3 attainable explanation why Polkadot is enjoying second fiddle within the L1 race

2021 was a type of “coming-of-age” for a lot of layer-one (L1) blockchain protocols as a result of the expansion of decentralized finance (DeFi) and nonfungible tokens (NFTs) compelled customers to search for options exterior of the Ethereum (ETH) community the place excessive charges and community congestion continued to be obstacles 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, standard 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 day by day chart. Supply: TradingView

Setting apart the particular functionality that every protocol presents when it comes to transactions per second and time to finality, listed below are a number of elements that will have performed a job in DOT’s laggard efficiency when in comparison with different L1 opponents.

Interoperability is a key issue

One of many main themes of 2021 was cross-chain interoperability between separate blockchain networks, with a bridge to Ethereum being crucial connection to ascertain resulting from the truth that a majority of tasks presently run on the community.

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

Even though 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 trying to interact with DeFi and NFTs.

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

The late launch of parachain auctions

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

This was partly resulting from the truth that the parachain auctions for Polkadot didn’t start till November 11 when Moonbeam (GLMR), an Ethereum-compatible good contract parachain, secured the primary slot.

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

Moonbeam official went stay on the Polkadot community on Jan. 11 and has managed to rack up greater than 1 million transactions as customers have 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 under $25.

Associated: Moonbeam (GLMR) launch brings EVM interoperability nearer to the Polkadot community

The advantages of holding DOT

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

On most of the competing networks, the native token is used to conduct contract actions akin to token transfers or swaps whereas protocols which might be within the Polkadot ecosystem use their native tokens to pay for fuel.

Other than getting used to take part in parachain auctions, the principle 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 general well being of blockchain protocols, the common cryptocurrency customers nonetheless haven’t proven a lot enthusiasm for collaborating in votes and are extra all for issues like gaming, DeFi and NFTs.

A number of layer-one options are launching developer and liquidity incentive packages and up and coming DeFi protocols are nonetheless providing excessive yield staking alternatives. At present DOT presents 13.94% APR to stakers and its presumably that this isn’t sufficient to fulfill the urge for food of yield farmers who need to get extra bang for his or her buck.

The long-term outlook for Polkadot stays sturdy and the challenge has an lively and devoted group of followers to go together with an skilled growth workforce 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 stay and different parachain tasks ought to begin to launch on the mainnet shortly, but it surely stays to be seen how lengthy it can take the community to catch as much as its L1 opponents who’ve a head begin on cross-chain interactions and elevated on-chain exercise.

The views and opinions expressed listed below are solely these of the writer and don’t essentially replicate the views of Each funding and buying and selling transfer includes danger, it is best to conduct your personal analysis when making a call.