, cryptocurrency hedge funds, investment bankers, and retail investors who got in early to trade or invest their way to millions.
What‘s most notable here is that the majority of the market is still predominantly retail investors a.k.a people who like me and you or what they like to call in old school financial markets the ‘Mum and Dad’ investors.
If we were to rank the investment groups in terms of who currently owns the most market share in the crypto space, my guess is that it would look something similar to this:
- Early adopters, hodlers, crypto enthusiasts and experts
- Cryptocurrency Venture Capitalists and Hedge Funds
- Retail Investors aka “Mum and Dad” investors or perhaps a more apt name in the Cryptospace would be “Son and Daughter” investors. (Millennials rule this space right now with the average age of Cryptocurrency hedge-fund managers being 26 as per Blockchain Capital survey)
- Investment Banks and Wall Street
What’s happening right now is that a lot of the traditional old school financial institutions aka the REAL whales such as pension funds, insurance companies, endowment and mutual funds WANT in on this space but they can’t get in.
And even many of the traditional hedge funds, investment banks, and other big name investors can’t, won’t or aren’t in this market yet for several reasons that are covered below.
These institutional investors are the real whales because if you look at the sheer amount of money they handle, it’s a joke compared to where the crypto market is currently at.
Pension funds for example control over $6 trillion in assets yet the crypto market cap hasn’t even touched the trillion dollar mark yet.
Why Institutional Investors Are Getting Beached
If you went to the Consensus Invest 2017 conference in New York last November you may have heard the market cap of $1 trillion for crypto being thrown around. Well this is what heads of investment institutions agreed would make entering the crypto markets “feasible”.
Anything below $1 trillion would be too small for these fat ass whales to jump in because that’s just how loaded these guys are. At the conference it was also evident that insto investors had strong interest and desire to enter the cryptosphere.
Recently, OMERS, an Ontario pension fund created an Ethereum-focused public company that plans to raise $50 million to invest into Ethereum as well as ERC20 tokens.
A Bubble? Ha! We’re Only Just Getting Started
At the current time of writing the total market cap of the crypto market has been fluctuating around $550 billion. This might seem like a lot but when you take into consideration the size of other financial markets it’s like comparing a Chihuahua against a Great Dane.
Market Cap Comparison:
- Cryptocurrency = $550 billion
- Dot Com Bubble at it’s peak = $3 trillion
- Gold = $7.7 trillion
- Global stock markets = $73 trillion
- Global real estate = $217 trillion
- Derivative markets = $544 trillion
Okay you get it, these whales have a lot of money to play with but they can’t jump into the ocean just yet even though some of them may desperately want to.
- Lack of laws and regulations — if you’re investing other people’s money you can’t just take it and“invest” it all on black at the casino.
- Security and custody of cryptocurrency assets — these people don’t know how a blockchain works let alone how to securely store private keys. Even if they did, these methods would not stand up to compliance with SEC’s rules and regulations in terms of custody.
- The market is too small and there’s no lubricated way for these whales to slide into this small pool without causing huge waves and splashing liquid over everybody.
In regards to (1) and (2) solid progress is likely to be made on these fronts by I would presume at least the second half of 2018. What I really want to talk about in more depth here is point 3.
“Because institutions are the largest force behind supply and demand in securities markets, they perform the majority of trades on major exchanges and greatly influence the price of securities.” — Investopedia
Opening The Floodgates for Whales and Seamen to Come Through
You see, if an insto investor came into the crypto market right now with $100B to play with, at our current market cap of $550B this already represents almost 20% of the entire market!
Can you imagine what would happen if $100B was injected into this market? Not only would everything shoot up like crazy but people would FOMO hard and also want to get in on the action causing prices to surge even higher.
The impact institutional investors and real whale money would have on this sector is enormous.
In fact, we’ve already witnessed and experienced some of these effects with the introduction of Bitcoin futures and this is actually the only real way these investors are able to “invest” and make money in this space at the moment.
That is until they get access to dark pools…
What are dark pools?
Dark pools are trading exchanges where you can trade shares or other assets through a HIDDEN order book.
These things aren’t called dark pools because the people who use them are so filthy rich they can’t see past the bands of money piled up in front of them.
No, it’s because when you trade or exchange on a dark pool, no one can see the buy or sell orders waiting to be fulfilled.
It’s all purely anonymous and “off the books” — or at least off the order books.
In this context we should really be referring to it as dark oceans because generally only the biggest baddest creatures swimming in these “pools” are whales and sharks.
What’s the point of using a dark pool?
Well, it allows whales to trade cryptos without severely impacting the market prices.
If they want to buy a shit load of Bitcoin at $11,000 and people see a buy order on the exchange for $100 million this buy wall would expert a strong upward pressure on prices.
This is why, in my opinion, when you start hearing about institutions finally getting into this space, that’s when you might want to start considering when the bubble is going to pop and thankfully you’ll know when these players do enter because of the effect they will have on the market.
The Republic Comes to the Rescue
Aside from dark pools lubricating the entry point for instos by allowing for trades to be made with minimal price slippage, another major factor stopping them from entering is the SECURITY and TRUST that whoever they trade with won’t screw them over and that whatever exchange they trade on doesn’t just get hi-jacked or exit-scams.
The truth is since 2016 dark pools have already been available on exchanges such as Kraken and TradeZero. So why haven’t instos come into this space already?
Well, who even uses Kraken or TradeZero? And as mentioned earlier, there are issues around the custodialship of crypto assets as well as the laws and regulations that must be complied with.
The other major aspect with these exchanges however is that they aren’t major players in the game, they aren’t insured, nor do they offer a great deal of trust.
If these instos trade on these exchange their funds are not guaranteed or secured if for some reason it gets hacked, stolen, or lost whilst they are trading.
If these instos are going to come into this game, they need to cover their asses on all fronts.
They can’t come into this market with other people’s money and then say “Ah shit, yeah, uh about that $200 million of yours? It got rekt, you got justed by the damn exchange, sorry bro!”
This is where Republic Protocol comes in to save the day.
Republic Protocol: A decentralized dark pool for trustless cross-chain atomic trading of Ether, ERC20 tokens and Bitcoin pairs.
Yeah, I’m sure you do buddy! But just in case you didn’t catch of all that let me break down what all of that means.
Decentralized: means there’s no single entity governing the exchange so there’s no middle-man required to operate the dark pool. Kraken and TradeZero offer dark pools however they act as the centralized entity that buyers and sellers must go through in order to trade.
What Republic Protocol aims to do is create a decentralized dark pool and we’ll get into why that’s important shortly.
Trustless: Because the dark pool is decentralized this means you don’t have to trust anyone or anything (apart from the protocol).
So there is no chance of an exchange going down or getting hacked causing you to lose your funds. And the way the exchange is designed allows you to trade without even needing to trust the party on the other side.
Cross-chain: The protocol allows trade to happen across different blockchains, so Ether on the Ethereum blockchain can be traded against Bitcoin on the Bitcoin blockchain.
Atomic trading: This derives from the decentralized aspect of the dark pool, it’s essentially trading one coin for another coin WITHOUT needing to go through an exchange. So whoever is trading will essentially be trading directly with the other party who is either buying or selling.
Think of it like a better more refined version of Shapeshift or Changely because in this case you’re trading 1-on-1, peer-to-peer with the other person, whereas Shapeshift and Changely still goes through exchanges resulting in higher fees and security concerns.
To Bring It Full Circle
What Republic Protocol will ultimately offer is the ability for whales to trade cryptos without causing massive exuberance or an influx of calls into suicide hotlines because of how their trades would impact the market.
The other major benefit is security so whales don’t have to fear losing all of their money through a centralized exchange. And when you’re talking about trading with tens or hundreds of millions of dollars, this is a serious concern.
I won’t get into all the technical details for how exactly Republic Protocol does all of what they set out to do as it’s all covered in depth in their whitepaper.
TLDR version; they’ve outlined an exchange protocol that delivers privacy and security through dark pools that has been mathematically and cryptographically proven.
These are a few things that caught my attention looking further into Republic Protocol and why I think they have a strong chance at establishing themselves as the premier decentralized dark pool exchange:
- Republic Protocol isn’t tied to Ethereum and can be migrated to any other platform so is cross-chain compatible. This means almost any crypto exchange trading pair is possible.
- There are no competitors externally or internally within the blockchain space doing what these guys are doing. With external exchanges being centralized and others projects in the blockchain space that offer decentralized exchanges aren’t completely trustless nor are they built around dark pools and hidden order books.
- Over $90 B in trading volume is done between Bitcoin, Ethereum, and ERC20 pairs and this will only grow over time. In traditional financial markets, dark pools account for ~20 to 30% of all trades in the US so this could mean at least $18 billion transacted over dark pools in the crypto market.
- There is an ACTUAL use case for the Republic Protocol REN token as traders need it to pay trading fees, this fee is then paid out as a reward to miners (nodes) that successfully match and execute trade orders. The REN token is also used as a preventative measure against Sybil attacks or malicious parties attempting to decipher prices, order books, or liquidity in the market as a valuable amount is required as an upfront bond to setup nodes or conduct trades.
Republic Protocol has a stacked lineup of advisers and partnerships to boot:
- Loi Luu — CEO of Kyber Network, which is a decentralized exchange protocol similar to 0x and LoopRing
- Phabhakar Reddy — Investor and Advisor, Accel Partners
- Dorjee Sun — COO Santiment, market intelligence agency and trading platform
- John Ng Pangilinan — Partner, Signum Capital
- Anup Malani — I looked this guy up and he’s an absolute boss in terms of academic credentials (seriously), he looks to be advising in terms of Economics/Trade
- Partnership with Digix Global (first company to issue an ICO on the Ethereum blockchain) who created the DGX token, which is a digital currency backed by physical gold bullion.
The project itself has a strong community backing it with hype behind it. This might be due to the implications that if the project does indeed suceed , the influx of new money into the markets is in everyone’s best interests.
Here’s a small snippet of the hype and love behind Republic Protocol that has been created and shared in the community:
Okay, okay enough of the hype and shilling now, let’s take things back down a notch and consider the challenges the project and team is likely to face.
Republic Protocol Team
Taiyang Zhang — CEO
3 years experience as Director for Neucode, a software and web development company focused on AI and high-performance systems, and 1 year as co-founder of Virgil Capital, a quantitative cryptocurrency trading firm.
Loong Wang — CTO
Bachelor’s Degree in Computer Science with 7 months research experience at Australian National University, and under 2 years experience as the Lead Software Developer at Neucode.
Noah Ingham — Developer
Background in mathematics and a bachelor’s degree in advanced computing, with 9 months direct field experience at TKBT and NICTA prior to working with Republic Protocol.
Susruth Nadimpalli – Developer
Bachelor’s degree of advanced computing with 4 months prior experience.
Hugh Greethead, Community Lead
Bachelor’s degree in advanced computing and 4 months prior experience.
Aside from the CEO and CTO, the team has minimal work experience and look to be developers fresh out of academia. The CEO has some relevant background knowledge and experience in cryptocurrency trading.
On this front, the devs seem relatively inexperienced and this begs the question as to whether they are capable of building out the protocol.
It’s clear from the whitepaper that the team has a strong technical knowledge and understanding of how to build out the protocol, yet whether they actually possess the experience and technical knowledge to execute on the project is another matter.
They are actively hiring developers and mathematicians to help strengthen the team in this regard however so that may quell this issue.
Liquidity is Key!
When Max Boonen, Founder of B2C2, was asked about decentralized exchanges at the Consensus Invest 2017 conference, he mentioned most developers are focusing on the wrong things because “liquidity is key, traders will favor centralized exchanges over decentralized exchanges any single day if liquidity is better on centralized exchanges”.
Liquidity definitely is a key factor as no one wants to be trading or transacting on an exchange that takes hours to fill a trade, this would be like someone setting up a MySpace account in 2018 to be “social”.
What Boonen didn’t mention however is that a major factor underlying liquidity is the confidence traders place in the security of such exchanges and in the transactions themselves. If no one is confident that the coins they put into the exchange are secure or will be able to be withdrawn then no one will trade or transact on the exchange.
On this point however Republic Protocol’s advisors and partnerships can definitely help open doors and opportunities to other blockchain projects as well as institutional investors to help with liquidity.
Kyber Network’s guaranteed liquidity platform definitely meshes well with Republic Protocol.
Work in Progress
As of now the project is a whitepaper project however daily progress and updates are being made on their github. The teams roadmap lays out a live private and public testnet in Q2 2018 with Mainnet operational by Q3 2018.
The only concern here lies in whether the team has the dev power to execute and follow through to deliver the protocl.
Other than that, the roadmap has a realistic trajectory and may even play into their favour as when the mainnet goes live this might be around the time we see the heavy institutional investors and major players enter into the crypto market once rules and regulations are in place as well as solutions to custodial matters.
It may still be a few months till we see real whales enter into the market but you definitely want to keep your eyes on this space and watch how things progress and develop.
In the words of Jake Brukhman, Managing Partner of CoinFund:
In summary, here are the key takeaways (TLDR):
- Institutional investors want to get in on the cryptocurrency market but they have several barriers to entry: (1) lack of rules and regulations in regards to cryptocurrencies, (2) custodial and security issues for digital assets and (3) easy entry into the crypto market without causing a stir.
- Dark pool exchanges provide the opportunity for High Net Worth individuals aka WHALES and insto investors to enter into and trade cryptos discreetly without causing major price fluctuations.
- Republic Protocol is the only blockchain project that will offer a decentralized and secure dark pool cryptocurrency exchange.
- Keep your eyes on this space because when institutional investors start getting in, that’s when we’ll really start flying to the moon and this is also when you might want to start worrying about a bubble popping!
What say you instos?
Are you going to come over to the dark side and…
Reviews on Republic Protocol
CrushCrypto Review: https://crushcrypto.com/republic-protocol-ico-review/
CryptoCoin Review: https://cryptocoin.com.au/analysis/ico-analysis-republic-protocol-token/
CoinCruch YouTube Review: https://www.youtube.com/watch?v=4_xRUFkA754
Disclaimer: I’m investing in Republic Protocol in the upcoming crowdsale on 3 February.