Multiethnic handshake on polka dot background
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As cryptocurrencies settled into the chaotic ride of the 2021 bull run and pullback, it’s becoming increasingly evident that investors are split into two camps. There’s the retail segment, apparently drawn in by the massive short-term gains posted by memecoins like DOGE or its littermate SHIBA INU. As much fun as it is following these stories, they’re nevertheless driven by hype. And as many will remember from the 2017 boom, hype doesn’t sustain the crypto markets for long.
The other camp is where big money lies, with professionals – venture, corporate, and institutional investors. In most cases, big money is often smart money. Despite the apparent success of dog-themed assets, professionals don’t necessarily want to move their funds around every other week chasing the next meme. They’re looking for longer-term risk adjusted investments.
A quick review of the current top cryptocurrency contenders by market cap reveals there are only a few being seriously considered by professional investors. BTC and ETH are already attracting professional money. DOGE is a meme coin, and Tether is a stablecoin. XRP is a long-standing top ranker, but rightly or wrongly, Ripple still has the shadow of a SEC lawsuit hanging over it, at least for now. Cardano is a popular staking platform but doesn’t yet have an operational mainnet that can support application development.
It is perhaps unsurprising that Polkadot is one of the projects attracting significant interest from professional investors.
Keld van Schreven, managing director at digital asset investment company KR1 recently spoke of his conviction that Polkadot is currently where it’s at for developers saying, “We’re seeing talent move on to Polkadot that was going to build on Ethereum […] I think it’s going to be one of the winners in the next few years, and then it’s going to last for maybe 100 years.”
New DOT-based Instruments
The DOT token is proving so attractive to professional investors that institutions are starting to launch DOT investment products. In early May, Osprey opened its Polkadot Trust, providing accredited investors a way to gain exposure to DOT prices.
Earlier this year, Swiss issuer 21Shares AG launched its own DOT product, an ETP listed on the Swiss SIX exchange. The crypto press quickly took note that it had attracted investment from Goldman Sachs, JPMorgan, and UBS, among others. More recently, Swiss digital asset firm Valour issued its own set of ETPs offering exposure to Polkadot and Cardano.
Switzerland is a desirable jurisdiction for institutional digital asset investors. The second tranche of the country’s so-called “Blockchain Act” goes live in August this year, paving the way for secondary market trading of crypto-securities, removing the final barrier from regulated cryptocurrency issuance and exchange.
If investors needed convincing of the DOT token value, then Moonrock Capital provides a blueprint for successful investing. The fund started in 2019 with just five figures of cryptocurrency investments, and within two years, that has risen to eight figures. The founding partners credit their early Polkadot investments as the driver for those results.
Ethereum 3.0?
With a relatively high market capitalization, DOT is one of the few tokens with sufficient depth of liquidity to meet the initial demand from investors, however, the project has some impressive fundamentals, which are likely to be a more significant factor driving appetite.
Polkadot is the brainchild of Dr. Gavin Wood, one of the original co-founders of Ethereum and the author of the Solidity programming language. Dr. Wood conceived of Polkadot after realizing some of the limitations of Ethereum and left the project in 2016.
In the intervening years, together with the team at Parity Technologies in Berlin, he’s brought the vision to life. Polkadot goes beyond the Ethereum 2.0 vision to deliver a platform that’s both scalable and interoperable with other blockchains. The mainnet is already operational, secured by around 300 validator nodes elected by over 20,000 DOT holders as part of the Polkadot consensus model.
The mainnet has been in production since May 2020, almost a year of live operations, in which time the project has road-tested its governance models. The next step is the upcoming parachain auctions. Polkadot operates with a central Relay chain and a series of sub-chains called parachains, for which projects will have to bid for slots to run on the Polkadot mainnet. Once the parachains are up and running Polkadot will be hosting live applications for the first time.
Furthermore, given the project’s promise, there’s a queue of well-invested and high-profile projects waiting to launch, including DeFi infrastructure targeted at institutions. One example is Acala, aiming to become the “DeFi hub” of Polkadot.
The exact date of the parachain auctions is yet to be announced, however, the first round will take place on Polkadot’s “canary network,” Kusama, a kind of sibling network for experimentation and early-stage deployments before going live on the Polkadot main chain. Kusama recently underwent an upgrade that involved enabling parachain auctions, so it’s a fair bet that there’s an announcement coming imminently.
Up Against Stiff Competition
All the development efforts are now starting to get noticed on the market. DOT prices have risen from $5 to $40 since a token redenomination last year, and this even before the parachain slot auctions open. Polkadot seems to be now where Ethereum was in 2015, so investors appear to be grabbing the opportunity to get in early on the ground in this project.
Is the excitement justified? There are a few unknowns. For instance, when projects bid for parachain slots, they’re doing so on a leasing basis – and slots are limited in supply, but demand is expected to be high. Therefore, there’s some possibility that the Polkadot ecosystem could experience upheaval during the first months or years as the long-term residents establish themselves. As this “slot” model is a new one in blockchain, it remains to be seen how this will pan out.
Furthermore, while Polkadot boasts impressive credentials, the years it took to build the platform means that it’s now operating in a competitive marketplace for developers and users alike. Thanks to Cosmos, it’s not even the only interoperable platform, and others, including Binance Smart Chain and Polygon (formerly Matic Network), are gaining rapid traction.
A few flies in the ointment notwithstanding, Polkadot has been a long time in development, and it now looks set to kick up a storm in the blockchain ecosystem when developers can finally launch their parachains. Given the currently level of interest, it is definitely high up on the watchlist for the rest of 2021 and beyond.