Dogecoin holders tend to be centralized, and reward tools are no longer "grassroots"

In at least six years, Dogecoin (DOGE), which was inspired by memes, has gone from being a joke to a tool used by the crypto community to reward people because of its meme popularity and grassroots nature.

Until Tesla CEO Elon Musk began to talk about it publicly in January this year, this cheap "red envelope" tool was no longer cheap. A hype carnival pushed its single coin value from $0.005 at the beginning of the year to a maximum of $0.74, a 147-fold increase. Currently, the price of Dogecoin is around $0.3.

Recently, Dallas Mavericks owner Mark Cuban supported Dogecoin as the "strongest medium of exchange" in a media interview because it is cheap and community-oriented. However, data shows that Dogecoin holders tend to be concentrated and liquidity is reduced. This data makes the rich man's view seem overly wishful.

On August 13, a report by Chainalysis, an on-chain data analysis agency, showed that the ownership of Dogecoin is very concentrated, with 106 billion Dogecoins accounting for 82% of the supply, held by 535 entities, each of which holds more than 10 million Dogecoins, accounting for 0.01% of the entity. Chainalysis emphasized that exchanges are not excluded from these entities, and that the on-chain liquidity and daily activity of Dogecoin are both decreasing.

Dogecoin holders are not as scattered as they were seven years ago. With the increase in price volatility, this reward tool is no longer "grassroots". It is becoming more and more like a speculative or investment target, which makes it increasingly difficult to become a payment tool.

82% of DOGE supply is held by 535 entities

On August 15, American technology tycoon and Dallas Mavericks owner Mark Cuban supported Dogecoin as the "strongest medium of exchange" in an interview with the media. He stated on Twitter that the imperfection and simplicity of Dogecoin are its greatest advantages, "You can only do two things with it: spend it or save it. Both are easy to understand and cheap to buy. This makes it a community that anyone can join and enjoy."

His statement was echoed on Twitter by the "Dogecoin Master" and Tesla CEO Elon Musk. Musk began to mention Dogecoin in public in January this year and gradually became the most well-known KOL in the crypto asset community. The two people's singing in unison pushed Dogecoin from $0.29 to $0.34 that night, a 14% increase in 8 hours.

How many Dogecoins does Mark Cuban have?

Some Twitter users were also curious about this. Later, the rich man responded on Twitter without any mystery that he personally owns $494 worth of Dogecoin. Not only that, he also disclosed the value of Dogecoin he and the team own, "Between the Mavericks and my personal account, the value of Dogecoin is less than $15,000." In May this year, Cuban said that he and his son own 3,250 Dogecoin. The team he manages already supports Dogecoin payments.

Cuban became a billionaire in 1999 when he sold his online video portal company to Yahoo for $5.7 billion. According to the Bloomberg Billionaires Index, Cuban's net worth is $5.8 billion. The billionaire only holds $494 worth of Dogecoin, which surprised netizens, especially Dogecoin supporters.

Based on the current value of Dogecoin at around $0.3, Cuban probably has more than 1,640 Dogecoins.

This is really not much, because the report of Chainalysis, an on-chain data analysis agency on August 13, shows that there are currently 4 million on-chain holders of Dogecoin, but most of the supply is held by a few wealthy entities. There are 106 billion Dogecoins, accounting for 82% of the supply, and these Dogecoins are held by 535 entities, each of which holds more than 10 million Dogecoins, accounting for 0.01% of the total number of entities. This may be a mixture of multiple businesses, "for example, exchanges that store Dogecoin for millions of traders, and some early investors who are now wealthy."

Chainalysis: 106 billion Dogecoins held by 535 entities

Billionaire Mark Cuban is not considered a rich man when it comes to Dogecoin. Chainalysis' report also shows that of the 106 billion Dogecoins, 37 billion are held by 31 people, who are early investors who have held them for 6 months to 2 years, with an average of more than 1 billion Dogecoins per person.

These 31 people are the richest among the Dogecoin rich. Some people have indeed become rich from Dogecoin investments, such as the Goldman Sachs executive who resigned after making millions of dollars on Dogecoin. Chainalysis also emphasized that there are exchange addresses on the Dogecoin rich list. "For example, Robinhood currently does not allow withdrawals, and retail customers generally do not often make on-chain withdrawals from exchanges. Therefore, either the vast majority of Dogecoins are locked in exchanges and traded through retail, or they are concentrated in the hands of a few wealthy people now."

“Reward tools” are becoming long-term investment targets

Dogecoin has been around for as long as Ethereum.

In December 2013, Adobe programmer Jackson Palmer created DogeCoin using the Scrypt algorithm to satirize the crazy crypto asset market. 100 billion DogeCoins were generated in the first year, and then the inflation rate decreased by 5% per year. Today, the supply of DogeCoins is around 129.624 billion.

The price of Dogecoin was only 0.1 cents at first, and it once dropped to 0.01 cents in 2015. The low price was an important reason why many crypto community players bought it in the early days. They used it to reward and send red envelopes on the crypto community Reddit, and some people also used it to make public welfare and charity donations. Its Shiba Inu-like logo is popular in the crypto community, making it have a meme atmosphere like an emoticon package, representing the "grassroots culture" of crypto enthusiasts.

The situation changed in 2016. At the beginning of that year, Dogecoin began to rise, and the unit of measurement gradually changed from cents to dollars, with fewer and fewer zeros after the decimal point. As the bull market peaked at the end of 2017, Dogecoin climbed to $0.015. But the subsequent bear market fell to between $0.002-0.003, a drop of more than 90% as the market fell, and the unit also returned to the cent level.

It was not until July 2020 that Dogecoin became popular on the short video platform TikTok, and the price of the currency rose to $0.004. In January 2021, Musk began to talk about Dogecoin on Twitter. On April Fool's Day, he tweeted that he would use SpaceX to send Dogecoin to the moon. Since then, Dogecoin has really gone to the moon, reaching an all-time high of $0.74 on May 8, an increase of 14,700% in less than half a year.

"This price history is reflected in the nature of on-chain holdings." Chainalysis showed the share of Dogecoin supply held by different types of holders in the report.

During the first year, the majority of Dogecoin was liquid, as 74% of the current supply was mined in 2014. After the initial distribution, liquid supply and new investors (those who held for less than 6 months) later held 30% of the supply in 2015.

In early 2016, as the price of Dogecoin increased, new investors entered the market and bought another 13% of the supply. Throughout 2017, the liquidity supply and new investors increased, and by the beginning of 2018, they had 70% of the supply. Since then, liquidity has begun to decline, and new investors continue to hold their shares and become long-term investors.

New investors returned again in July 2020, supported by the TikTok trend, and by October 2020, their holdings increased from 9% to 17% of the supply. Starting in January 2021, both Musk and Reddit increased the popularity and price of Dogecoin, and new investors bought more. Investors who bought Dogecoin in the past 6 months now hold 25% of the supply, while investors who have held for more than two years have seen their share of the supply drop from 30% in July 2020 to 20% today.

Chainalysis: Dogecoin daily activity on the chain is correlated with price

Chainalysis believes that most Dogecoin activities occur on exchanges rather than on-chain retail, but there are still on-chain signals that reflect the activity of Dogecoin - in 2021, the average on-chain daily active users (DAU) of Dogecoin was 32,000, but this number varies with price changes.

So far in 2021, the correlation value between the percentage change in DAU and the percentage change in Dogecoin price is 0.7. "Correlation is not causation. The surge in active users and prices is consistent with the social media performance related to Dogecoin. The increase in on-chain activity around these events indicates the strength of the response, as on-chain transfers are more troublesome than making transactions."

As the liquidity and on-chain activity of Dogecoin decrease, it is becoming less and less of a "reward tool" and its attributes are changing towards an investment target. Dogecoin is no longer a grassroots. In the crypto asset market, it has entered the mainstream with its astonishing growth.

Back to Mark Cuban's opinion, he believes that Dogecoin is the "strongest transaction medium", and Musk also echoed "agree". Previously, the Tesla CEO even launched a vote on Twitter, asking netizens "Do you want Tesla to accept Dogecoin payments?" Obviously, the two rich people regard Dogecoin as a transaction medium and payment currency.

However, as the ownership of Dogecoin holders is concentrated and liquidity decreases, the possibility of Dogecoin being used as a medium of exchange is also decreasing. After all, the rich will not give money to ordinary people for free. Liquidity and value stability are crucial for currency. At present, Dogecoin with high volatility and low liquidity obviously cannot become a payment tool.