Billionaire Mark Cuban-backed altcoin project Polkadot (DOT) underperformed competing first-layer blockchain protocols. In this article, let’s look at why Polkadot is in the background under 3 headings.
2021 was a year in which tier one altcoin projects were catching up.
The timing of Parachain auctions and the lack of interoperability with Ethereum may have affected Polkadot’s price and competitiveness against other layer-1 protocols. 2021 was a year in which many first-layer Blockchain protocols matured, as the growth of the DeFi and NFT market forced users to seek solutions outside of Ethereum. Protocols such as Phantom (FTM), Avalanche (AVAX), and Cosmos (ATOM) are valued and their ecosystems evolved as 2021 ends. Meanwhile, popular projects like Polkadot (DOT) performed comparatively poorly despite high expectations as it has a fragmented multi-chain protocol.
Aside from the particular ability each protocol offers in terms of transactions and precision times per second, there are several factors that may have played a role in DOT’s latency performance compared to other L1 competitors, according to analyst Jordan Finneseth.
Interoperability factor
Protocols like Fantom, Binance Smart Chain, Avalanche, and Harmony developed cross-chain bridges over the past year, leading to a noticeable increase in token prices, TVL, and on-chain activity. Although Polkadot was specifically designed to offer multi-chain support as a “layer-zero” meta protocol, there was no major release in 2021 of a bridge connecting Polkadot to Ethereum, and this deprived the community looking for the protocol.
Late launch of Parachain auctions
As 2021 draws to a close, projects at Polkadot are still preparing to launch on the mainnet, while all of the previously mentioned networks were providing a healthy amount of activity and cross-protocol interaction. This is partly because parachain auctions for Polkadot didn’t start until November 11, when Moonbeam (GLMR), an Ethereum-compatible smart contract parachain, secured the first slot. DOT saw its price soar to the ATH level of $55 on November 4 as those willing to contribute to parachain auctions secured their tokens, but by the time the auctions officially started, its price was already on its way to the lowest level.
Benefits of choosing DOT in altcoin portfolio
The third factor that can weigh on the popularity and price of DOT is confusion about what the token is used for and what benefits it provides to token holders. In most competing networks, native tokens are used to execute contract actions such as token transfers or swaps, while protocols in the Polkadot ecosystem use DOT to make gas payments. Besides being used to participate in Parachain auctions, the main uses of DOT include staking to support the functioning and security of the network and to use it in governance votes.
Multi-tier solutions are launching developer and liquidity incentive programs, and future DeFi protocols still offer high-yield staking opportunities. Currently, DOT offers shareholders an APR of 13.94%, and that’s probably not enough to satisfy farming appetites that want more bang for their buck. The long-term outlook for Polkadot remains strong, and the project has an active and dedicated community of followers to act alongside an experienced development team led by Ethereum co-founder Gavin Wood. The launch of Moonbeam could be a turning point for DOT as cross chain compatibility is now live and other parachain projects should be launched on the mainnet shortly. However, time will determine how long it will take the network to catch up, according to the analyst.
