Introduction

There are numerous activities one can engage in within the crypto realm, such as staking assets, purchasing tokens and NFTs, conducting research, developing decentralized applications, and participating in airdrop farming, among others. However, the common thread that brings all stakeholders in crypto together is trading. Almost every user partakes in trading, whether it involves long or short positions on exchanges, asset swapping in liquidity pools, or the exchange of non-fungible tokens on NFT marketplaces. Interestingly, even illiquid assets are traded in the crypto space, primarily through a peer-to-peer (P2P) process.

Due to the absence of a liquid market for illiquid assets, the trading of items like crypto points, airdrop allocations, and whitelists typically occurs in the over-the-counter (OTC) market. In this scenario, individuals engage in conversations and negotiate deals with one another regarding the trading process. However, a significant challenge arises in the form of trust among participants. Trust is pivotal as one must rely on the certainty that a specific user possesses the designated assets and will deliver them after the proposed deal. This introduces the possibility of malicious activities and poses a risk.

What if we could establish a trustless third party that enables secure trading for both parties, providing security and preventing fraudulent activities? This is precisely what Whales Market aims to accomplish.

Airdrops 101

As most of us know, an airdrop is the process of sending free tokens to selected wallet addresses or users who meet certain criteria (who have done certain activities during a certain period of time). But how did it all start?

The first crypto airdrop occurred in March 2014 when Iceland launched Auroracoin. Each citizen received free coins, starting with 31.8 AUR and increasing to 636 coins. The purpose of these airdrops was to create a market for the token and generate awareness. However, it’s important to note that sending tokens required payment for gas, which became expensive as gas prices and ETH’s price rose.

Then airdrops shifted to free token claims. Recipients could claim tokens for free but had to pay transaction gas. The cost of gas is usually small compared to the token value, so it’s generally not an issue. However, as projects evolved, they realized giving away tokens to random users who might just sell them was detrimental. Initially, launching tokens early allowed projects to gauge interest and secure funds. But later, after significant investment, it became clear that giving away tokens to random users was not beneficial and could harm the projects.

In September 2020, Uniswap made a significant impact by airdropping $UNI tokens to over 250k addresses. These addresses were eligible because they had interacted with the platform before September 1st, 2020, and were granted at least 400 $UNI tokens. The airdropped $UNI tokens provided voting power, which remains their primary utility, allowing users to vote on protocol changes and proposals.

This led to the emergence of a new user group known as airdrop farmers. They would farm transactions that didn’t contribute much to the protocol’s value but allowed them to rank higher in airdrop rewards. For instance, if the airdrop was based on the number of transactions a wallet made, they would create numerous transactions by repeatedly moving the same amount, even if it incurred costs.

In response to airdrop farming, projects have implemented more advanced strategies and mechanisms. The Optimism L2 platform introduced a two-tiered airdrop, where users had to actively participate in the protocol’s governance to qualify for the second tier, which occurred nine months later. The Blur NFT marketplace implemented a multi-tier airdrop mechanism to gain market share from OpenSea. They required users who listed their NFTs on other platforms to also list them on Blur at a lower or equal price, and utilize certain protocol features like NFT collection bids. In the latest airdrop tier, users are even required to delist their NFTs from other marketplaces to receive the maximum $BLUR airdrop.

Points 101

Projects are adopting a “points system” in which users earn points for their contributions to the community. Founders are increasingly incorporating offchain points programs into their applications, as seen in various examples such as:

• Rainbow wallet rewarding Ethereum usage with points
• Friend.tech basing its engagement loop on points
• Blur introducing L2 Blast Points as incentives for fund bridging (with over $800 million TVL since November).

This trend emerges as part of a wider exploration for product-market compatibility in the cryptocurrency industry and strategies to engage users during a downturn in the market.

There are discussions among users regarding the possibility that these accumulated points will be converted into the project’s token, following a trend observed in recent notable airdrops.

Trading Illiquid Crypto Markets

There are lots of things in crypto that have no decentralized exchange to trade on. Such things include whitelists, airdrop allocations before the TGE, points, P2P trading of tokens and NFTs, and so on.

For a long time, trading of those things has been commonly done through social groups, private messages, and centralized platforms. However, these methods often lack security measures, which puts traders at risk of scams where fraudsters fail to deliver the tokens they promised.

The primary reason for this is that these trades do not necessitate commitment from the involved parties, as the trading routes between them are isolated and predominantly rely on the trading routes between both parties.

While there is currently no decentralized market for it, the existence of such a market could improve liquidity and benefit both buyers and sellers. In order to achieve this, a solution is needed to integrate a trustless system that can prevent malicious actions.

Introducing Whales Market

Whales market was made specially to address the issues described in the previous section - make trading of illiquid assets more secure, trustless, and accessible for everyone.

Whales Market tackles this by consolidating OTC trading on a unified platform. Here, both buyers and sellers can engage in on-chain transactions that are mutually agreed upon. Funds are secured in smart contracts and are only disbursed to the involved parties upon completion of a successful transaction. This feature not only simplifies the trading process but also notably minimizes the potential for financial losses stemming from fraudulent activities.

Whales Market was developed by the same team behind LootBot. This protocol was created during the summer of 2023, during the popularity of Telegram Bots. The concept was straightforward yet practical: a Telegram bot designed to streamline the majority of laborious tasks involved in airdrop farming.

Leveraging the team’s success with LootBot, they decided to build a more ambitious and complex product – Whales Market.

Product Overview

Whales Market supports 3 main types of the markets: Pre-Launch Market, OTC Market, Points Market. Let’s explore the details of all of them.

Supported Markets

The core system powering pre-market token trading on Whales Market relies on collateral. Sellers lock up assets as collateral, assuring buyers they’ll receive the tokens once officially released by the foundation. Should a seller fail to fulfill their order, their collateral goes to the buyer as compensation.

However, this system isn’t without its potential drawbacks, particularly when dealing with points systems. Let’s delve deeper into these risks in the following sections.

Pre Market

We have written previously about Perpetual Pre-Launch Futures and how perpetual futures exchanges enable traders to leverage trade assets that have not yet been launched.

However, Whales Pre Market is different, in that it allows buying pre-TGE token allocations. As most of you know, that is the common thing among different private communities and some centralized platforms. These methods often fall short in terms of security, leaving traders vulnerable to scams and non-delivery of promised tokens. Whales Market transforms this process by using smart contracts, enabling on-chain transactions agreed upon by both buyers and sellers to prevent the fraud activities.

There are 2 ways to buy & sell tokens:

• Create your own offer to buy or sell
• Fill others’ offer to buy or sell

Both sellers and buyers are required to wait for the Token Generation Event (TGE) before they are able to settle or cancel orders. When TGE happens and the tokens are released by the foundation, the settlement between buyers and sellers will countdown for 24 hours. If sellers fail to settle in time, they will lose their collateral funds. Those funds will be transferred to the buyer, if they decide to cancel the order.

OTC Market

Traditionally, OTC Markets facilitated P2P trading of tokens and Non-Fungible Tokens (NFTs) through various informal mediums like chat rooms, social media sites, and direct messaging.

While such methods are convenient, they lack stringent security measures, making traders susceptible to fraud and scams. Similar to the Pre-Launch Market, Whales Market uses smart contracts to address vulnerabilities to reduce the risk of potential losses.

In order to guarantee user safety, Whales Market upholds a list of tokens approved for OTC Markets trading. This list is carefully assembled from tokens that have achieved a minimum liquidity pool of $300,000 in their largest pool on a DEX.

Users can also trade tokens that are not the list, but the platform will display a warning sign, prompting users to verify their mint address before proceeding with the trade.

To maintain the privacy of creators’ offers, Whales Market has implemented a new functionality. This feature allows them to share the offer access link exclusively with the individuals they are negotiating deals with. As a result, private offers are not visible on the public marketplace and can only be accessed through the unique offer link provided by the creators.

Screenshot taken from Whales Market UI.

Points Market

Similar to OTC Market, Points Market allows secure P2P trading of points. The amount of projects using “points system” grows every day, and as most us know, with growth comes the room for speculation. Whales Market utilizes smart contracts to allow the mutually agreed on-chain transactions between buyer and seller.

Once the foundation releases the tokens, a 24-hour settlement countdown will begin. Following the token release, Whales Market will automatically convert points into the corresponding tokens based on the foundation’s announcement.

Risks Involved

Orders for points have to be set in advance, but the final conversion ratio into tokens isn’t revealed until the TGE. This can lead to situations where the seller’s points end up significantly exceeding the value of the tokens they receive, potentially creating an unfavorable outcome for the seller.

Currently, Whales Market allows trading points of Friend.tech. In the future, they’re planning to add these features for such protocols as MarginFi, Kamino, EigenLayer, and Rainbow.

Tokenomics

The whole ecosystem of Whales Market is centered around its native token - $WHALES. Main utility features of $WHALES token include:

• Revenue-sharing: 60% of the fees collected is redistributed to $WHALES token stakers
• Development expenses: 20% is allocated to cover ongoing development expenses
• Buyback and Burn: 10% is used to buy back and burn tokens, creating deflationary mechanism
• $LOOT revenue-sharing: 10% is shared to $LOOT stakers and $xLOOT holders.

To ensure that emissions contribute to the growth of the protocol, token emissions are linked to specific Key Performance Indicators (KPIs) related to trading volume. $WHALES holders have the ability to participate in voting for these KPIs.

The Whales Market team demonstrates their long-term commitment to the growth of the protocol through a cliff period of 9 months and a vesting period of 36 months allocating only 9.5% of the total supply to themselves.

Staking

Whales Market earns revenue by collecting fees from OTC markets, and 60% of these fees are distributed to $WHALES stakers. When users stake $WHALES, they are rewarded with $xWHALES, which serves two purposes: receiving a share of the revenue and acting as collateral in all OTC markets.

The staking mechanism works as following:

• The staking contract includes a pool that consists of two types of tokens: $WHALES and $xWHALES.
• Participants stake their $WHALES tokens and receive $xWHALES tokens in return.
• Holding $xWHALES tokens entitles stakers to an increasing amount of $WHALES rewards.
• To achieve this, the contract continuously purchases $WHALES tokens using generated revenue, which are then added to the staking pool.
• The conversion rate of $xWHALES to $WHALES increases, benefiting the stakers.

This mechanism also prevents dumping of $WHALES tokens after claiming rewards, as the rewards are distributed gradually over time.

Rewards Distribution

Depending on the blockchain (EVM, SOL, etc.) and the specific market, fees are gathered in different assets. In order to simplify the process of claiming rewards, the protocol converts these collected tokens into $WHALES tokens at regular intervals.

These transactions can be easily observed on the protocol’s dashboard. The distributed $WHALES tokens are then evenly shared among the stakers as rewards.

Stakers have the flexibility to withdraw their $xWHALES tokens at any time and convert them back into $WHALES tokens.

Revenues

Whales incurred daily fees.

As we mentioned in the Tokenomics section, Whales Market earns revenue by collecting fees from their markets: Pre Market, OTC market, and Points Market. Let’s explore the fees they’re charging and which actions require a fee.

In the Pre Market, certain actions such as closing an offer, settling an order, buying a token, and canceling an order are subject to fee charges. If you choose to close an offer, a platform fee of 0.5% is required. For settling an order (buying), a platform fee of 2.5% applies. When you make an offer to buy or fill another user’s offer to sell, there is also a 2.5% platform fee on the total tokens purchased. If you cancel a buy token order due to the seller ghosting you, a platform fee of 2.5% will be incurred.

In the OTC Market, Whales Market only charges fees for listing and selling. Whenever you create an offer, regardless of whether it is for buying or selling, a fee of 0.1% is applied and included in your overall deposit. When you fulfill a buy offer by selling tokens, a fee of 0.1% is applicable and deducted from the amount you receive.

In the Points Market, users are charged a fee for closing an offer (buy or sell), settling and canceling an order, as well as buying points. If you choose to close an offer, the platform fee is 0.5%. For all other cases, the fee amount required is 2.5%.

Valuation

In order to determine a fair valuation for the Whales Market, we will conduct a comparative analysis using three key metrics:

• Earnings to TVL ratio
• Market Cap to TVL ratio
• Staked assets to Market Cap ratio

These metrics will be compared against two primary competitors: Uniswap and Blur. Uniswap is selected as the most popular decentralized exchange (DEX) currently, while Blur is chosen for its position as the most popular non-fungible token (NFT) marketplace with its own points system, which notably surpassed OpenSea.

By comparing these metrics, we aim to gain insights into the relative valuation of Whales Market in relation to established players in the blockchain space.

Earning to TVL ratio

The current earnings to TVL ratio is as follows:

• Whales Market: 0.02
• Blur Marketplace: 0.36

The fees have been generated since the launch of the protocols. Although Blur appears to have a much better ratio, it is worth noting that Blur is significantly older than Whales Market, which only launched at the beginning of January 2023.

However, when we examine the statistics of the past two months and compare the earnings to TVL during this period, we obtain noticeably different results:

• Whales Market: 0.02
• Blur Marketplace: 0.02

It is evident that they currently share equal ratios, indicating that they generate fee percentages at almost identical levels. The current FDV of Blur stands at $2.26 billion, while the current valuation of Whales Market is $264.33 million, implying a significant discrepancy of almost tenfold between the two.

Market Cap to TVL ratio

Now, let’s compare the Market Cap to TVL ratio among Whales Market, Blur, and Uniswap:

• Whales Market – 1.35
• Uniswap – 1.13
• Blur – 5.94

As we can see, Blur has the highest ratio here, indicating that the valuation may be a little bit overrated compared to Uniswap and Whales Market.

It’s important to mention that TVL in Market Cap is slightly different and is called Total Value Escrowed (TVE) in the case of Whales Market, which serves as an escrow between two parties. The mechanism in Uniswap and other DEXes is slightly different.

Staked assets to Market Cap ratio

This metric is only applicable to Blur and Whales Market. So let’s explore the current Staked assets to Market Cap ratio between those protocols:

• Whales Market – 35%
• Blur Marketplace – 30%

Basically, what it means is Whales Market still has a lot of room for growth in terms of staked assets in the protocol, the ratios of those protocols are pretty close, but we should also remember that Whales Market is only 3 months old.

Conclusion

In conclusion, the Whales Market offers a comprehensive solution for illiquid and decentralized cryptocurrency markets. With its product overview, it provides support for various markets including OTC, pre-launch, and points market. Additionally, the tokenomics, staking options, and revenue streams ensure a sustainable and profitable ecosystem. Overall, the Whales Market presents a promising platform that addresses the challenges faced by P2P traders in the cryptocurrency market.

Not financial or tax advice. The purpose of this newsletter is purely educational and should not be considered as investment advice, legal advice, a request to buy or sell any assets, or a suggestion to make any financial decisions. It is not a substitute for tax advice. Please consult with your accountant and conduct your own research.

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