Will ADA Whales Ever Give Up Their Power?

(This post was inspired by @lovelacepool’s excellent comment in our Rewarding Our Community’s Contribution’s thread.)

If you’re short on time, everything you’re about to read is based on this fundamental question: Every new currency (crypto or fiat) is initially concentrated in the hands of a few people, but what incentives do those people have to distribute the new currency (and corresponding economic/political power) throughout an economy based on the best interests of the ecosystem?

Now, here’s the deeper exploration of that question. . . .

The Reality of ADA Supply Today. By now, many people in this community know that I believe in (and literally love) Cardano’s potential. However, based on the AdaTracker tool, ~80% of all the ADA in circulation today is in the hands of a small number of anonymous whales. (The top-100 holders alone own nearly 50% of the entire issued supply.) I understand that every project must start somewhere and Charles has briefly talked about the whale issue in general terms, but no specific risk-mitigation steps were mentioned. This issue is concerning to several of us in the community; and I’ve been asked about this by other important stakeholders in my network privately.

Resolution on This Issue Will Reduce Friction on Large Projects. I’m planning to commit very significant resources and relationships to several Cardano-based activities, which is why I shared some of my general concerns previously in the How to Prevent Cardano Domination thread. However, at that time, I didn’t realize ADA was so concentrated; so, I was more focused on external threats, but this is now an internal threat from within our community. And I’ve been asked about this issue multiple times already; so, it’s clear that this will create increasingly greater friction as more people become aware of the high concentration of ADA in the hands of a few. So . . .

How Do We Prevent Domination from Within Our Community? I have great respect and appreciation for the entire Cardano team, but we have no idea who these anonymous ADA whales are today. (IOHK knows, but the community does not.) All we know is they are private investors who probably invested to make a profit. That means they’re going to hold onto their ADA for as long as necessary to maximize their profit. This leads to many important questions:

  • Will they hold their ADA for a year, five years, forever?
  • When will they dump their enormous ADA wealth into the ADA market?
  • Is there anything in their ADA voucher contracts that legally requires them to sell their ADA on any particular schedule to minimize the impact on our ecosystem?
  • How will they vote with their massive stake on crucial technical and governance issues? (Stake-pooling cannot overcome a whale bloc that controls 50-80% of existing stake.)

The Whales’ Profit Motives May Not Always be Aligned with Our Ecosystem’s Best Interests. At any moment, these whales have the power to severely impact the entire ecosystem to serve their personal profit motives. Competing blockchains and adversaries can (and will) use these facts against us to claim that Cardano is an elaborate scam primarily intended to serve the interests of the whales, with all the other great goals taking a backseat to the whales’ profit motives. At this point, we have no objectively verifiable response to this accusation; so, we are forced to essentially say, “Trust the whales; they’re nice mammals!”

Cardano Is Supposed to be a Trust-Less System, but How Can We Trust Anonymous Whales? I’m sure they’re all nice and trustworthy mammals, but one of the most important goals of Cardano is to achieve a trust-less economic system that does not require faith in fallible human nature or unknown whale intentions. I’m not questioning anybody’s intentions, but these anonymous whales currently thwart the spirit and intent of that goal. At this moment, it appears that these whales represent an even greater potential threat to ADA than the Federal Reserve is to USD today because the Fed is at least theoretically accountable to the will of the American people indirectly through the election of the president and members of Congress, who appoint the Fed Chairperson. However, these unelected, anonymous whales are protected and entrenched by anonymity and contract law, which supersedes all other mechanisms of democratic governance.

ADA Voucher Sale vs. ICO. Charles/team elected to execute a private placement (voucher sale) for private investors. This approach has trade-offs: Private placements are generally more efficient, they’re perceived to be more respectable and regulatory compliant, and they avoid the stigma associated with scammy ICOs. However, private placements also concentrate wealth and power into the hands of a relatively small number of whales. Some people think this trade-off could represent a fatal flaw in Cardano’s long-term governance model. Whether that’s true or not depends on the specific terms and conditions of the ADA voucher purchase contracts. So . . .

What Were The Terms & Conditions of the Voucher Sale? Does anybody have a link to one of the actual contracts? If Charles/team are as far-sighted and thoughtful as I believe they are, then they probably included some kind of forced liquidation clause in the contract so that the whales would be legally compelled to trickle-sell their ADA (regardless of profit considerations) based on some pre-defined schedule. Of course, most investors would be resistant to this provision, but without it, the entire ADA economy is at the mercy of a few whales. That would create an outcome that is even worse than the most socioeconomically unequal societies on Earth today.

Repo Contracts Are a Good Precedent. The “forced liquidation” provision could operate similarly to a repo (forced buy-back) contract in the institutional trading/investment world. If repo-like features were included in the voucher purchase contracts, then this entire issue is relatively moot because we will be able to see the terms and conditions and then trust that the anonymous whales will be legally compelled (enforced by contract law) to slowly and predictably liquidate their ADA positions in the open ADA market. But if they’re not legally bound by any such provisions, then this issue remains a very serious long-term concern and it will create a perpetual dark cloud over Cardano’s long-term development.

Transparency is Not Enough; Actual Decentralization of Power/Control Is the Only Solution. We can all easily see that billionaires today control vast swaths of our planetary existence, but merely seeing them doesn’t change the fundamental reality: They have too much power/control over our planet. I don’t think it’s appropriate to force private investors to reveal their identities publicly because I believe privacy is a human right. Regardless, even if we knew the identities of all these whales, that transparency still wouldn’t change the fundamental reality: Too much concentration of ADA power/control in the hands of a few whales.

If Decentralization of Power is Not Achieved Early, It Becomes Virtually Impossible to Achieve Later. Even with the best intentions and highest integrity, most humans can’t resist the allure of power. This is why Lord Acton said, “absolute power corrupts absolutely.” Once humans have it, it’s extremely difficult to persuade them to relinquish their power. I know Charles/team have been thinking about this issue for a while, but unless they included a legally-binding forced liquidation provision (or functionally equivalent provisions) directly in the voucher contracts, then a post-hoc solution is not obvious or easy. That means it could become very difficult to exert enough influence over the whales to persuade them to liquidate enough of their ADA holdings to create balance and trust in Cardano’s (theoretically) trust-less monetary system.

Cardano’s Monetary Policy Is Not Enough to Create Long-Term Trust. Whenever I’ve seen similar concerns expressed in the past, the team directs people to the Cardano monetary policy. That’s a good start, but that only accounts for approximately 20% of total issued ADA to IOHK/Cardano Foundation/Emurgo. That doesn’t account for the other ~70-80% that is controlled by whales that are anonymous to the community. Thus, the published monetary policy is not enough to give us confidence that the ADA economy will not be dominated by a few whales. Even with stake-pooling, the current ADA distribution profile makes it impossible to achieve Cardano’s full potential for many reasons.

Suggestion: Establish a Timeline to Achieve a Specific Gini Index Target. The Gini Index (aka “Gini Coefficient”) is the standard tool used by governments, the IMF, World Bank, and many NGOs to measure and compare the concentration of wealth (also a rough proxy for the distribution of political power) within and between countries/economies. The team already has the data to publish Cardano’s Gini Index right now. Given what we already know, the Gini Index is obviously very high (probably at least .80). However, publishing a Gini target and demonstrating meaningful progress toward achieving that target would be a powerful tool to reduce the fears and anxiety of many people in our community. In fact, this publicly accessible tool (and several others) could then be used to gauge the health and integrity of the ADA economy on an ongoing basis. This would give the community advanced warning so that we could hold a vote to take steps to prevent unhealthy concentrations of ADA in the future, as necessary.

How Would Cardano Land’s Gini Index Compare to Other Countries Today? For perspective, the most despotic, anti-democratic, and economically unequal societies and regimes on Earth (e.g., South Africa, Haiti, Namibia, Central African Republic, Saudi Arabia. . .) have Gini Indexes between .40 and .65. The U.S. has a Gini of .47 (using the CIA’s measure, not WB). Anybody who knows anything about the U.S. economy knows the U.S. ranks nearly last among OECD nations in terms of economic equity/equality, which is why it has such a high Gini index compared to the OECD average of .31. Currently, the ADA economy is far more concentrated than all the most unjust, inequitable, and despotic countries on Earth. Of course, that must change if we want humanity to take ADA seriously as a truly global cryptocurrency.

What Gini Target Should We Establish? This is not about socialism vs. capitalism; it’s about creating a truly trust-less economic system that can be a viable foundation for a truly just and equitable economy and society. Capitalism is broken in many countries today because their governments have substantially ignored the inevitable consequences of high Gini Indexes. Cardano Land cannot make the same mistake if we want ADA to be adopted on a global scale. To accomplish that, Cardano’s Gini should not exceed the .30 to .40 range; so, I recommend an average target of .35. When countries/economies begin to exceed that range, they inevitably suffer from unhealthy concentrations of economic and political power, which destroys their middle classes, destabilizes their societies, amplifies ethnic tensions, destroys the integrity of their political systems, sows the seeds of corporate/government tyranny and injustice, and creates the conditions for conflict and war.

Request for Clarity & Comments. I’ve invested a lot of time and resources into Cardano/ADA and this community already and I intend to invest much more, but there is a growing population of people who need clarity on this critical issue to have confidence in the long-term future of Cardano Land. So, if this issue is important to any of you, please comment and/or like this post to draw the team’s attention to this issue so we can get some concrete answers/solutions from the team ASAP.

Thank you!

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Great post! These are some serious question needs clarity for the better of Cardano project. I think Cardano Foundation should give us clarity on these critical issues pointed by you. The Foundation should be more transparent and must engage more in forum activities (I see lots of speculation and questions which can only be answered by the IOHK/Cardano Foundation/Emurgo). I find lots of news and announcements on other medium (YouTube, News sites), not on official channels.

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Well the whales who want to pull out some profit and purchase things will sell various amounts of ADA as the price rises to account for all the active use cases of Cardano. Then some will have already been wealthy in other ways and will hold on to much of the ADA and stake it, perhaps spending the staking payments on a nice lifestyle because that payment alone will be enough. So I can see that a couple hundred people will be remaining whales in Cardano for a long time, I suppose that happened with banking and fiat money as well, microsoft and others have their whales. If the voting system is controlled by them, I suppose that gives us a reason to have a plan as an individual to have as much effort into this as you want in educating people about all the associated topics which Cardano will have control over when it is built and functioning. This will allow more people to buy ADA by choice with a voting-staking plan at this current price of say under $1, so that the sure thing of Whales being in control will have less impact on our personal lives. Of course that would accelerate the rise in wealth of the whales but the easy income may make them pull out more now than they would have if th price rose slower, but I think the main thing is to have people aware that they have choices now, or later, and if they make them now then the choices later will be more in their favor than if they do nothing now. I suppose one thing to do is get to know your whales and be good to them if you can, all of our lives are being formed and changed daily so who they are in the future is up to how you act now. Money and power are just factors in a human realm of experience, not defining more than a portion of what life offers, so I think a decent experience is deserved for the pre exchange purchase people, fortunate for them indeed.

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Like you, @ADALove, I had no idea it was so concentrated. However, other than the top 5, all the other individuals are less than 1%. Are any of those top addresses IOHK, Cardano Foundation, or Emurgo?

It is also interesting that the majority of the top holders have only 1 transaction, which to me means there is a plan for a long term hold. For those with many transactions, it is unclear where they are selling or buying more.

Thanks for bringing this to our attention.

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Thank you very much for this insightful post, @ADALove. I actually believe this is the most important post I’ve read in our forum. I was personally unaware of the wealth concentration (I didn’t know that tracker tool existed). I don’t usually find myself coming up with any great questions that I would ask Charles/The IOHK team, but the issue you brought up now is actually very interesting. If anyone from the Cardano/IOHK team could address this, that would be fantastic.
Just as a last thought, is that tracker affiliated with the foundation in any way, or is it entirely 3rd party?

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@Razvan Thank you! The AdaTracker is the result of @lovelacepool’s great work. You can learn more about it here: Cardano Block Explorer project

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wow :no_mouth: had no idea it was so concentrated. I’m guessing these are the “Japanese business people” who originally commissioned Cardano.

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I guess from the transactions #2 is bittrex and #18 is binance?

Golly gee, I wonder which nodes are going to be selected as slot leaders and get the most vote?

/s

How does Ada compare to other top 20 market cap cryptos on the Gini index ?

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I’m looking at the top 100 accounts on BTC and ETH right now, they look similar to be honest.

Still, I’m pretty black pilled. We talk about a handful of banks controlling the worlds finances, but how is this different, we are just swapping one set of owners for another. Also I see people talking about setting up staking pools, reality check, you think someone with 100,000,000 ADA is going to stake with you? They will all have their own.

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Yea thats why I think the cryptoevangelists rambling on about the evil banking system are kind of funny. It is just swapping one type of oligarch for another.

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I believe Charles, Philip Wadler, Prof. Aggelos and other experts in IOHK team will propose a good solution. I mean their research paper will be thoroughly peer reviewed. I am not necessarily going into panic mode :grinning: Have faith guys!
Luckily, Cardano can also look into how Dash is doing it.

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They were inspired by the DASH governance system. Is the wealth in DASH any less concentrated though ?

I’m pretty sure that’s the case with all other currencies. Given the vision of Charles to empower under developed countries, they will consider the whales situation as well.

https://bitinfocharts.com/top-100-richest-dash-addresses.html
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

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@krishna I appreciate your sentiment, but the only reason I’m investing my time, energy, and resources into this project is because I believe Cardano’s leadership is the only leadership team on Earth today that has the right incentives, skills, experience, and ethical values to build a truly trust-less crypto-economic system. But whether they can overcome the inherent greed embedded within the human nature of all investors (including me, which I’m constantly trying to resist) is still an open question. That question has nothing to do with my faith in the team.

Human greed and corruption can be overcome when incentive structures are properly designed. In this case, part of the incentive structure should include a legally-binding forced-liquidation provision. If there was no forced-liquidation provision in the voucher contracts to systematically reduce the control of the whales over a pre-defined period of time, all the trust in Charles/team is totally irrelevant. This is because they will have no power over the whales because the incentive structure embedded within the system will thwart all attempts to achieve sustainable long-term balance and trust in the system.

It’s not necessarily too late to confront the whales and amend the terms of the purchase contracts (assuming no provisions already exist and assuming the largest whales truly understand the gravity of this problem). However, the difficulty of renegotiating the terms/conditions of those purchase contracts rises non-linearly as the price of ADA rises. This is because the power and resistance of the whales increases non-linearly (probably exponentially, based on many factors) as their wealth increases. Many of these people have become paper-millionaires virtually overnight. Are they really going to care about any of this? That’s another open question, but given what we know about human nature, the odds are not very good.

For all those reasons, I can’t think of a more important and urgent issue than this right now. I hope the team agrees and takes meaningful action before it’s too late.

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Wow, that means Ada is worse than BTC or DASH. We, however, don’t know who owns multiple addresses in any of these cryptos. Somebody in Cardano has at least 8 %. That is absurd. I assume most of the Cardano team members each own a high percentage.
I don’t see how this issue can me effectively mitigated. You would have to have a KYC ICO where each person is only permitted a relatively small stake. There would, of course, be ways around that.

I just assumed there was a legally-binding forced-liquidation provision. If there isn’t then it is too late. How can you amend the terms of the contract after the funds have been distributed in this wild west ecosystem ? I think the Cardano team is betting most of the whales will want to stake their ADA.

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right. you can’t amend a sale post fact. if that’s the distribution - that’s that.