The year 2021 was something of a “coming of age” for many layer one (L1) blockchain protocols because the growth of decentralized finance (DeFi) and non-fungible tokens (NFTs) forced users to look beyond solutions. of the Ethereum (ETH) network, where high fees and network congestion remained obstacles for many.
protocols like Fantom (FTM), Avalanche (AVAX) and Cosmos (ATOM) saw the value of their tokens rise and ecosystems flourish as 2021 drew to a close. Meanwhile, popular projects like Polkadot (DOT) they underperformed, in comparative terms, despite the high expectations that many had for the fragmented multi-chain protocol.
Leaving aside the specific capacity each protocol offers in terms of transactions per second and completion time, here are several factors that may have played a role in DOT’s lagging performance compared to other Layer 1 competitors.
Interoperability is a key factor
One of the main topics of 2021 was the interoperability between isolated blockchain networks, being a bridge to Ethereum the most important connection to establish because most of the projects are currently running on said network.
Protocols like Fantom, Binance Smart Chain, Avalanche, and Harmony developed cross-chain bridges and this led to a notable increase in their token price, total value locked, and on-chain activity.
Although Polkadot was specifically designed to offer multi-chain support as a “layer zero” metaprotocol, There was no major launch of a bridge connecting Polkadot to Ethereum in 2021 and this left the protocol unloved by crypto traders looking to participate in the DeFi and NFT market.
Cosmos, likewise, did not see the launch of a major bridge connecting its ecosystem to Ethereum, but there were minor integrations like the addition of Ether as a collateral asset on Terra that showed cross-chain compatibility was possible.
The late launch of parachain auctions
At the end of 2021, all the networks mentioned above recorded a good amount of activity and interactions between protocols, while Polkadot projects were still finalizing their preparations to launch on the mainnet.
This was due in part to the fact that the parachain auctions for Polkadot did not start until November 11, when Moonbeam (GLMR), an Ethereum-compatible smart contract parachain, secured the top spot.
DOT saw its price rise to an all-time high of $55 on Nov. 4 when those interested in contributing to the parachain auctions locked up their tokens, but by the time the auctions had officially started their price was already dipping towards a low of $23.28 on Jan 10.
On January 11, Moonbeam officially entered the Polkadot network and has managed to accumulate over a million transactions as users were finally able to transfer ERC-20 tokens to the Polkadot ecosystem.
⚡​ ONE MILLION TRANSACTIONS ⚡�?
Moonbeam hits 1M tx on the network! ​ Moonbeam is lighting up @Polkadot‘s ecosystem with new integrations, 100k+ wallets, 700+ ERC-20 tokens & 1M GLMR tokens locked with collators.See the networkhttps://t.co/6ZhRLYDHgX pic.twitter.com/tczI7mAjlR
— Moonbeam Network (@MoonbeamNetwork) January 20, 2022
The price of DOT saw a slight rebound after the Moonbeam release, but has dipped back below $25.
The benefits of holding DOT
A third factor that may be weighing on the popularity and price of DOT is confusion about what the token is used for and what benefits it provides to token holders.
Thinking about selling my $DOT. I don’t see the purpose of the project anymore, many of the cool projects that were going to build on it migrated to $MATIC or so
Why should I keep it?
— Quinten François (@QuitenFrancois) July 29, 2021
I am thinking of selling my DOT. I don’t see the purpose of the project anymore, a lot of the cool projects that were going to be based on it migrated to MATIC or something.
Why should you keep it?
In many of the competing networks, the native token is used to perform contractual actions such as token transfers or exchanges, while the protocols that are in the Polkadot ecosystem use their native tokens to pay for gas fees.
In addition to being used to participate in parachain auctions, The main uses of the DOT token include staking to support the operation and security of the network and for use in governance votes.
Although governance capabilities are important to the overall health of blockchain protocols, average cryptocurrency users have not yet shown much enthusiasm for voting and are more interested in things like gaming, decentralized finance, and NFTs.
Multiple Layer 1 solutions are launching incentive programs for developers and liquidity providers, and upcoming DeFi protocols continue to offer lucrative staking opportunities. Currently, the DOT token offers 13.94% APR to staking users and this may not be enough to satisfy the appetite of yield farmers looking to get more bang for their buck.
Polkadot’s long-term prospects remain strong and the project has an active and dedicated community of supporters, along with an experienced development team led by Ethereum co-founder Dr. Gavin Wood.
The launch of Moonbeam could mark a turning point for DOT as cross-chain compatibility is already underway and other parachain projects should start launching on the mainnet soon, but it remains to be seen how long it will take for the network to catch up. level of its layer 1 competitors, which have an advantage in cross-chain interactions and on-chain activity.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
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