Investors can use the Concentration Index as a risk management tool that helps gauge the level of decentralized ownership of a particular token.
With a range from 0-100, the Concentration Index is a measure of how much influence top holders have on token price.
If the Concentration Index is 100 – almost all tokens are held by 1 wallet address.
If the Concentration Index is 0 – all tokens are perfectly distributed amongst all holders.
The higher the Concentration Index, the easier it is for the token price to be manipulated by whales.
The lower the Concentration Index, the harder it is for the token price to be manipulated by whales.
Concentration Change Rate
The Concentration Change Rate represents the percentage change of the Concentration Index given the selected time frame (set to 24H by default).
The Concentration Change Rate can be used to interpret the shift in token sentiment amongst whales.
A high Concentration Change Rate can indicate a variety of different scenarios:
- When paired with a sharply rising Concentration Ratio, it is likely that whales are heavily accumulating tokens.
- When paired when a sharply decreasing Concentration Ratio, it is likely that either retail is heavily accumulating tokens or whales are distributing.
The Concentration Momentum helps visualize the movement of tokens among holders.
When the momentum meter is pointed further to the right side, Strongly Concentrating, it indicates that token ownership is becoming more centralized. In other words, more tokens are falling into the hands of fewer addresses – this is how whales are born.
When the momentum meter is pointed further to the left side, Strongly Dispersing, it indicates that token ownership is becoming more decentralized. In other words, whales are losing their influence on token price.
In terms of risk management
The most important rule in crypto is staying alive (AKA managing risk).
Yes, this is a dramatic way to phrase it, but can you blame us? We’ve witnessed the most brutal events in Web3 history:
- Mt. Gox
- Luna x 3AC
Our hope is that these catastrophic events never happen again, but in case they do, we want you to be prepared.
Here’s how to use the Concentration Index to help you make sure you’re on the safe side of history.