- Investors are getting excited about projects building on Polkadot.
- The blockchain's scalability and interoperability have attracted scores of projects, with many due to launch soon.
- The Polkadot ecosystem they're building could rival Ethereum, but could also complement it.
The pace of change in the blockchain industry is picking up. Ethereum, second-biggest blockchain by market cap, has attracted the bulk of project development since 2015. But 2020 has seen the launch of a notable rival: Polkadot.
Polkadot, which launched its mainnet in May, is a third-generation blockchain that is more scalable than Ethereum 1.0 and enjoys a $3.5 billion market cap. Its scalability derives in part from allowing projects to deploy their own blockchains—so-called “parachains” with smart contract functionality, which connect to the main Polkadot “relay chain.” That’s cheaper and faster than Ethereum, proponents claim.
Like another Ethereum wannabe, Cosmos, it’s interoperable with other blockchains. But Polkadot is reportedly attracting new developers to its platform at a time when devs are cooling on Bitcoin and Ethereum; it's seen the price of DOT, its token, surge, and has added dozens of new projects to its platform.
Some 253 projects are in the works—from bridges to Bitcoin and Ethereum to those building out Polkadot’s decentralized finance (DeFi) ecosystem. Some have already caught the eye of investors, including KR1; the Isle of Man-based digital asset company announced last week that it had already realized a fifteen-fold return on its initial investment into Polkadot.
“There is a buzzing ecosystem of projects building on Polkadot’s technology and the market has clearly recognized this potential,” KR1 cofounder George McDonaugh said.
Two types of Polkadot projects: essential and unique
KR1 is not the only investor interested in Polkadot’s budding ecosystem. In September, digital asset development company RockX launched a $20 million investment program to support projects building on the protocol. The funding is capped at $500,000 in Polkadot’s token, DOT, per project. In return, RockX will receive tokens or equity from supported projects.
RockX cofounder Alex Lam has been in the crypto space since 2013, and also runs Bitcoin mining facility RockMiner. He told Decrypt that, by now, he’s used to seeing new waves of technologies transform the landscape of the industry, and opening up new opportunities. RockX, he said, “is firmly focussed on building and technical development, which means that Polkadot is a natural fit.”
The company is targeting two types of projects on Polkadot: those building essential blockchain components—such as infrastructure that has proved key to Ethereum, which can attract users and developers; and those that focus on “Polkadot’s unique capabilities, such as built-in governance (DAO is a huge topic in the future), [and] relay chains to facilitate cross-chain transfer, faster transaction speed and lower cost,” said Lam.
Here’s a roundup of some of the most interesting projects on the horizon.
Acala: the project that grabs all the attention
A good example of the first type of project favored by Lam is Acala. Widely touted as the project that will give Polkadot a slice of the DeFi pie, it’s grabbed the lion’s share of investor’s attention up to now.
Acala is a Polkadot parachain optimized for DeFi. Parachains are like separate blockchains; they communicate, collaborate and transfer value between each other, with transactions settled on the main chain. In August, Acala was one of the first parachains to deploy on Rococo, Polkadot’s test network, and over $52 million in value has been locked up on its testnet.
According to Lam, Acala will provide “an essential infrastructure for DeFi on Polkadot with a stablecoin, decentralized exchange, and staking liquidity. “It’s a grand plan to offer so many features and pulling it off will be a great achievement,” he said.
Polkadot's interoperability means that everything that happens on Acala can be moved onto Ethereum and vice versa. For example, a user can deposit collateral in Acala, receive the protocol’s native USD stablecoin in return, then send that to Ethereum to buy an ERC-20 token with it on the Uniswap exchange.
The project raised $7 million in a funding round last August, led by Pantera Capital, with investment from 1confirmation, Arrington XRP Capital, and ParaFi Capital, among others.
"Acala will become the DeFi hub for the entire ecosystem,” said Paul Veradittakit, a partner at Pantera Capital. “The company will bring financial stability, liquidity, and accessibility, enabling a mainstream audience for financial freedom.”
While the VC investment, via a simple agreement for future tokens (SAFT,) was a big help for development, Acala’s future fundraising will be via an “Initial Parachain Offering,” the team’s cofounders Ruitao Su and Bette Chen told Decrypt.
“We’re going to do a fair launch by design that will involve the community, and we have mechanisms to ensure that we are attracting the right audience,” explained Chen.
The process involves people staking their DOT in return for Acala’s token (ACA,) which is subject to a vesting schedule. This means that, while users can participate in project governance, the token’s value can only be realized at a future date. “We’re only attracting people who actually want to participate, to reduce speculation,” said Chen.
The first Polkadot projects to offer Initial Parachain Offerings will be decided by community vote, within weeks. “We’re working very hard to become the first project to go live,” said Su.
Moonbeam: the project providing Ethereum-compatible smart contracts
“We have designed Moonbeam to be as similar an experience to Ethereum as possible, without sacrificing some of the valuable functionality Polkadot has to offer,” Katie Butler, Director of Marketing, at Moonbeam developers PureStake told Decrypt.
This means that developers can run contracts in Ethereum’s Solidity code on Polkadot with few changes needed, and use existing tools such as Metamask and Truffle, with huge potential for staking derivatives, for instance. But they also have access to Polkadot-specific features such as on-chain governance and cross-chain integration.
To date, PureStake has raised $1.4 million in seed funding, from Polkadot co-founder Robert Habermeier’s venture firm Hypersphere Ventures, and Arrington XRP Capital, among others.
“We’ve seen incredible growth in smart contracts on Ethereum and now, with the launch of Moonbeam, we expect to see high growth rates and developer engagement,” said KR1 cofounder, Keld van Schreven. The company invested $100,000 in the project, and in return will receive a yet-to-be-determined amount of Moonbeam’s Glimmer (GLMR) tokens, which will power the blockchain.
“Moonbeam represents the best of all the learning of Ethereum smart contracts on a super quick secure blockchain built within Polkadot. The potential for powerful new types of new DeFi applications and services is really limitless,” he added.
The project launched its first testnet earlier this year and expects to deliver a parachain deployment on Polkadot in Q2 2021. One of its first integrations, announced on Sunday, is with Injective, a layer-2 decentralized exchange protocol. Esports gambling platform BetProtocol and cross-chain synthetic asset protocol Linear Finance have also announced they will use Moonbeam smart contracts.
“Projects need an easy on-ramp to a more scalable solution. Moonbeam represents the easiest way to deploy an application to Polkadot,” said Butler.
KILT: The project providing an identity layer
Berlin-based BOTLabs is the developer of KILT, a project building verifiable Internet-based identity credentials.
BOTLabs CEO Ingo Rübe told Decrypt that the primary use for these will be in industrial applications, such as the Internet of Things (IoT.) They need to be decentralized, because many different corporate entities will be involved, as well as inexpensive, because future IoT devices will be both abundant and cheap (some cost less than a dollar.)
“This is absolutely necessary if you want to build applications on an industrial scale,” said Rübe.
The price of “gas” which powers the Ethereum blockchain is currently around $20. The prohibitive cost is the primary reason Rübe chose to build on Polkadot.
It means KILT is the best of both worlds, he said: a permissioned blockchain which has only a couple of validators and is fast and cheap to operate, but which uses the Polkadot relay chain—a fully decentralized blockchain—for authenticity.
In fact, the project already has its first customer. BOTLabs is one of 20 startups working with Energy Web, a non-profit accelerating the development of low-carbon electricity. Last week, Energy Web was chosen by Germany’s federal energy agency to design and construct a digital registry for distributed energy resources, such as thermostats, solar PV systems, batteries, and electric vehicle charging stations. Decentralized identities developed with KILT will help optimise these resources—aiding frequency regulation, for instance—when used by the German grid, or by virtual power plants.
The startup is also part of a German government scheme, GAIA-X, to explore blockchain use cases. Rübe has substantial publishing contacts, having worked in that industry in the past. As a consequence, BOTLabs’ investors are Ringier and Burda, two of Europe’s biggest media companies.
But any new project investment will come from a novel source, said Rübe. Separately from KILT, BOTLabs is also developing another project, the Polkadot Liquidity Mechanism, or Polimec. It’s a fundraising mechanism for projects within the Polkadot ecosystem, essentially a version of Ethereum’s ERC-20 token standard, the mechanism that helped launch thousands of token sales in the past five years.
Polimec will be community-owned to enable projects building on Polkadot to mint their own tokens. The prospect has generated a lot of excitement, said Rübe, and the KILT mainnet, which will launch in around 10 months, will be the first project to mint tokens using Polimec.
“We’ve seen a lot of exchanges interested in linking up with Polimec because there’s a good chance that a big part of the ecosystem will happen on Polimec,” he added.
Best of the rest
Plasm is a smart contract platform on Polkadot, which uses the blockchain’s Substrate framework. Its mainnet, already deployed, supports layer-2 solutions such as State Channels Plasma and Rollups. Last week, it integrated with Ethereum’s dapp platform, the Ethereum Virtual Machine, which enables Plasm users to “deploy solidity contracts with Metamask and Remix just like Ethereum,” according to a tweet.
Plasm’s second token generation event, its “lockdrop,” saw tokens worth around $54 million locked up in Plasm smart contracts over a four-week period, the project’s founder Sota Watanabe announced last week. In order to receive Plasm’s tokens, a user needs to lock Ether or Bitcoin in a smart contract for a set period.
Meanwhile, RockX’s Lam is tipping Litentry. “The team is building cross-chain identity and we believe it will be a crucial part of the Polkadot ecosystem,” he explained, adding that the Litentry team had “demonstrated deep knowledge in technical execution which we believe will be crucial for a speedy launch on Polkadot.”
The swiftly evolving Polkadot ecosystem wouldn’t be complete without bridges to the world’s most popular cryptocurrencies: Bitcoin and Ethereum.
A Bitcoin-Polkadot bridge is being developed by Interlay, a team building cross-chain infrastructure and DeFi products. It’s slated to go live within the next five months, which will allow users to tokenize and transact with their BTC on Polkadot’s DeFi platforms.
The Polkadot-Ethereum bridge, built by research and development agency Snowfork is expected to go live in February or March 2021. The open-source code has already been published, with guidance to come, and “progress is coming along nicely,” Snowfork founder Aidan Musnitzky told Decrypt.
Numerous other projects will merit future attention, such as DeFi projects Equilibrium, and RioDeFi; Subsocial, a set of tools for building decentralized communities on Substrate, and Polkastarter, a DEX for cross chain token tools and auctions. But there’s still much, much more to build.
And time is of the essence. Ethereum has a critical advantage over Polkadot: a long-established, larger developer base and community. But the window of opportunity is wide open while Ethereum developers continue to tinker with Ethereum 2.0—the critical upgrade it needs to sustain development.
Polkadot has been touted as an Ethereum-killer, most recently by Bloomberg. But, arguably, these platforms (and others such as Cosmos and Solana) are also likely to play together, and compliment each other once Ethereum 2.0 finally launches.
Meanwhile, integrations, bridges and the infinite new prospects interoperability opens up will loom large for Polkadot in 2021.
These projects all realize that, to be successful, liquidity must flow between Polkadot and Ethereum—the home of liquidity dApps like Uniswap, Aave, and Synthetix. That is, of course, until Polkadot can build up its own.
An earlier version of this article incorrectly stated that Acala was the first project to deploy on Kusama, Polkdot's testnet. Polkadot's official testnet is, in fact, called Rococo, and Plasm was the first project to deploy there.