[Blockchain Today Correspondent Lee Ji-eun] On the 22nd (local time), Cointelegraph published an analysis article on Polkadot’s token price and Layer 1 protocol to analyze the timing of Parachain auctions and the lack of interoperability with Ethereum. Diagnosed as the reason for Dot’s sluggishness.
According to the report, in 2021, many L1 blockchain protocols also showed great development due to the growth of the decentralized financial (DeFi) system and the non-fungible token (NFT). This development has become an alternative to Ethereum (ETH)’s high fees and complicated network accessibility. At the end of last year, the native token value of protocols such as Phantom (FTM), Avalanche (AVAX) and Cosmos (ATOM) rose and the ecosystem flourished.
However, Cointelegraph reported that Polkadot (DOT) performed relatively poorly, although many had high expectations for a sharded multi-chain protocol.
The following are the reasons for the sluggishness of Polkadot diagnosed by Cointelegraph. This excludes certain features that each protocol provides in terms of transactions per second and finality time, and is based on comparison with other L1 competitors.
Interoperability is the main factor
One of the main themes of 2021 was cross-chain interoperability between separate blockchain networks. In particular, building a bridge with Ethereum was the most important task because most of the projects were based on the Ethereum network.
Protocols such as Phantom, Binance Smart Chain, Avalanche and Harmony have developed these cross-chain bridges, which have resulted in significant increases in token prices, total assets deposited and on-chain activity.
Although Polkadot was specifically designed to provide multi-chain support as a Layer 0 meta-protocol, it did not provide a significant bridge between Polkadot and Ethereum. This has resulted in Polkadot’s protocol being unpopular with cryptocurrency investors looking for ways to participate in DeFi and NFTs.
Cosmos also failed to show a major bridge that connects with Ethereum, but has demonstrated compatibility between chains by introducing integration technologies such as adding Ether as a collateral asset to Terra.
Late launch of Parachain Auction
At the end of last year, Polkadot was still making preparations to launch this project on the mainnet while other competitors’ networks were actively interacting with each other and protocols.
This appears to be partly because the Parachain auction for Polkadot did not begin until November 11, when Moonbeam (GLMR), an Ethereum-compatible smart contract parachain, secured its first slot.
At one time, DOT rose to an all-time high of $55 on November 4 last year as investors interested in Parachain auctions secured tokens, but the price has continued to decline since the official auction began. dropped to $23.28.
From the 11th, when Moonbeam officially appeared on the Polka Dot Network, ERC-20 tokens can be transferred to the Polka Dot ecosystem. Since then, Moonbeam has achieved over 1 million transactions.
However, the DOT price has risen slightly since the launch of Moonbeam, but then fell again below $25.
Advantages of holding DOT
A third factor that can affect the price of DOT is to make it clearer what the coin will be used for and the benefits it will provide to its owners.
In many competing networks, native tokens can perform contract operations such as token transfers or swaps, while native tokens of the protocol in the Polkadot ecosystem are being used to pay for gas.
In addition to participating in Parachain auctions, the main uses of DOT include staking to support the operation and security of the network and use it for governance voting.
Although the ability of governance is important for the sound operation of the blockchain protocol, general cryptocurrency users are still more interested in games, DeFi, and NFTs than participation in voting.
Many Layer 1 solutions are launching developer and liquidity incentive programs, and the emerging DeFi protocol is also offering high-yield staking opportunities. Currently, DOT also offers stakers an annual interest rate of 13.94%, but there are also complaints that it is insufficient.
However, some analysts say that the long-term prospect is still bright for Pocadat, as many investors are looking forward to the development team led by Ethereum co-founder Dr. Gavin Wood.
The launch of Moonbeam in mid-January was a turning point for Polkadot in that it showed compatibility between chains. The fact that the Parachain project will soon start on the mainnet is also one of the bright futures.
Inter-chain compatibility and how quickly it can catch up with other L1 companies that are already ahead in on-chain activity will be an important factor in determining the future of Polkadot.
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