Polkadot: How parachains are changing a blockchain-centric ecosystem

October 11, 2022 Coin Telegraph

blockchains

Parity chief marketing officer Peter Ruchatz discusses the ins and outs of Polkadot’s focus on interoperability at Token2049.

Smart contract blockchains have played a pivotal role in creating wide-ranging functionality after the advent of Bitcoin in 2009. Ethereum led the way in this regard, but innovative technology stacks like Polkadot have brought a new paradigm to the sector.

It’s been just less than a year since Polkadot’s Relay Chain went live in December 2021, and the platform’s ecosystem continues to grow as interest in Web3 increases across the world. Polkadot shares an intrinsic link to Ethereum given that its creator Gavin Wood played a role as a co-founder of the preeminent smart contract platform some seven years ago.

Cointelegraph explored the burgeoning Polkadot ecosystem in a wide-ranging conversation with Parity Technologies chief marketing officer Peter Ruchatz during the Token2049 conference in Singapore in September 2022. From inception to its growing use cases, the parachain-pioneering Polkadot ecosystem suggests that blockchain technology will continue to evolve through interoperable systems.

*Parity CMO Peter Ruchatz at the Polkadot exhibit at Token2049 in Singapore.*

As a starting point, Ruchatz agreed that Polkadot and its older proof-of-stake (PoS) siblings Ethereum and Cardano are in a state of harmony, co-existing despite providing similar blockchain-based use cases to decentralized applications (DApps) and projects running on their infrastructure.

Ruchatz highlighted the disruptive nature of the fundamentally new technology which would influences various industries, drawing parallels to how Amazon Web Services powers Netflix while the end-user is oblivious to the underlying cloud technology:

“I think we are again at an inflection point and at that early stage in a technology shift, you have many experiments, many emerging platforms and approaches and the shake out will happen over time. Sometimes you continue having five leading, maybe three leading or hopefully just one leading platform and it gives options and choices.”

There are fundamental differences between the concepts, opportunities and value propositions of Ethereum, Cardano and Polkadot and Ruchatz believes a major hurdle is articulating and educating people on why each project is useful. In the case of Polkadot, the potential use cases and needs of its parachain functionality are important to consider.

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Polkadot’s Relay Chain is a major attraction to potential users, according to Ruchatz, with the base layer providing a means to create custom blockchains with their own tokenomics or business parameters to suit specific needs.

This is a draw card that he believes differentiates the platform from other general-purpose, “one size fits all” blockchain protocols like Ethereum, Avalanche, Cardano and Solana which Ruchatz suggested cater more toward building DApps and smart contract functions and services:

“If you truly want to innovate and explore a completely new industry or use case and have the appetite to build something revolutionary, something new and build for the long term, you cannot not build your own blockchain.”

Compounding effects

Polkadot’s signature parachains are separate blockchains that run in parallel while achieving consensus and security through the network’s base Relay Chain. This differs from other smart contract blockchains like Ethereum and Cardano, which need to facilitate all transactions, smart contract and DApp activity on a single chain or through layer solutions.

As Ruchatz explained to Cointelegraph in Singapore, Polkadot provides the foundation, security mechanisms, validations and consensus through the Relay Chain. Developers make use of the ecosystem’s software development kit (SDK) Substrate to develop proprietary blockchains that are able to work in tandem with the wider ecosystem.

Parachains benefit from each other by importing functionality from other parachains that have been built, allowing the use of code from other parachains on a blockchain level:

“Another thing which we now see happening with so many parachains live is a compounding effect, a synergistic effect, because of Polkadot’s architecture with interoperability and upgradability. We’ve upgraded the runtime already many, many times. I think no other system can do it.”

This collaborative ecosystem is a key driver of new users, according to the Parity chief marketing officer, with use cases emerging that have the potential to disrupt centralized products and services currently being used by the wider public around the world:

“A good example is the KILT protocol which is building an authentication service disrupting DocuSign. That alone is a big use case however the edification is something that other parachains don’t need to rebuild anymore.”

Ruchatz also highlighted innovations like NFT 2.0, programmable nonfungible tokens (NFTs) that pull cross-chain composable architecture from multiple chains, as well as blockchain-based music marketplaces competing with the likes of “Napsters or Spotify.” The team at Merklebot has even built a Polkadot-connected DApp to connect and control Boston Dynamics’ Spot mobile robots.

Interoperability and Ethereum

Ethereum’s highly-anticipated move from proof-of-work (PoW) to PoS consensus finally came to fruition in September 2022. With interoperability part of Polkadot’s DNA, Ruchatz said that connecting to Ethereum in certain ways was being looked into by some ecosystem participants:

“We are excited to see Ethereum finally join the proof-of-stake club. They still have a long way to go and have solved just one of their challenges. Nevertheless this opens up collaboration and interoperability and we have some parachains teams that are exploring that already. We don’t want to be a closed shop.”

Part of the focus on interoperability and parachain functionality is part of a broader philosophical goal of the Polkadot ecosystem to become what Ruchatz described as “unstoppable.” A clear commitment to decentralization and transparency in governance structure has been central to Wood’s goal for Polkadot to achieve “coded democracy,” as Ruchatz explained:

“It goes as far as saying that Parity and the Web3 Foundation should be redundant at one point and become obsolete. We want the community to carry Polkadot forward and make it something that cannot be stopped by any government or central institution because it is truly decentralized.”

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Polkadot had a strong presence at Token2049 in Singapore, with a large staging area showcasing different parachain projects that are building in the ecosystem. The Asia-Pacific region is also home to a number of parachain development teams, with a healthy community acting as ambassadors for the ecosystem.

This was evident at the Polkadot exhibit, as the different parachains teams present had a chance to mingle and share thoughts and ideas with other projects that are interwoven into the parachain-powered ecosystem.

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Polkadot ‘cup and handle’ setup sees DOT price 50% higher by September

August 2, 2022 Coin Telegraph

Blockchain

DOT could witness an increase in demand after Polkadot's launch of an intercommunication blockchain tool.

Polkadot (DOT) looks ready to extend its ongoing price recovery due to a classic bullish pattern forming on its daily chart.

DOT paints "cup and handle" pattern

Notably, DOT has been forming a "cup and handle" pattern since mid-June, confirmed by its price crashing and recovering in a rounding, U-shaped trajectory (cup), followed by the development of a trading range on the right-hand side (handle).

*DOT/USD daily price chart featuring "cup and handle" breakout setup. Source: TradingView*

Cup and handle patterns are typically bullish continuation setups that form during an uptrend. But in rare cases, they appear at the end of a downtrend, leading to a bullish price reversal. As a result, DOT's possibility of continuing its price recovery seems high.

Thus, from the technical perspective, DOT initially eyes a breakout above its cup and handle's resistance line near $8.50.

A decisive close above the resistance line, i.e., a breakout move accompanied by a rise in volume, could have DOT eye approximately $12 as its upside target by September, up more than 50% from today's price.

Polkadot price breakdown setup

However, DOT's road to $12 risks exhaustion due to presence of key technical resistance levels midway.

For instance, the Polkadot token could run into its 100-day simple moving average (100-day SMA; the purple wave) near $9.50 only to pull back toward $8.50. This outlook takes cues from DOT's price retreat on July 31 from the same wave resistance (highlighted by a circle sign below).

*DOT/USD daily price chart. Source: TradingView*

Meanwhile, a breakdown below the cup's curvy support could invalidate the bullish cup and handle setup altogether.

As a result, DOT could risk an extended price correction toward $6.25, which has been serving as support since June 13 against multiple downturns. In other words, DOT could drop by nearly 20% from today's price at most by September.

Polkadot network metrics show stability

Along with the broader market, Polkadot experienced a sharp decline in its market capitalization mainly due to macroeconomic turbulences. As of Aug. 2, the project's net valuation was $7.92 billion versus its record high of $55.51 billion in November 2021.

In comparison, Polkadot's network metrics are healthier. For example, it saw 145,000 monthly users in Q2/2022 versus 149,000 monthly users in Q1/2022, according to Messari's quarterly DOT report in July.

*Polkadot account and transfers. Source: Messari/Subscan*

Similarly, DOT transfers remained almost the same quarter over quarter, averaging 293 million per month in Q2 versus 288 million in Q1. Interestingly, the peak accounts and transfers' readings in November 2021 were due to inaugural parachain auctions.

Stable network activity underlines a consistently organic demand for DOT tokens. Nonetheless, it remains substantially down from all-time-highs, meaning Polkadot would need to do more to attract new projects for its parachain-enabled network.

XCM launch and grant

Nicholas Garcia, a researcher at Messari, says that Polkadot could gain more adoption with its Cross-Consensus Message Format (XCM). This recently-launched tool allows parachains to relay messages to one another.

"Developing new functionality and use cases will showcase the power of the network and may reignite user interest and activity," Garcia noted, adding:

"Polkadot must continue onboarding parachains and connecting them with XCM."

Web3 Foundation, which oversees grants on Polkadot, approved 415 projects in late July, ranging from development tooling and wallets to smart contracts and user interface development. The move ensures further potential demand for DOT.

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 conduct your own research when making a decision.

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Astar Network

Astar Network currently ranks third place in Polkadot’s first parachain auction behind Acala and Moonbeam.

The first-ever parachain auction on Polkadot is heating up, with leading projects from the Polkadot ecosystem competing for the coveted first slot.

On Nov. 15, DFG Group — a global blockchain investment firm controlling $1 billion in assets under management — announced it had pledged 300,000 DOT tokens (worth $12.65 million) in support of Astar Network’s parachain bid.

Polkadot will use parachain auctions to realize its sharded proof-of-stake ecosystem. In order to secure a parachain or shard on the Polkadot network, projects compete in auctions by bidding to lock up large sums of DOT for the duration of a parachain slot’s lease. Projects competingfor parachain slots distribute governance to tokens to users who contribute dot to their parachain auction bids.

Astar Network, previously known as Plasm, is vying to build a decentralized application hub on Polkadot that supports Ethereum Virtual Machine (EVM) and Web Assembly-based smart contracts.

According to the Nov. 15 announcement, DFG has made the pledge through the Bifrost’s Slot Auction Liquidity Protocol (SALP), which allows users to participate in parachain auctions held on both Polkadot and Kusama.

Bifrost’s SALP platform allows users to contribute to a wide range of parachain auctions, while also providing participants with liquid staking derivatives representing their underlying DOT contributions.

DFG Founder and CEO, James Wo, commented that “aside from a very strong team, Astar addresses a critical interoperability issue and bridges Polkadot with Ethereum, which will bring a great number of experienced teams to this ecosystem.”

The company is an early investor in new and emerging protocols including Polkadot, Kusama, Avalanche, Solana, and Near.

Astar is currently in the third spot in the first Polkadot parachain auction which began on Nov. 11. Astar has a total of 6.6 million DOT worth around $281 million staked for its crowdloan according to Dotmarketcap which is tracking the auction progress.

Acala Network is currently leading the crowdloan race with 30.7 million DOT pledged worth roughly $1.3 billion. Moonbeam, an EVM-compatible smart contract platform, ranks as close second place also with 30.6 million DOT locked up.

DFG also pledged 500,000 DOT to Acala in early November before the auction commenced.

The first auction will run until Nov. 18 and the winner is decided by the Dutch candle method, with the precise moment of the auction’s close determined retroactively at the end of the bidding period.

The projects that win Polkadot’s first five parachain slots will go live on Dec. 17 and will hold the slot until there their lease period ends.

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Data shows Polkadot crashes after reaching $1B open interest — Will it happen again?

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Data shows Polkadot crashes after reaching B open interest — Will it happen again?

Coin Telegraph

Polkadot (DOT) price crashed both times its futures open interest clipped $1 billion. Should traders expect a correction now that open interest is over this figure?

Whenever there is relevant growth in the number of derivatives contracts currently in play (open interest), it usually means that more traders are involved.

In futures markets, longs and shorts are balanced at all times, but having a larger number of active contracts allows the participation of institutional investors who require a minimum market size.

However, in Polkadot's (DOT) case, price crashes have often been anticipated by this indicator breaking the $1 billion mark.

*Polkadot price in USD at Bitfinex. Source: TradingView*

The April 17 crash happened after DOT reached its $48.30 all-time high, which led to a $1.2 billion futures open interest. Over the following week, the altcoin dropped 45% to $26.60, driving the number of active contracts to a $600 million equivalent.

Three weeks later, on May 15, a similar movement happened as Polkadot renewed its all-time high to $49.80. This time around, a 68% crash followed over the next five days. Consequently, the futures open interest reached a 4-month low at $220 million.

*Polkadot aggregate futures open interest. Source: Coinglass.com*

Take notice of how Polkadot's 28% rally in the first two days of November led to a $53.30 record high and also brought the derivatives indicator above the $1 billion mark.

The 18.9 million DOT development fund announced on Oct. 17 accentuated the rally already in place ahead of the parachain auctions expected for mid-November. According to Polkadot's founder Gavin Wood, the $960 million grant will be used to build, improve and educate the network's growing ecosystem.

Projects are currently raising capital to bootstrap their parachain auctions and Polkadot investors who wish to support any of those must lock their DOT into a sponsored account. In return, investors are rewarded with air-dropped tokens from the project competing for the parachain slot.

What about the $54 billion question?

Does the current $1 billion "death mark" on Polkadot futures open interest signal a potential crash or will it be different this time?

As previously explained, the open interest metric can not be deemed bullish or bearish on a standalone basis. So, to understand if derivatives traders are using excessive leverage, one should analyze the perpetual futures contract data.

This instrument is the retail traders' preferred derivative because its price tends to track the regular spot markets.

To balance out their risk, exchanges will charge a funding rate to whichever side demands more leverage and this fee is paid to the opposing side.

*Polkadot perpetual futures 8-hour funding rate in May. Source: Coinglass.com*

Neutral markets tend to display a 0% to 0.03% positive funding rate, equivalent to 0.6% per week, indicating that longs are the ones paying it. The average rate ahead of the May 15 crash was a bit higher at 0.075%, which is roughly 1.6% per week. At this time, longs were not desperate to close their positions and there were no signs of excessive leverage.

The only possible conclusion is that a generalized market crash caused investors and algo traders to desperately sell their altcoins, and thus derivatives markets were not the leading cause for the crash.

Another comforting piece of data for Polkadot holders is DOT’s current 8-hour funding rate at 0.05%. This is slightly optimistic and nowhere near levels that are considered concerning. At the moment, there are no signs of a potential crash due to the $1 billion futures open interest.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Is Polkadot eyeing $100 next? DOT price jumps 25% triggering classic bullish chart pattern

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Is Polkadot eyeing 0 next? DOT price jumps 25% triggering classic bullish chart pattern

Blockchain

The bullish outlook appears as Polkadot prepares to auction highly anticipated parachain slots on its network.

Polkadot (DOT) looks poised to rally toward $100 in the coming sessions as it triggers a classic bullish reversal setup.

Dubbed Inverse Head and Shoulders (IH&S), the technical structure appears when an instrument forms three troughs in a row, with the middle one, called the Head, being the lowest, and the other two — known as the right and left shoulders — of almost equal heights.

Meanwhile, the level at which all the troughs top out represents the "neckline."

So it appears DOT has been forming an IH&S ever since its price correction from the $43-$49 price range (neckline), as shown in the chart below. On Nov. 1, the Polkadot token broke above the area and continued rallying the next day to bring its month-to-date returns to almost 25% while bumping its record high to $53.35.

*DOT/USDT daily price chart featuring IH&S pattern. Source: TradingView*

The price jump accompanied an increase in trade volumes, showing that traders supported the move above the IH&S neckline. As a result, DOT's prospects of rising by as much as the maximum distance between its IH&S's head and neckline (~$39) improved.

As a result, Polkadot's profit target out of its IH&S setup comes out to be near $90, with possibilities of extended rallies toward $100, a psychological resistance level.

Parachain auction FOMO

Polkadot's latest price rally came as traders' focus shifted on its highly anticipated parachain auctions on or around Nov. 11.

The Polkadot team announced Monday that their council had passed the motion that enables parachain registrations and crowdloan beginning Nov. 4, adding that the proposal now awaits a go-ahead via a public referendum.

The motion to enable parachain registration and crowdloans has passed Polkadot's council and gone to a public referendum. If passed, parachain teams will be able to register their parachain and open their crowdloan on Nov. 4, 2021 at approx. 19:15 CET. https://t.co/5ouDWBmnvc
— Polkadot (@Polkadot) November 1, 2021

In detail, crowdloans enable rivaling projects to raise capital via DOT to bootstrap their parachain auctions.

Therefore, those who support the projects lock their DOT into a sponsored account for a predefined period. In return, they receive rewards in the form of air-dropped tokens from the project competing for the parachain slot.

Kusama fractal

In June, Polkadot's test-net chain, dubbed Kusama (KSM), conducted a similar parachain slot auction in June. The protocol ended up proving the effectiveness of the crowdloan mechanism as users contributed more than 1.11 million KSM across the five parachain auctions.

*KSM supply dedicated to its first five crowdloans as of Aug. 6. Source: Subscan, Messari*

That represented over 10% of the total KSM supply locked.

The KSM price rallied in the days leading up to the auction in June. It peaked out on May 16 at around $645 and then dropped over 78% to $138.50 two months later. The selloff also surfaced amid an overall crypto market decline, led by China's full-fledged ban on crypto activities.

*KSM/USDT daily price chart. Source: TradingView*

Hence, it appears DOT has also been undergoing the so-called "buy-the-rumor" price rally as traders bet higher on the parachain auction event. But in the absence of a China-like event, the cryptocurrency looks to be pursuing the IH&S setup mentioned above.

Parachain