The Polkadot ecosystem will be discussed in detail in this article, starting with an overview and working down to the nitty gritty.
In this article, we will deep dive into Polkadot ecosystem, including:
- The current situation and Polkadot accomplishments.
- An overview of the Polkadot ecosystem.
- Analysis of each sector in the Polkadot ecosystem.
- Prediction and investment opportunities.
Let's get started!
What is Polkadot?
Polkadot is a layer 0 platform that connects layer 1 platforms together. Polkadot allows blockchains to connect with each other to share data and form a decentralized network.
Unfamiliar with this concept? Let me give you a detailed example!
We already know that Ethereum, Solana, or BNB Chain are some of the most reputable blockchains in the market. These blockchains will be called "layer 1 chains," which means that they are only responsible for the dApps built in their ecosystem and that each blockchain is completely separate from the rest.
Thus, if we want to exchange assets or data from one chain to another, it must go through bridges.
However, layer 0 (known as Polkadot) is the main layer that connects all layer 1 blockchains together. Let's say if Ethereum and Solana are the Earth and Mars, respectively, then Polkadot is the Sun, the centre of the solar system and the source of the gravitational force that propels the solar system's planets around the sun. In the Polkadot concept, layer 0 will be the main chain responsible for security, interoperability, and governance of the whole network.
In Cosmos, the main chain is referred to as Cosmos Hub, and the layer 1 chain is called Zone.
But in Polkadot, layer 0 chains are called Relay Chains, while layer 1 chains are known as Parachains.
- Heterogeneous Sharding: Different blockchains can run on the same network.
- Scalability: The sharding model allows parallel processing of many transactions, eliminating the problems that existed on individual chains such as Ethereum due to sequential transaction processing.
- Upgradeability: Blockchain upgrades sometimes require forking the network, which involves a lot of time and effort. The Polkadot network supports blockchains to upgrade themselves without the need for a chain fork.
- Cross-Chain Composability: Polkadot supports cross-chain communication. Segments can deliver messages to communicate, exchange value, and share functionality.
Polkadot is built as a network layer 0, allowing Layer 1 platforms like Ethereum to work together on the same network. As the crypto market expands with many new chains appearing, Polkadot is built with the purpose of becoming the next step of the crypto market, connecting single pieces into a unified whole.
Polkadot’s Highlighted Numbers
Updated March 23, 2022
- $141.8B: Total Market Share of the entire Polkadot Ecosystem.
- 263: The total number of blockchains and dApps on Cosmos.
- Marketcap: $23B.
- Rank: 11.
- ATH Price: $55 (November 04, 2021).
- ATL Price: $2.7 (August 20, 2020).
- Circulating Supply: 1.09B DOT.
Roadmap and Development Progress
- 2016: Polkadot Whitepaper was published.
- 2017: Established the Web3 Foundation and raised the first IDO worth $145 million.
- 2018: Rolled out various PoCs (Proof of Concepts) and GRANDPA.
- 2019: Polkadot's first test network, Alexander, was introduced, and Kusama, Polkadot's experimental version, was released.
- 2020: Phase 1 of Polkadot's first mainnet chain candidate was launched. During the first official community vote, the DOT Token was splitted 100 times.
- 2021: Kusama is the first to launch a Parachain auction, followed in November by Polkadot's first Parachain Auction.
- 2022: Upgrades to XCMP (Cross-Chain Message Passing) and the launch of parathreads.
Every aspect of the Polkadot ecosystem can benefit from parachains' capabilities at this time. Moonbeam Network, Acala Network, and Astar Network were the three most popular parachains in the first batch of the Polkadot Slot Auctions.
Investors & Partners
Polkadot has many investors who are hedge funds and venture capital, some of which are Three Arrows Capital, CoinFund, Kenetic Capital, Genesis Block, and NGC. With more than 50 investors, Polkadot is a project of great stature and strong guarantee.
2017: Polkadot raised $145 million, selling 50% of the DOT token supply at that time. However, after that, there was a hack that froze nearly $90M worth of ETH, leaving only $55M left from the first Polkadot token sales.
2020: Polkadot raised nearly $43M at $1.2B valuation in the second Private Sale Round.
Many well-known investment funds are investing in Polkadot's parachains in addition to Polkadot itself, because Polkadot is made up of a network of blockchains. Many well-known investment funds are involved in the parachains, such as Moonbeam, Astar, Acala, Efinity, and Parallel. Let's find out together right now!
Parachain Overview on Polkadot Ecosystem
In this ecosystem overview segment, I will introduce you to all the parachains that officially won the Polkadot Parachain Auctions in batch 1 & 2, including their notable characteristics, functionality and its current situation on the Polkadot Ecosystem.
Acala Network is a layer-1 smart contract platform that's scalable, Ethereum compatible, and optimized for DeFi with built-in liquidity. Acala aims to be the decentralized finance network and liquidity hub of Polkadot.
On Nov 18, 2021, Acala officially won the first parachain auction on Polkadot with over 32M DOT contributed (~ $1.2B in value) by over 81,000 community members, marking that moment as the historic event of the Polkadot blockchain.
Acala Network currently has three main functions:
- Homa Protocol: Homa Protocol is a staking protocol that provides a non-custodial trustless and cross-chain staking protocol, where users stake their token and receive back L-tokens. The L-Token will present the principle staked asset + the staking yield continuously accruing. Example: Stake DOT to the Acala crowdloan and receive back L-DOT.
- Acala Stablecoin (aUSD): aUSD is backed by multi-collateral assets that are soft-pegged to the US dollar. Think aUSD to be similar to the DAI stablecoin, where users deposit their assets to mint DAI on MakerDAO and use it for various purposes. aUSD can be integrated by other parachains on Polkadot as well as DApps on those parachains.
Currently, ACA & LCDOT Token Transfer have been enabled on the Acala network. The community can send, receive and participate in on-chain governance. At the time of writing, more than 70 projects have been built on Acala. At launch, this network has over $600M TVL with over 141k token holders.
The Acala team's primary goal is to create an aUSD stablecoin that can be used throughout the Polkadot ecosystem. aUSD is the heart of Acala, and the team is working to make it a replacement for USDT and USDC currently in the Polkadot ecosystem.
As a result, with aUSD as a foundational building block, people can help aUSD to grow the cross-chain ecosystem. In the future, this aUSD will integrate with DeFi protocols as well as Polkadot parachains to broaden its coverage as much as possible.
This $250 million fund includes participation from well-known investment funds such as Alameda Research, Hashed, CMS, Hypersphere, and others. I believe the team will be ambitious in attempting to not only bring aUSD to Polkadot, but also to help this stablecoin go further with other ecosystems, as Terra's UST has accomplished.
In the near future, this fund will support DeFi projects that integrate aUSD into the ecosystem, as well as Polkadot parachains that accept aUSD as the network's primary stablecoin.
One way Acala's direction is completely focused on the aUSD is by building DeFi use cases around this stablecoin is to:
- Get support from the Acala team for Solidity and Substrate-based projects.
- Boost project's TVL. This is how Fei Protocol provides initial TVL (liquidity-as-a-Service) to projects.
Moonbeam is a full Ethereum-like environment and works with industry-standard Ethereum tools, DApps, and protocols.
Moonbeam will be the Ethereum compatible smart-contract parachain in the Polkadot ecosystem, allowing developers to port their projects with minimal to no code changes and enabling them to tap into the Polkadot ecosystem and all its assets.
Four days after the win of Acala, Moonbeam has secured a slot in Polkadot, marking this smart-contract platform the 2nd winner in the Polkadot parachain auction.
Moonbeam also achieved an impressive milestone through the parachain auction, with over 35M DOT (~1.4B USD at that time) from over 200,000 contributors around the world. Therefore, this parachain has reached the highest number of contributors and DOT accumulated across all other parachains.
By providing cross-chain smart contract functionality, Moonbeam allows developers to shift existing workloads and logic to Moonbeam and extend the reach of their Dapps to new users on Polkadot.
- Existing Projects on Ethereum: Can reach the Polkadot network through the support of Moonbeam cross-chain smart contract as they can both live on Moonbeam & Ethereum.
- Projects on Polkadot: Moonbeam can help projects on the Polkadot ecosystem adding new functionality that is not included on Substrate. For example: Builders can add more complex logics to their financial applications than are provided by base Substrate functionality.
- Dapp Developers: Moonbeam is a lightweight integration layer for projects that use composed services and pre-built integrations. Compared to building everything from scratch on a full Substrate runtime, projects that are built on Moonbeam will save a lot of time, effort, and money.
The Moonbeam ecosystem is one of the most dynamic ecosystems we've seen so far. In the Moonriver ecosystem, a sister chain to Moonbeam on Kusama, there are also many Dapps available. The Dapps that appear on Moonriver will eventually be moved to Moonbeam for further development.
Moonbeam's TVL has also come to a halt at $113M, a slight decrease from its peak in late January ($274M in TVL), with StellaSwap's TVL dominance at about 33%.
The company behind Moonbeam is PureStake, which has many years of experience in the blockchain industry. PureStake is also one of the old validators who ran nodes for Algorand and Polkadot. PureStake's backbone will provide a solid foundation for Moonbeam in a variety of ways.
"Moonbeam was presenting Polkadot to Ethereum projects and building Ethereum products on Polkadot." There are numerous reputation names in other layer1 chains that appeared in Moonbeam, such as SushiSwap, Beefy Finance, Balancer, DoDo, etc. Their presence not only helps Moonbeam gain traction from their dApps' base users, but also increases Moonbeam's brand awareness when it has been integrated into many well-known protocols in the DeFi world.
Astar Network (formerly Plasm Network) is a smart contract platform that supports Ethereum Virtual Machine, WebAssembly, and layer 2 solutions (such as Optimistic).
The Polkadot Relaychain, by design, does not support smart contracts, therefore, Astar allows developers to build whatever dApps on this parachain without having to consider its scalability and interoperability.
Astar Network won the 3rd auction on Thursday, December 2nd, 2021 with over 27,000 participants contributing more than 10M DOT.
How does Astar work?
- Dapps Staking: This is a reward system for dApps. Developers can earn income from deploying their applications on this parachain. It is similar to staking on validators, but instead of staking to validators, users can choose to nominate their Astar tokens for the project. By this, both users who stake on Dapps and developers can earn passive income from the network.
- Operator Trading: This is similar to M&A. Operator Trading is a mechanism to buy & sell Astar Applications. Developers can transfer the contract ownership to others whenever they want.
- Multi-Lockdrop: Lockdrop is a method for distributing tokens. Users lock tokens from other blockchains (DOT, KSM, or ETH) for a certain duration. Native tokens are then distributed to participants.
One of the most noticeable aspects of Astar is the Dapps Staking system. Other blockchains only reward validators, but Astar recognises that, in addition to validators, developers, who are also very important in contributing to the development of the ecosystem, should also be rewarded by the network.
As a result, on the Astar blockchain, Dapps developers will get 25% of the total block rewards for each token nominated by users. This means that developers will be able to run their projects without having to rely on venture capital or the sale of tokens for money.
On February 11th, 2022, Astar Network announced the $100M Astar Boost Program to support the development of the Astar ecosystem, including funds to incentivize projects built on Astar. The Astar boost Program has already been launched to support liquidity and incentives for DeFi applications on Astar such as ArthSwap, PolkaEx, and Celer cBridge.
At the time of writing, Astar is a parachain that secures the largest Total Value Locked in the whole Polkadot Ecosystem, which is now over $800M although there are only 4 protocols currently.
For further details about Astar, please read the Astar Ecosystem Digest here
Learn more: Astar Ecosystem Digest
Parallel Finance is a network built to accelerate liquidity & adoption on the Polkadot network.
This network provides the following services:
- Lending Protocol: A money market where users can lend and borrow assets for various purposes.
- Staking Protocol: Parallel proposes two solutions to circumvent the limitations: delegated staking, and a lending pool with a bounded rate.
- Auction Loans: Parallel provides an Auction Loan platform for the global community to support projects bidding for a parachain slot through a crowdloan.
Currently, out of the four products offered by Parallel, the Crowdloan feature receives the most attention from users when compared to the other three. Parallel's Crowdloan has more than $654M in total value locked, trailing only Astar.
The remaining features with low TVL indicates that these features are still in the early stages of development and haven't received much attention.
Here are some stats about Parallel Auction Loans on Polkadot.
On Polkadot, there are several ways to contribute to a project that is being auctioned. Parallel, along with Bitfost, Equilibrium, and StaFi, have been the four parachains that have supported the crowdloan platform for contributors up to this point in time.
Parallel has a market share of more than 21% in this segment, while Binance, a reputable cryptocurrency exchange, has a market share of slightly more than 18% of users who contribute to crowdloans through this exchange.
This demonstrates that the community considers the Parallel Auction Loans platform to be the second most trusted platform to contribute their DOTs.
As can be seen, the Parallel Auction platform plays a significant role in the victory of parachains in the end. In the later parachains, the number of contributions made through Parallel is always greater than the total number of contributions made through other platforms.
Perhaps as a result of the fact that Binance only supports crowdloans for a total of eight parachains, users will contribute via Parallel for those parachains that are not included in the list of eight parachains that Binance supports.
You'll have to wait for dApps like AMM, Lending, and more to mature and gain traction in the market before you can use Parallel's other core features.
Clover is an infrastructure platform for cross-chain and dApps. With multi-dimensional products lineup, including Clover Multi-Chain Wallets, Clover dApp Interaction Protocol, Clover Chain EVM and Universal Cross-Chain Support, Clover uniquely positioned itself as “Passport to the Omniverse.”
Clover’s Main Features
- EVM Compatibility: It offers seamless multi-chain indexing across Bitcoin, Ethereum, BNB Chain and Polkadot.
- Gas-fee Redistribution: Clover will automatically share a percentage of the fees to dApp builders in order to incentivize them. By this way, developers can earn passive income in a sustainable manner.
- Gasless: users of Clover-based dApps can pay for gas with the asset they transact with (no need to keep a base currency like ETH for gas)
- Identity-based Fee schedule: Clover has a unique gas calculation method which allows users to get gas discounts proportionally to the frequency of their network activity. Less interaction → pay more gas and vice versa
As of right now, Clover Finance's ecosystem revolves solely around its Clover Wallet service. Aside from staking CLV to make a profit, the ecosystem's investment prospects remain hazy.
Efinity is a parachain for NFTs that builds on the Polkadot Relay Chain. Because Efinity is also a blockchain, it has independent economic, framework, data and state.
This parachain is developed by Enjin - An ecosystem enabling consumers and developers to purchase, sell and distribute NFT items, founded in 2009 with a network of over 20M gamers worldwide.
Efinity is one of the most promising parachains in the gaming and NFT industries, thanks to the support of Enjin's team.
On March 11th, 2022, Enjin became the new face of the Polkadot Relay Chain. This implies that it will take a long time to watch this ecosystem develop over the course of time.
It's safe to assume that the first winning batch of parachains will obtain the most privilege from Polkadot's network effect, as these crowdfunds typically have many more contributors and DOT locked in.
With the exception of Efinity, the winning parachains in Batch 2 will have to invest a significant amount of resources and money in order to make the ecosystem stand out in the minds of users. They are:
- Composable Finance: Composable is a parachain building infrastructure that allows developers to deploy applications capable of, while allowing users to access previously disparate ecosystems, simultaneously interoperating across layers and chains.
- Centrifuge: A network that provides access to fast and cheap capital for small businesses and a stable yield for investors (real world asset financing)
- Interlay: A Network focuses on the mission of making Bitcoin interoperable in a fully trustless and decentralized way. The core product of Interlay in Polkadot is interBTC, an algorithmic stablecoin pegged 1:1 to Bitcoin.
- Nodle: Nodle is a connectivity provider for the Internet of Things. It has built a Bluetooth Low Energy - powered network to help companies and cities connect and collect data from devices, sensors, and tags.
- HydraDX: A cross-chain liquidity protocol that makes it possible for all crypto assets to be traded without any hassle. It does this by building the first of its kind multi-asset liquidity pool, the HydraDX Omnipool.
Polkadot Ecosystem Prediction
Polkadot is one of the market's long-standing faces, having stormed the crypto community between 2017 and 2020. Unlike Cosmos, Polkadot moves very slowly in comparison to the market, despite the fact that 2021 was a booming year for all ecosystems but this ecosystem has only recently begun to auction parachains at the end of 2021.
Slow infrastructure development aside, Polkadot's active developer count is consistently high, making it a clear indicator that Polkadot's team is constantly innovating and developing new products before releasing them into the ecosystem.
That is shown by the statistics of Coin98 Analytics last March:
This demonstrates that the Polkadot team is one of those moving "slowly but surely," despite the fact that other emerging ecosystems such as Solana, Avalanche, and, most recently, Cosmos have moved much faster.
Parachain Slot Auction Batch 1 and Batch 2 have just finished, which means that all parachains in this ecosystem are very young compared to Cosmos Zones. Consequently, layer 1 chains in other ecosystems took all of the attention away from Polkadot while it was still building its infrastructure.
For newcomers to Polkadot, however, this weakness can be turned into an advantage because the parachain is still in its infancy. I'll go into more detail about investment opportunities in this ecosystem below..
Polkadot had a memorable year in 2021, but it's only the beginning of this ecosystem, as Parachains development will begin in 2022. My belief is that other parachains will follow in the footsteps of Moonbeam, Acala, and Astar, which are clearly at the forefront of the entire ecosystem.
Investment Opportunities with Polkadot Ecosystem
Polkadot's growth is going in a different direction than the rest, so your investment thesis when skinning in Polkadot must align with the Polkadot team's mindset of "slowly but surely". A strategy based on the belief that Polkadot will yield large gains in a short period of time will fail for you. If you're an investor, Polkadot's ecosystem is better suited to your needs, which means you'll have to wait longer for its development.
Furthermore, your position on purchasing new DOT coins is not the same as purchasing DOT coins from 2017 to 2021, so be cautious with any investment decisions if you intend to purchase now.
However, if you already own DOT, you will have a significant advantage because there are numerous ways to earn passive income from your DOT assets, such as contributing to crowdloans to earn free Parachain coins, or staking or yield farming in the ecosystem. Your DOT is the ultimate coin because it can be used in all parachains and at all points throughout the ecosystem.
Parachain’s native coins
Newcomers should be aware that now is not the best time to invest in Parachain tokens (such as GLMR, ACA, ASTR, and so on) because we're in a different position than those who are receiving them for free (contributors to the crowdloans)
In the past, those who chose to lock DOTs into the Astar Network crowdloan during Polkadot's auction batch 1 in the past have received the highest rewards, with a ROI of $10.75 per DOT, followed by Moonbeam ($10.6), Clover ($6.5), and finally Acala ($5.3).
Skin in the game & Retroactive Opportunities
However, there are still opportunities for newcomers in this ecosystem. Because the parachain is still in its infancy, you are now at the early stages of these layer 1 chains, and there will be plenty of opportunities for you to participate.
Participating in the testnet and providing feedback to projects as an active user is the most risk-free method. I believe your efforts will be rewarded if you make an actual contribution to the project's progress.
You can also choose to be an early adopter and a retroactive hunter by supporting projects when they are in their infancy stage and only a few people know about them.
Finally, the earlier the parachain, the higher the yield offered by dApps on it. As a result, if you're looking for a high yield for your money, take a glance further in Polkadot's parachains. In 2022, there will be numerous lending, yield farming, and high APY opportunities available to you. However, you should only use legitimate dApps because there are always scams in the crypto world. As a result, you must exercise caution and only participate in high-quality projects.
Here are a few of my quick summaries:
- Polkadot is distinct from other ecosystems, such as Cosmos, as it grows in a diffrerent direction. As a result, patience is a must if you want to follow this ecosystem.
- Polkadot will also have a thrilling year in 2022, as the parachains in this ecosystem begin to fill in the gaps from missing sectors of dApps. Keeping an eye on these ecosystems will give you many opportunities to skin in Polkadot, as you will be aware of the most recent changes in each network.
- Dapps that are already active in Moonriver will help propel the Moonbeam ecosystem to greater levels. It's only a matter of time before dApps on Moonriver start porting to Moonbeam, creating a larger ecosystem.
- Polkadot's first batch of parachain auctions featured the top five winners as the most well-known parachains, so when discussing Polkadot, the community will first focus on these three parachains. To avoid being hacked or scammed, it is critical that you choose a reputable project that has a clean credit history.
- This article should give you a better idea of the most important parachains that have been connected to the Polkadot Relay Chain. Now it's time to look for investment opportunities in parachains.
What do you think the next winners of the parachains on Polkadot will do? Which ecosystem overview are you most interested in learning about next? Please let me know in the comments section below this article!