3 possible reasons why Polkadot is playing second fiddle in 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 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 an in depth. In the meantime, in style initiatives like Polkadot (DOT) underperformed, comparatively talking, regardless of the excessive expectations many had for the sharded multi-chain protocol.

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Setting apart the particular functionality that every protocol presents by way of transactions per second and time to finality, listed here are a number of elements which will have performed a task in DOT’s laggard efficiency when in comparison with different L1 rivals.

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 a very powerful connection to ascertain because of the truth that a majority of initiatives at the moment run on the community.

Protocols like Fantom, Binance Good 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 supposing Polkadot was particularly designed to supply multi-chain assist 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 seeking to have interaction with DeFi and NFTs.

Cosmos, likewise, didn’t see the discharge of a significant 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 doable.

The late launch of parachain auctions

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

This was partly because of 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 enthusiastic about 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 reside on the Polkadot community on Jan. 11 and has managed to rack up greater than 1 million transactions as customers had been lastly capable of switch ERC-20 tokens into the Polkadot ecosystem.

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

Associated: Moonbeam (GLMR) launch brings EVM interoperability closer to the Polkadot network

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 supplies to token holders.

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

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

Whereas governance talents are necessary for the general well being of blockchain protocols, the typical cryptocurrency customers nonetheless haven’t proven a lot enthusiasm for taking part in votes and are extra enthusiastic about 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. Presently DOT presents 13.94% APR to stakers and its probably that this isn’t sufficient to fulfill the urge for food of yield farmers who wish to get extra bang for his or her buck.

The long-term outlook for Polkadot stays sturdy and the mission has an energetic and devoted group of followers to go together with an skilled improvement crew led by Ethereum co-founder Dr. Gavin Wooden.

The launch of Moonbeam would possibly certainly mark a turning level for DOT as cross-chain compatibility is now reside and different parachain initiatives ought to begin to launch on the mainnet shortly, but it surely stays to be seen how lengthy it’s going to take the community to catch as much as its L1 rivals who’ve a head begin on cross-chain interactions and elevated on-chain exercise.

The views and opinions expressed listed here are solely these of the writer and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer entails threat, you must conduct your personal analysis when making a choice.