3 Reasons Polkadot Isn’t Leading the Layer 1 Race

3 Reasons Polkadot Isn’t Leading the Layer 1 Race

2021 is a “mature” year for many Layer 1 (L1) blockchain protocols as the explosive growth of decentralized finance and non-fungible tokens is forcing users to look for solutions other than the network. High fees and constant network congestion on the largest smart contract blockchain have made things difficult for many users lately. Protocols like Fantom, Avalanche, Cosmos seize this opportunity and reach skyrocketing token values ​​and thriving ecosystems towards the end of 2021. However, popular projects like Polkadot performed poorly despite high expectations for this multi-chain shard protocol.

 Polkadot Isn't Leading

FTM/USDT, AVAX/USDT, ATOM/USDT, DOT/USDT daily chart | Source: TradingView

In addition to the number of transactions per second and transaction processing time of each protocol, here are a few factors that contribute to DOT’s slower performance compared to other L1 competitors.

Interoperability is an important factor

One of the key themes of 2021 is cross-chain interoperability between separate blockchain networks, with the bridge to Ethereum being the main connection to be made as most projects are currently running on this network.

Protocols like Fantom, Binance Smart Chain, Avalanche and Harmony have developed cross-chain bridges and this is significantly boosting their token prices, total locked value and on-chain activity.

Although Polkadot is specifically designed to provide multi-chain support as a “Layer 0” meta-protocol, there is no major release in 2021 of a bridge between Polkadot and Ethereum preferring to interact with DeFi and NFT.

Likewise, Cosmos also didn’t have a major bridge release between its ecosystem and Ethereum, but did have minor integrations like adding ETH as collateral on Terra, showing that cross-chain compatibility is possible.

Slow start of parachain auction

As 2021 draws to a close, all of the above networks will be operational and interoperable across protocols, while projects on Polkadot are still struggling to finalize preparations for mainnet launch.

This is partly because the parachain auctions on Polkadot don’t start until 11/11. have started. Moonbeam (GLMR), an Ethereum compatible smart contract parachain, won first place.

The DOT price surged to an all-time high of $55 on Nov. 4 as those interested in parachain auctions locked up their tokens, but when the auctions officially started, the price dropped to a low of $18.16 today .

 Polkadot Isn't Leading

DOT/USDT Chart | Source: Trade View

Follow notification, Moonbeam officially went live on the Polkadot network on November 1st and achieved more than 1 million transactions when users were able to transfer ERC-20 tokens to the Polkadot ecosystem.

The price of DOT rose slightly after the launch of Moonbeam but fell back below $25.

Benefits of Holding DOT

A third factor that can affect DOT’s popularity and price is confusion over what the token is used for and the benefits it offers to holders.

User Quinten François tweet:

“I’m thinking about selling my DOT. I don’t see the purpose of the project anymore, many interesting projects based on it have migrated to Polygon. Why do I have to HODL DOT?”

Many competing networks use native tokens to perform contractual tasks like token transfers or swaps, while those in the Polkadot ecosystem use native tokens for gas payments.

Besides the ability to use tokens to participate in parachain auctions, the main use cases of DOT are staking to support operations, as well as network security and governance coordination.

While governance features are important to the overall health of the protocol on the blockchain, the average user hasn’t shown much enthusiasm about participating in voting and is more concerned about aspects like gaming, DeFi, and NFT.

Many Layer 1 solutions are introducing liquidity and developer incentives, and new and upcoming DeFi protocols offer high-yield staking opportunities. Currently, DOT offers stakers an APR of 13.94% and may not be enough to meet the needs of yield farmers looking to make more money from their coins.

Despite this, the long-term prospects for Polkadot remain strong and the project has an active, dedicated community of supporters as well as an experienced development team led by Ethereum co-founder Dr. Gavin Wood.

The Moonbeam launch event could really mark a turning point for Polkadot as cross-chain compatibility is now live and other parachain projects will soon be launching on mainnet, but it remains to be seen how long it will take for the network to catch up other L1 competitors as they aim to start cross-chain interaction and increase on-chain activity?

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