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This is an independent report commissioned by Polkadot from blockchain research firm Messari and authored by Nicholas Garcia.
Core Insights After five years of development, the Polkadot (Polka) parallel chain is now live.
At the end of the first quarter of 2022, 13 parallel chains won parallel chain slots, binding 127.8 million DOTs (11% of total supply; $2.9 billion in value).
Between now and February 2023, 28 more parallel chain slot auctions are planned (bringing the total to 41).
Polkadot price and number of user accounts hit an all-time high at the first parallel-chain slot auction; however, both metrics have steadily declined since then.
Polkadot has an evenly distributed set of verifiers, with 99% of verifiers having between 1.8-2.6 million DOTs.
Polkadot's developer activity remains the most active in the crypto space.
The next major milestones are the cross-consensus message format XCM, the implementation of parallel threads, and performance upgrades.
Introduction to Polkadot Polkadot is a nominated proof-of-stake (NPoS) blockchain network designed to support a variety of interconnected Layer 1 chains that serve specific applications, i.e., parallel chains. Polkadot refers to an entire ecosystem, i.e., all parallel chains that are connected to a single base platform "relay chain". The base platform does not support application functionality, but contains all validators and is responsible for protecting, managing and connecting parallel chains.
Changes in Polkadot's valuation during Q1 2022 are more in line with changes in the rest of the ecosystem. luna is up the most at +18%, FTM is down the most at -38%, and Polkadot is down the third most at -19%.
Network Usage Polkadot user accounts, both new and active, followed a similar path to prices. in November, the average user account grew by 131% compared to the beginning of the year and hit several all-time highs. However, active users and new user accounts have declined in every month since November. While the decline in user accounts is a general macro theme, there are some internal reasons.
The decline in active accounts may be due to users locking their DOTs for a two-year lease to support their bullish parallel chains in the parallel chain auction. DOTs locked in Crowdloan are not available and therefore cannot be used in Polkadot. To counter this liquidity constraint, parallel chains Acala and Parallel Finance introduced liquidity pledges.
The decrease in new accounts may be related to the fact that the first batch of parallel chains was hotter than the second batch. The first cohort of parallel chains (1-5) has 342% more DOTs tied to it than the second cohort (6-11).
On the contrary, the number of addresses holding DOTs is increasing every month in 2021 and the first quarter of 2022. This increase, despite declining valuations, demonstrates the strong interest in the Polkadot ecosystem.
Pledging and Decentralization Polkadot uses the Nominated Proof of Stake (NPoS) consensus mechanism. Nomination Proof of Stake consensus differs from Delegated Proof of Stake (DPos) consensus in that the nominator, i.e. the DOT owner, pledges his tokens to the verifier and may be subject to a Slash penalty.
Verifiers are paid every 24 hours based on the paid operations they complete, called era points. Every 4 hours a random subset of verifiers is assigned to verify all parallel chains and a factor is multiplied on the earned era points. the combination of Era points and random parallel chain verification ensures that verifiers receive almost equal rewards. Since the validators receive almost equal rewards and distribute these rewards proportionally to their nominators, the nominators are incentivized to pledge at low pledged validators for higher rewards. The verifier-nominator reward model aims to decentralize Polkadot's verifier set. At the end of the first quarter of 2022, 294 out of 297 validators (99%) hold 18-2.6 million DOTs, which confirms that the game theory of nominator pledges is valid.
Ecosystem Challenges In Q4 2021, new users flooded Polkadot to participate in the inaugural novel parallel chain slot auction. however, by Q1 2022, the heat around the ecosystem steadily declined.
To generate enthusiasm, Polkadot needs a spark, possibly driven by a parallel chain or a protocol built on top of a parallel chain. Protocols need to leverage cross-chain architecture and XCM communications to develop new proto-languages. Developing new features and use cases will demonstrate the power of the network and engage users organically.
In addition, users in the network often complain about the complexity of Polkadot JS wallets. As of the end of Q1 2022, several projects are developing Polkadot eco-wallets, including Talisman, SubWallet, Nova, and Polka Wallet.
Finally, there is a knowledge gap in Polkadot. The uniqueness of the architecture leads to some common questions and frequent comparisons to other open economy ecosystems. There is a growing marketing and education effort underway to help users combat common misconceptions from which Polkadot could benefit.
The Road Ahead Polkadot's go-live process begins with the Relay Chain Genesis block in May 2020 and concludes with the launch of the parallel chain in December 2021. in the first quarter of 2022, Polkadot implemented a number of post-launch developments and optimizations that are expected to continue into 2022.
Arguably the area of greatest focus has been the construction of Polkadot's cross-consensus messaging format (XCM), a communication language that allows parallel chains to exchange messages with other parallel chains, similar to cross-chain communication (IBC) on Cosmos. polkadot's canary network Kusama has been testing a light client version of XCM, called HRMP. XCM is expected to be available on Polkadot in Q2 2022. *Update, Polka co-founder Robert Habermeier tweeted on April 17, 2022, that XCM will be launched on Polkadot during the next runtime upgrade.
Another area of focus is the introduction of parallel threads. Parallel threads are pay-as-you-go parallel chains. Instead of always connecting to a relay chain like a parallel chain, parallel threads pay for the security and interoperability of the relay chain based on their needs. Parallel threads are useful for projects that do not want full parallel chain slots or for existing parallel chains that no longer need dedicated parallel chain slots.
Finally, developers will continue to optimize the performance of the network. One of the major performance upgrades will come from Asynchronous Support (Asynchronous Backing). It will allow parallel chains to build blocks simultaneously with relay chains and reduce block times from 12 seconds to 6 seconds. Other protocol updates are in development.
In summary The big event of 2021 is the release of parallel chains. The parallel chain launch brought record highs in prices, user accounts, and auction contributions to the parallel chain slots. Unfortunately, the frenzy was short-lived, and by the first quarter of 2022, each of these metrics experienced month-over-month declines.
Over the same period, underlying KPIs remained stable. polkadot maintained a healthy verifier distribution in terms of total collateral, developer activity remained the most active in the crypto ecosystem, and users continued to hoard tokens, demonstrating some interest in the ecosystem.
The second quarter of 2022 was characterized by more parallel chains coming online and XCM launches. In order to gain more market share, Polkadot needs parallel chains or protocols built on parallel chains to develop unique use cases using XCM and cross-chain architectures. Since parallel chains just went live 4 months ago, they are still in the early stages.
Appendix: Big Events
October 13, 2021 - Robert Habermeier announces parallel chains (go-live date)
November 11, 2021 - First parallel chain auction begins
November 18, 2021 - Acala wins first parallel chain slot
November 25, 2021 - Moonbeam wins the second parallel chain slot
December 2, 2021 - Astar wins the 3rd parallel chain slot
December 9, 2021 - Parallel wins the 4th parallel chain slot
December 15, 2021 - Polkadot Rebranding
December 16, 2021 - Clover wins 5th parallel chain slot
December 17, 2021 - 1st-5th parallel chains connected to a relay chain
December 30, 2021 - Efinity Wins 6th Parallel Chain Slot
January 13, 2022 - Composable wins 7th parallel chain slot
January 27, 2022 - Centrifuge wins 8th parallel chain slot
February 2, 2022 - Report shows Polkadot has the smallest carbon footprint
February 10, 2022 - HydraDX Wins 9th Parallel Chain Slot
February 24, 2022 - Interlay Wins 10th Parallel Chain Slot
February 24, 2022 - Next 30 auctions scheduled
March 10, 2022 - Nodle wins 11th parallel chain slot
March 19, 2022 - Equilibrium wins the 12th parallel chain slot
March 31, 2022 - Phala wins the 13th parallel chain slot
This is an independent report commissioned by Polkadot from blockchain research firm Messari and authored by Nicholas Garcia.
Core Insights After five years of development, the Polkadot (Polka) parallel chain is now live.
At the end of the first quarter of 2022, 13 parallel chains won parallel chain slots, binding 127.8 million DOTs (11% of total supply; $2.9 billion in value).
Between now and February 2023, 28 more parallel chain slot auctions are planned (bringing the total to 41).
Polkadot price and number of user accounts hit an all-time high at the first parallel-chain slot auction; however, both metrics have steadily declined since then.
Polkadot has an evenly distributed set of verifiers, with 99% of verifiers having between 1.8-2.6 million DOTs.
Polkadot's developer activity remains the most active in the crypto space.
The next major milestones are the cross-consensus message format XCM, the implementation of parallel threads, and performance upgrades.
Introduction to Polkadot Polkadot is a nominated proof-of-stake (NPoS) blockchain network designed to support a variety of interconnected Layer 1 chains that serve specific applications, i.e., parallel chains. Polkadot refers to an entire ecosystem, i.e., all parallel chains that are connected to a single base platform "relay chain". The base platform does not support application functionality, but contains all validators and is responsible for protecting, managing and connecting parallel chains.
Changes in Polkadot's valuation during Q1 2022 are more in line with changes in the rest of the ecosystem. luna is up the most at +18%, FTM is down the most at -38%, and Polkadot is down the third most at -19%.
Network Usage Polkadot user accounts, both new and active, followed a similar path to prices. in November, the average user account grew by 131% compared to the beginning of the year and hit several all-time highs. However, active users and new user accounts have declined in every month since November. While the decline in user accounts is a general macro theme, there are some internal reasons.
The decline in active accounts may be due to users locking their DOTs for a two-year lease to support their bullish parallel chains in the parallel chain auction. DOTs locked in Crowdloan are not available and therefore cannot be used in Polkadot. To counter this liquidity constraint, parallel chains Acala and Parallel Finance introduced liquidity pledges.
The decrease in new accounts may be related to the fact that the first batch of parallel chains was hotter than the second batch. The first cohort of parallel chains (1-5) has 342% more DOTs tied to it than the second cohort (6-11).
On the contrary, the number of addresses holding DOTs is increasing every month in 2021 and the first quarter of 2022. This increase, despite declining valuations, demonstrates the strong interest in the Polkadot ecosystem.
Pledging and Decentralization Polkadot uses the Nominated Proof of Stake (NPoS) consensus mechanism. Nomination Proof of Stake consensus differs from Delegated Proof of Stake (DPos) consensus in that the nominator, i.e. the DOT owner, pledges his tokens to the verifier and may be subject to a Slash penalty.
Verifiers are paid every 24 hours based on the paid operations they complete, called era points. Every 4 hours a random subset of verifiers is assigned to verify all parallel chains and a factor is multiplied on the earned era points. the combination of Era points and random parallel chain verification ensures that verifiers receive almost equal rewards. Since the validators receive almost equal rewards and distribute these rewards proportionally to their nominators, the nominators are incentivized to pledge at low pledged validators for higher rewards. The verifier-nominator reward model aims to decentralize Polkadot's verifier set. At the end of the first quarter of 2022, 294 out of 297 validators (99%) hold 18-2.6 million DOTs, which confirms that the game theory of nominator pledges is valid.
Ecosystem Challenges In Q4 2021, new users flooded Polkadot to participate in the inaugural novel parallel chain slot auction. however, by Q1 2022, the heat around the ecosystem steadily declined.
To generate enthusiasm, Polkadot needs a spark, possibly driven by a parallel chain or a protocol built on top of a parallel chain. Protocols need to leverage cross-chain architecture and XCM communications to develop new proto-languages. Developing new features and use cases will demonstrate the power of the network and engage users organically.
In addition, users in the network often complain about the complexity of Polkadot JS wallets. As of the end of Q1 2022, several projects are developing Polkadot eco-wallets, including Talisman, SubWallet, Nova, and Polka Wallet.
Finally, there is a knowledge gap in Polkadot. The uniqueness of the architecture leads to some common questions and frequent comparisons to other open economy ecosystems. There is a growing marketing and education effort underway to help users combat common misconceptions from which Polkadot could benefit.
The Road Ahead Polkadot's go-live process begins with the Relay Chain Genesis block in May 2020 and concludes with the launch of the parallel chain in December 2021. in the first quarter of 2022, Polkadot implemented a number of post-launch developments and optimizations that are expected to continue into 2022.
Arguably the area of greatest focus has been the construction of Polkadot's cross-consensus messaging format (XCM), a communication language that allows parallel chains to exchange messages with other parallel chains, similar to cross-chain communication (IBC) on Cosmos. polkadot's canary network Kusama has been testing a light client version of XCM, called HRMP. XCM is expected to be available on Polkadot in Q2 2022. *Update, Polka co-founder Robert Habermeier tweeted on April 17, 2022, that XCM will be launched on Polkadot during the next runtime upgrade.
Another area of focus is the introduction of parallel threads. Parallel threads are pay-as-you-go parallel chains. Instead of always connecting to a relay chain like a parallel chain, parallel threads pay for the security and interoperability of the relay chain based on their needs. Parallel threads are useful for projects that do not want full parallel chain slots or for existing parallel chains that no longer need dedicated parallel chain slots.
Finally, developers will continue to optimize the performance of the network. One of the major performance upgrades will come from Asynchronous Support (Asynchronous Backing). It will allow parallel chains to build blocks simultaneously with relay chains and reduce block times from 12 seconds to 6 seconds. Other protocol updates are in development.
In summary The big event of 2021 is the release of parallel chains. The parallel chain launch brought record highs in prices, user accounts, and auction contributions to the parallel chain slots. Unfortunately, the frenzy was short-lived, and by the first quarter of 2022, each of these metrics experienced month-over-month declines.
Over the same period, underlying KPIs remained stable. polkadot maintained a healthy verifier distribution in terms of total collateral, developer activity remained the most active in the crypto ecosystem, and users continued to hoard tokens, demonstrating some interest in the ecosystem.
The second quarter of 2022 was characterized by more parallel chains coming online and XCM launches. In order to gain more market share, Polkadot needs parallel chains or protocols built on parallel chains to develop unique use cases using XCM and cross-chain architectures. Since parallel chains just went live 4 months ago, they are still in the early stages.
Appendix: Big Events
October 13, 2021 - Robert Habermeier announces parallel chains (go-live date)
November 11, 2021 - First parallel chain auction begins
November 18, 2021 - Acala wins first parallel chain slot
November 25, 2021 - Moonbeam wins the second parallel chain slot
December 2, 2021 - Astar wins the 3rd parallel chain slot
December 9, 2021 - Parallel wins the 4th parallel chain slot
December 15, 2021 - Polkadot Rebranding
December 16, 2021 - Clover wins 5th parallel chain slot
December 17, 2021 - 1st-5th parallel chains connected to a relay chain
December 30, 2021 - Efinity Wins 6th Parallel Chain Slot
January 13, 2022 - Composable wins 7th parallel chain slot
January 27, 2022 - Centrifuge wins 8th parallel chain slot
February 2, 2022 - Report shows Polkadot has the smallest carbon footprint
February 10, 2022 - HydraDX Wins 9th Parallel Chain Slot
February 24, 2022 - Interlay Wins 10th Parallel Chain Slot
February 24, 2022 - Next 30 auctions scheduled
March 10, 2022 - Nodle wins 11th parallel chain slot
March 19, 2022 - Equilibrium wins the 12th parallel chain slot
March 31, 2022 - Phala wins the 13th parallel chain slot
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