3 Possible Reasons Why Polkadot Played Second In The L1 Race

The timing of the parachain auctions and the lack of interoperability with Ethereum may have affected Polkadot’s token price and its ability to compete with other layer 1 protocols.

3 possible reasons why Polkadot played second in the L1 race

2021 is an “age” year for many layer one (L1) blockchain protocols as the rise of decentralized finance (DeFi) and non-distributed tokens (NFTs) force users to find Look for solutions outside of the Ethereum (ETH) network where high fees and network congestion continue to be barriers for many.

Protocols such as Fantom (FTM), Avalanche (AVAX), and Cosmos (ATOM) have seen their token value increase and the ecosystem flourish as 2021 comes to a close. Meanwhile, popular projects like Polkadot (DOT) underperformed, relatively speaking, although many had high expectations for the fractional multi-chain protocol.

3 possible reasons why Polkadot played second in the L1 race 5
Daily chart FTM/USDT vs AVAX/USDT vs ATOM/USDT vs DOT/USDT. Source: TradingView

Ignoring the specific capabilities each protocol offers in terms of transactions per second and completion times, here are some factors that could play a role in DOT’s slower performance when compared to its competitors another L1 picture.

Interoperability is a key factor

One of the key themes of 2021 is cross-chain interoperability between separate blockchain networks, with a bridge to Ethereum being the most important one to establish given the majority of projects currently running on the network.

Protocols like Fantom, Binance Sensible Chain, Avalanche, and Harmony have developed cross-chain bridges, and this has resulted in significant increases in their token prices, total locked value and on-chain activity.

Despite the fact that Polkadot is specifically designed to provide multi-chain support as a “layer zero” meta protocol, there is no major release of the bridge connecting Polkadot to Ethereum in 2021 and this makes the protocol is not sought by crypto traders to interact with DeFi and NFT.

Likewise, Cosmos has not seen the release of a major bridge connecting its ecosystem to Ethereum, but there have been minor integrations such as the addition of Ether as collateral on Terra demonstrating that the possibility Cross-chain compatibility is entirely possible.

Late launch of parachain auctions

As 2021 comes to a close, all the previously mentioned networks will see a healthy amount of activity and multi-protocol interaction while the projects on Polkadot are still finalizing the preparations to launch. on the main network.

This is partly because parachain auctions for Polkadot did not begin until November 11 when Moonbeam (GLMR), an Ethereum-compatible smart contract parachain, won first place.

DOT saw its price surge to an all-time high of $55 on November 4 as those interested in contributing to parachain auctions secured their tokens. , but by the time the auctions officially started, its price had dropped to a low of $23.28 on January 10.

The official Moonbeam went live on the Polkadot network on January 11 and managed to hit over 1 million transactions as users were finally able to move ERC-20 tokens into the Polkadot ecosystem.

The price of DOT increased slightly after the launch of Moonbeam but again fell below $25.

Related: Launch of Moonbeam (GLMR) Brings EVM Interoperability Closer to Polkadot . Network

Benefits of holding DOT

A third factor that can affect the popularity and price of DOT is confusion about what the token is used for and what benefits it offers to token holders.

On many competing networks, native tokens are used to perform contractual actions such as transferring or swapping tokens while protocols in the Polkadot ecosystem use their native tokens for payments. for gas.

In addition to being used to participate in parachain auctions, major uses of DOT include staking to support the operation and security of the network, and for use in governance votes.

While governance is important to the overall health of blockchain protocols, the average cryptocurrency user has yet to show much enthusiasm for participating in the vote and being more concerned with things. like playing match, DeFi and NFT.

Many tier one solutions are launching liquidity and developer incentives, and new and upcoming DeFi protocols still offer high yield staking opportunities. Currently, DOT offers an APR of 13.94% to producers, and this may not be enough to meet the needs of productive farmers who are looking to earn more for their dong. their money.

The long-term outlook for Polkadot remains strong and the project has an active and dedicated community of followers along with an experienced development team led by Ethereum co-founder Dr Gavin Wood.

Moonbeam’s launch could really mark a turning point for DOT as cross-chain compatibility is now live and other parachain projects will start launching on the mainnet shortly, but there’s still work to be done. see how long it will take for the network to catch up to its L1 competitors, who have a head start on cross-chain interaction and increased on-chain activity.

Đăng nhận xét

Mới hơn Cũ hơn