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

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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) pressured customers to search for options exterior of the Ethereum (ETH) community the place excessive charges and community congestion continued to be boundaries 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. Meanwhile, 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. Source: TradingView

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

Interoperability is a key issue

One of the most important themes of 2021 was cross-chain interoperability between separate blockchain networks, with a bridge to Ethereum being an important connection to ascertain resulting from the truth that a majority of tasks at the moment run on the community.

Protocols like Fantom, Binance Smart Chain, Avalanche and Harmony developed cross-chain bridges and this led to a noticeable bump of their token worth, whole worth locked and on-chain exercise.

Despite the truth that Polkadot was particularly designed to supply multi-chain assist as a “layer-zero” meta protocol, there was no main launch of a bridge that related Polkadot with Ethereum in 2021 and this left the protocol unloved by crypto merchants trying to have interaction with DeFi and NFTs.

Cosmos, likewise, didn’t see the discharge of a serious bridge that related 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 potential.

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 sensible contract parachain, secured the primary slot.

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

Moonbeam official went dwell 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.

Moonbeam hits 1M tx on the community! ​ Moonbeam is lighting up @Polkadot’s ecosystem with new integrations, 100k+ wallets, 700+ ERC-20 tokens & 1M GLMR tokens locked with collators.

See the communityhttps://t.co/6ZhRLYDHgX pic.twitter.com/tczI7mAjlR

— Moonbeam Network (@MoonbeamNetwork) January 20, 2022

The worth of DOT noticed a slight bump greater following the launch of Moonbeam however has as soon as once more slid again down under $25.

Related: 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 worth of DOT is confusion about what the token is used for and what advantages it gives to token holders.

Thinking about promoting my $DOT. I do not see the aim of the venture anymore, most of the cool tasks that have been going to construct on it migrated to $MATIC or so.

Why ought to I maintain it?

— Quinten François (@QuintenFrancois) July 29, 2021

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

Aside from getting used to take part in parachain auctions, the principle makes use of for DOT embrace staking to assist the operation and safety of the community and to be used in governance votes.

While governance skills are vital for the general well being of blockchain protocols, the typical cryptocurrency customers nonetheless haven’t proven a lot enthusiasm for collaborating in votes and are extra all in favour of issues like gaming, DeFi and NFTs.

Multiple layer-one options are launching developer and liquidity incentive packages and up and coming DeFi protocols are nonetheless providing excessive yield staking alternatives. Currently DOT provides 13.94% APR to stakers and its probably 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 robust and the venture has an energetic and devoted group of followers to go together with an skilled growth workforce led by Ethereum co-founder Dr. Gavin Wood.

The launch of Moonbeam may certainly mark a turning level for DOT as cross-chain compatibility is now dwell and different parachain tasks ought to begin to launch on the mainnet shortly, but it surely stays to be seen how lengthy it would 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 creator and don’t essentially replicate the views of Cointelegraph.com. Every funding and buying and selling transfer entails threat, it’s best to conduct your personal analysis when making a choice.

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