Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

This report is an independent report commissioned by Polkadot from blockchain research institute Messari and written by Nicholas Garcia.

core point

  • After five years of research and development, the Polkadot parachain is now live.

     

  • At the end of Q1 2022, 13 parachains won parachain slots with 127.8 million DOTs bound (11% of total supply; $2.9 billion).

     

  • Between now and February 2023, 28 more parachain slot auctions are planned (total 41).

     

  • Polkadot price and user accounts hit record highs at the first parachain slot auction; however, both metrics have steadily declined since then.

     

  • Polkadot has an evenly distributed validator set, with 99% of validators holding 18-2.6 million DOTs.

     

  • Polkadot’s developer activity remains the most active in the crypto space.

     

  • The next major milestone is the cross-consensus message format XCM, implementation of parathreads, and performance upgrades.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Introduction to Polkadot

Polkadot is a Nominated Proof of Stake (NPoS) blockchain network designed to support a variety of interconnected, application-specific Layer 1 chains, or parachains. Every chain built in Polkadot uses Substrate, Parity Technologies’ blockchain development framework, which allows developers to choose specific components that are best suited to their specialized application chain. Polkadot refers to an entire ecosystem of all parachains connected to a single underlying platform “relay chain”. The underlying platform does not support application functionality, but instead contains all validators and is responsible for securing, managing and connecting parachains.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

After about five years of research and development, the first parachains went live on December 17, 2021. By the end of Q1 2022, 13 parachains have won parachain slots, with 127.8 million DOTs bound (11% of total supply, worth $2.9 billion). As the first edition of Polkadot’s quarterly report, this report will highlight important developments since the parachain’s launch and evaluate the network’s first-quarter performance. A full quarterly key events and data appendix is ​​provided at the end of the report.

Price history

The concept of parachains was first introduced in the Polkadot white paper in 2016. In October 2021, at the Substrate Sub0 conference, co-founder Robert Habermeier announced that the relay chain is ready to support parachains. Over the next three weeks, the price of Polkadot’s native token, DOT, rose 57% to an all-time high of $55.08 ($56.5 billion market cap) on November 5, 2021, aka the community-approved first parachain slot auction Day 2 – November 11, 2021. However, from November 2021 to the first quarter of 2022, the valuation of Polkadot, as well as the broader crypto market, has declined. As of Q1 2022, DOT is $22.5 ($23.3 billion market cap), down 60% from its all-time high.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

During the first quarter of 2022, Polkadot’s valuation changes are relatively consistent with changes in other ecosystems. LUNA had the biggest gain at +18%, FTM had the biggest drop at -38%, and Polkadot had the third drop at -19%.

network usage

Polkadot user accounts, both new and active, follow a similar path to price. In November, the average user account level increased by 131% compared to the beginning of the year and hit multiple all-time highs. However, active users and new user accounts have declined every month since November. While user account declines are a common macro theme, there are some internal reasons as well.

The decrease in active accounts may be due to users locking up their DOTs for two-year leases to support their bullish parachains in parachain auctions. DOTs locked in Crowdloan cannot be used and therefore cannot be used in Polkadot. To counter this liquidity constraint, parachains Acala and Parallel Finance introduced liquidity staking.

The decrease in new accounts may be related to the higher popularity of the first batch of parachains than the second batch. The first batch of parachains (1-5) bound 342% more DOT than the second batch of parachains (6-11).

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Conversely, the number of addresses holding DOTs increased each month in 2021 and the first quarter of 2022. Despite the drop in valuations, this increase in data indicates a strong interest in the Polkadot ecosystem.

Staking and Decentralization

Polkadot uses the Nominated Proof of Stake (NPoS) consensus mechanism. Nominated Proof-of-Stake consensus differs from Delegated Proof-of-Stake (DPos) consensus in that nominators, i.e. DOT owners who stake their tokens with validators, may be subject to Slash fines.

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 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Polkadot uses an inflationary token model, so there is no cap on the number of DOTs. Inflationary rewards are distributed to validators to protect the Polkadot network, and the rest goes to the treasury. Inflation is related to Polkadot’s ideal staking rate, but averages around 10% per year. In the first quarter of 2022, the pledge rate of DOT was relatively stable, accounting for 53.8% to 58.6% of the total amount of DOT tokens pledged.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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 DOT 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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Parachain Auction

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).

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Polkadot 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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Developer Overview

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 comes in third with around 950.

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

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)

Polkadot 2022 first quarter report: Parachain popularity has declined after auction, but developer activity is high

Ecosystem Challenge

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.

road ahead

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.

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.

Summarize

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.

Addendum: Big 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/polkadot-2022-first-quarter-report-parachain-popularity-has-declined-after-auction-but-developer-activity-is-high/
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