Wednesday, March 22, 2023

3 possible reasons why Polkadot is playing second fiddle in the L1 race


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2021 was a kind of “coming-of-age” for a lot of layer-one (L1) blockchain protocols as a result of the development of decentralized finance (DeFi) and nonfungible tokens (NFTs) pressured customers to search for options outdoors of the Ethereum (ETH) community the place excessive charges and community congestion continued to be limitations for a lot of.

Protocols like Fantom (FTM), Avalanche (AVAX) and Cosmos (ATOM) noticed their token values rise and ecosystems flourished as 2021 got here to a detailed. In the meantime, common tasks like Polkadot (DOT) underperformed, comparatively talking, regardless of the excessive expectations many had for the sharded multi-chain protocol.

FTM/USDT vs. AVAX/USDT vs. ATOM/USDT vs. DOT/USDT every day chart. Supply: TradingView

Setting apart the particular functionality that every protocol provides in phrases of transactions per second and time to finality, listed here are a number of components that will have performed a job in DOT’s laggard efficiency when in comparison with different L1 rivals.

Interoperability is a key issue

One among the main themes of 2021 was cross-chain interoperability between separate blockchain networks, with a bridge to Ethereum being the most essential connection to ascertain because of the reality {that a} majority of tasks presently run on the community.

Protocols like Fantom, Binance Good Chain, Avalanche and Concord developed cross-chain bridges and this led to a noticeable bump in their token worth, complete worth locked and on-chain exercise.

Regardless of the incontrovertible fact that Polkadot was particularly designed to supply multi-chain help as a “layer-zero” meta protocol, there was no main launch of a bridge that linked Polkadot with Ethereum in 2021 and this left the protocol unloved by crypto merchants seeking to interact with DeFi and NFTs.

Cosmos, likewise, didn’t see the launch of a significant bridge that linked its ecosystem with Ethereum, however there have been minor integrations like the addition of Ether as a collateral asset on Terra which demonstrated that cross-chain compatibility was possible.

The late launch of parachain auctions

As 2021 got here to a detailed, all of the beforehand talked about networks had been seeing a wholesome quantity of exercise and cross-protocol interactions whereas tasks on Polkadot had been nonetheless finalizing their preparations to launch on the mainnet.

This was in half because of the incontrovertible fact that the parachain auctions for Polkadot didn’t start till November 11 when Moonbeam (GLMR), an Ethereum-compatible sensible contract parachain, secured the first slot.

DOT noticed its worth rise to an all-time excessive of $55 on Nov. 4 as these in contributing to the parachain auctions secured their tokens, however by the time the auctions had formally began its worth was already on the downslope towards a low of $23.28 on Jan. 10.

Moonbeam official went reside on the Polkadot community on Jan. 11 and has managed to rack up greater than 1 million transactions as customers had been lastly capable of switch ERC-20 tokens into the Polkadot ecosystem.

The value of DOT noticed a slight bump increased following the launch of Moonbeam however has as soon as once more slid again down beneath $25.

Associated: Moonbeam (GLMR) launch brings EVM interoperability closer to the Polkadot network

The advantages of holding DOT

A 3rd issue which may be weighing on the recognition and worth of DOT is confusion about what the token is used for and what advantages it offers to token holders.

On a lot of the competing networks, the native token is used to conduct contract actions resembling token transfers or swaps whereas protocols which might be in the Polkadot ecosystem use their native tokens to pay for gasoline.

Other than getting used to take part in parachain auctions, the important makes use of for DOT embrace staking to help the operation and safety of the community and to be used in governance votes.

Whereas governance skills are essential for the total well being of blockchain protocols, the common cryptocurrency customers nonetheless haven’t proven a lot enthusiasm for collaborating in votes and are extra in issues like gaming, DeFi and NFTs.

A number of layer-one options are launching developer and liquidity incentive applications and up and coming DeFi protocols are nonetheless providing excessive yield staking alternatives. Presently DOT provides 13.94% APR to stakers and its presumably that this is not sufficient to fulfill the urge for food of yield farmers who want to get extra bang for his or her buck.

The long-term outlook for Polkadot stays robust and the undertaking has an lively and devoted group of followers to associate with an skilled improvement crew led by Ethereum co-founder Dr. Gavin Wooden.

The launch of Moonbeam may certainly mark a turning level for DOT as cross-chain compatibility is now reside and different parachain tasks ought to begin to launch on the mainnet shortly, nevertheless it stays to be seen how lengthy it is going to take the community to catch as much as its L1 rivals who’ve a head begin on cross-chain interactions and elevated on-chain exercise.

The views and opinions expressed listed here are solely these of the creator and don’t essentially replicate the views of Each funding and buying and selling transfer entails danger, you must conduct your individual analysis when making a call.