- After five years of development, the Polkadot parachain is already in use.
- At the end of Q1 2022, 13 parachains had 127.8 million DOT staked (11% of total supply, worth $2.9 billion).
- A further 28 parachain slot auctions are planned for February 2023 (taking the total to 41).
- Polkadot prices and user accounts hit all-time highs around the time of the first parachain slot auction; however, both metrics have steadily declined since then.
- Polkadot has a uniformly distributed validator set, with 99% of validators having 1.8-2.6 million DOTs.
- Polkadot developers still hold the most powerful positions in the crypto industry technology space.
- The next major milestone is the implementation of Cross-Consensus Message Format (XCM), parallel threads and performance upgrades.
Polkadot Key Metrics Summary
Introduction to Polkadot
Polkadot is a proof-of-nomination (NPoS) blockchain network designed to support a variety of interconnected, application-specific layer-1 chains (called parachains). Every chain built inside Polkadot uses Substrate, Parity Technologies’ blockchain development framework, which allows developers to choose specific components that work best for their application-specific chain. Polkadot refers to the entire ecosystem of parachains plugged into a single underlying platform called Relay Chain. This base platform does not support application functionality, but instead contains all validators responsible for securing, managing and connecting parachains.
After about five years of research and development, the first parachains went live on December 17, 2021. By the end of the first quarter of 2022, 13 parachains had already secured 127.8 million DOTs (11% of the total supply, worth $2.9 billion). As the first issue of Polkadot’s quarterly report commissioned by Polkadot, this report will highlight important developments since parachains launched and evaluate the network’s performance in the first quarter. A full appendix of quarterly events and figures is provided at the end of the report.
The concept of parachains was first introduced on Polkadot Paper in 2016. In October 2021, at the Substrate sub0 conference, co-founder Robert Habermeier announced that Relay Chain is ready to support parachains. Over the next three weeks, the price of Polkadot’s native token, DOT, rose 57% on November 5, 2021 to an all-time high of $55.08 ($56.5 billion market cap), with community approval for November 2021 The first parachain slot auction on the 11th. However, from November 2021 to the first quarter of 2022, the valuation of Polkadot and the rest of the cryptocurrency market has declined. In the first quarter of 2022, the exchange’s market cap was $225 ($23.3 billion), down 60 percent from its all-time high.
In the first quarter of 2022, Polkadot’s valuation changes are in line with changes in the rest of the ecosystem. LUNA was the biggest gainer at +18%, FTM was the biggest loser at -38% and Polkadot was third at -19%.
Polkadot user accounts, both new and active addresses, follow a price-like path. User accounts grew 131% year-over-year in November, hitting multiple all-time highs. However, the number of monthly active users and new users has declined since last November. While the decline in the number of users is a common phenomenon, some internal factors are also contributing.
The decrease in active accounts may be due to users locking up a certain amount of tokens during the two-year lease period in order to support their preferred parachains in the slot auction. A locked DOT is inaccessible. To overcome liquidity constraints, Acala and Parallel Finance introduced liquid investments.
The drop in new accounts may be related to the fact that the first batch of parachains generated more market heat than the second batch. The DOT binding rate of the first batch of parachains (1-5) was 342% higher than that of the second batch (6-11).
Conversely, the number of addresses holding DOTs increased each month in 2021 and the first quarter of 2022. This increase shows that investor interest in the Polkadot ecosystem has not declined despite falling valuations.
Staking and Decentralization
Polkadot uses a Nominated Proof of Stake (NPoS) consensus mechanism. Nominal PoS consensus differs from Delegated Proof-of-Stake (DPos) consensus in that nominators, i.e. DOT owners who prove their tokens with validators, are slashed.
Validators get paid every 24 hours based on paid operations they complete, called era points. A subset of validators is randomly assigned to validate all parachains every 4 hours, and the earned era points are multiplied by a factor. The combination of Era points and random parachain validation guarantees that validators receive nearly the same rewards. Because validators receive nearly equal rewards and distribute those rewards proportionally to their nominators, nominators are incentivized to stake at low-staking validators for higher rewards. The validator-nominator reward model is designed to decentralize Polkadot’s validator set. At the end of the first quarter of 2022, 294 of the 297 validators (99%) held 18-2.6 million DOTs, confirming that the game theory of nominator staking is valid.
Polkadot uses an inflationary token model; therefore, there is no maximum amount of DOTs. Inflationary rewards are distributed to validators to protect the Polkadot network, the remainder of which goes to the treasury. Inflation varies according to Polkadot’s ideal staking rate, but averages around 10% per year. In the first quarter of 2022, DOT maintained a consistent pledge rate, ranging from 53.8% to 58.6% of the total amount of pledged DOT tokens.
A single entity can run multiple validators. According to Subscan, in the first quarter of 2022, there are 7 entities running multiple validators, accounting for 20% of the total DOT stake. Other entities may also be running multiple validators, but Subscan has not yet identified them.
Due to the even distribution of rewards, running multiple validators can achieve greater expected value. Therefore, Polkadot validators self-stake at least one DOT and nominate their DOTs to up to 16 validators to maximize the expected value of their staking rewards. Of the total stake in DOT, approximately 99.7% comes from nominators and 0.3% comes from validators self-staking.
The first parachain slot auction starts on November 11, 2021. At the end of Q1 2022, the 13 parachains that won the slot tied 127.8 million DOT (11% of the total supply, worth $2.9 billion). Polkadot plans to conduct 28 new parachain auctions by February 2023 (total 41).
Among the first 13 parachains, 7 are DeFi chains, 3 are smart contract platforms, and 3 are Web3 infrastructure chains. For an in-depth look at the top 13 parachains, check out the Polkadot ecosystem overview.
Polka dots vs Kusama
Another unique component of the Polkadot ecosystem is the canary network Kusama. Kusama is a sovereign blockchain with almost the same codebase and architecture as Polkadot; however, Kusama has a faster governance mechanism compared to Polkadot’s 28-day voting, which takes only 7 days. All new code releases are proposed, approved, tested and implemented on Kusama before migrating to Polkadot. Therefore, Polkadot and Kusama are closely related. The market capitalization of the two networks has closely tracked each other with a correlation coefficient of 0.797 over the past five quarters.
In contrast, there is little correlation between the user activities of the two networks. Over the past five quarters, the correlation coefficient for user accounts for both networks was weak at 0.42. After the first Polkadot parachain (Auction), user accounts on both networks have trended downward.
Similar to the Kusama-Polkadot relationship, parachain project teams can launch a Kusama parachain to test new functionality under real economic conditions. Of the top 13 Polkadot parachains, 11 have Kusama parachains. On average, Polkadot parachains hold 10 times the dollar value locked in Kusama parachains. The only exception is the Polkadot parachain Phala Network, whose Kusama parachain Khala Network locks in higher dollar value.
According to the annual Electric Capital developer report, Polkadot has the second largest developer community in 2021. Polkadot started the year with 840 developers and ended the year with 1,400 developers, a net addition of 560 developers (+67%). By comparison, Ethereum has the most developers with 3,920, and Cosmos is third with around 950.
Developer activity in 2021 and Q1 2022 is more consistent, with 14 out of 15 months (93%) having more than 10,000 developer activity events. The October 2021 exception is due to developers shifting their focus to supporting the first parachain auctions. Average monthly developer activity dropped 10% in Q1 2022 as developers prioritized enabling previously deployed features over developing new ones. Overall, Polkadot has the strongest developer activity in the crypto space. (Note: Developer activity is based on public GitHub repositories)
In Q4 2021, new users poured into Polkadot for the first novel parachain slot auction. However, through the first quarter of 2022, the heat surrounding the ecosystem has steadily declined.
To spark the heat, Polkadot needs a spark, possibly driven by parachains or a protocol built on top of parachains. The protocol needs to exploit the cross-chain architecture and XCM communication to develop new primitives. Developing new features and use cases will demonstrate the power of the web and organically engage users.
Additionally, users in the network often complain about the complexity of the Polkadot JS wallet. As of the end of the first quarter of 2022, multiple projects are developing the Polkadot eco-wallet, including Talisman, SubWallet, Nova, and Polka Wallet.
Finally, Polkadot has a knowledge gap. The uniqueness of the architecture leads to some common questions and is often compared to other open economic ecosystems. There is an increasing amount of marketing and education work going on to help users fight common misconceptions, from which Polkadot can benefit.
Polkadot’s onboarding process begins with the Relay Chain Genesis Block in May 2020 and ends with the parachain launch in December 2021. During the first quarter of 2022, Polkadot implemented several post-launch developments and optimizations that are expected to continue through 2022.
Arguably the area of greatest focus is the construction of Polkadot’s Cross-Consensus Message Format (XCM). XCM is a communication language that allows parachains to exchange messages with other parachains, similar to Inter-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 implemented on Polkadot in Q2 2022. *Update, Polkadot co-founder Robert Habermeier tweeted on April 17, 2022 that XCM will be launched on Polkadot during the next runtime upgrade. (Note: XCM has been listed on Polkadot on May 4)
Another area of focus is the introduction of parallel threads. Parathreads are pay-as-you-go parachains. Parathreads are not always connected to the relay chain like parachains, but pay for the security and interoperability of the relay chain according to their own needs. Parathreads are useful for projects that do not wish to acquire full parachain slots or existing parachains that no longer need dedicated parachain slots.
Finally, the developers will continue to optimize the performance of the network. One of the major performance upgrades will come from Asynchronous Backing. It will allow parachains to build blocks concurrently with the relay chain and reduce block times from 12 seconds to 6 seconds. Other protocol updates are also in development.
The big event in 2021 is the launch of parachains. The parachain launch brought all-time highs in price, user accounts, and parachain slot auction contributions. Unfortunately, the frenzy was short-lived, with each of these metrics experiencing month-to-month declines through the first quarter of 2022.
During the same period, basic KPIs remained stable. Polkadot maintains a healthy distribution of validators in terms of total staking, developer activity remains the most active in the crypto ecosystem, and users continue to hoard tokens, showing a certain interest in the ecosystem.
The second quarter of 2022 will be marked by more parachains going live and XCM launches. To gain more market share, Polkadot needs parachains or protocols built on parachains, leveraging XCM and cross-chain architecture to develop unique use cases. Since parachains only went live 4 months ago, they are still in their early stages.
Appendix — Polkadot Events
- October 13, 2021 – Robert Habermeier announces parachains (live time)
- November 11, 2021 – The first parachain auction begins
- November 18, 2021 – Acala wins first parachain slot
- November 25, 2021 – Moonbeam wins second parachain slot
- December 2, 2021 – Astar wins 3rd parachain slot
- December 9, 2021 – Parallel wins 4th parachain slot
- December 15, 2021 – Polkadot rebranding
- December 16, 2021 – Clover wins 5th parachain slot
- December 17, 2021 – Parachains 1-5 connect to the relay chain
- December 30, 2021 – Efinity wins 6th parachain slot
- January 13, 2022 – Composable wins 7th parachain slot
- January 27, 2022 – Centrifuge wins 8th parachain slot
- February 2, 2022 – Report shows Polkadot has smallest carbon footprint
- February 10, 2022 – HydraDX wins 9th parachain slot
- 24 February 2022 – Interlay wins 10th parachain slot
- February 24, 2022 – next 30 auctions scheduled
- March 10, 2022 – Nodle wins 11th parachain slot
- March 19, 2022 – Equilibrium wins 12th parachain slot
- March 31, 2022 – Phala wins 13th parachain slot
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/messari-polkadot-q1-2022-community-report/
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