Polkadot Deep Dive

H1 2022

The first Polkadot comprehensive quarterly report

Ever since its launch in May 2️⃣ 0️⃣ 2️⃣ 0️⃣ following the successful launching of its canary network Kusama in 2019, Polkadot has attracted rapt attention from the media, crypto users and venture capitals. Though bustling with development activities, the Polkadot ecosystem often faces complaints and suspicions due to data fragmentation that poses much difficulty for users to keep track. In order to provide a panoramic view of and give detailed insights into the states of both Polkadot and Kusama, SubWallet is compiling data scattered around various sources to present this Polkadot Deep Dive quarterly report. In this inaugural edition, we look into the overall ecosystem growth in the first half of 2022, with sections focused on DeFi, NFT and Web3.

Ecosystem Overview

Financial Status & Development Activity

In H1 2022, the crypto market entered what was known as one of the worst crypto winters that threatened to drive many out of business. After hitting the all-time high of $55.00 with a $53.21B market cap around the time of the first parachain auction in early May 2021, DOT followed a drastic downturn path, going as low as $6.43 at $6.90B market cap on June 13, a month after the unprecedented meteoric LUNA/UST crash. The DOT market cap had gone down 75.03% since the year started, from $26.43B to $6.60B. KSM price and market cap more or less shared the same pattern.

Token Price vs. Development Activity

Interestingly, development activities on Polkadot appeared to be inversely proportional to token price: when price hit peaks, development activities almost always met valleys. This motif was most significant in the later period, from mid-May towards the end of June, as token price plummeted while development activities soared up with three sharp pinnacles.

One could deduce that the bear market had little to no impact on builders; in other words, the price slide only showed the tip of the iceberg. Under the surface, teams were highly focused on developing and optimizing products, especially with the introduction of XCM to Polkadot that promised to advance interoperability among parachains and DApps.

Development Activity Comparison

In terms of total developer count, the Electric Capital Developer Report in 2021 concluded that Ethereum, Polkadot, Cosmos, Solana and Bitcoin were the five largest ecosystems. A look at these five projects' development activities in H1 2022 shed some light on the current state.

Polkadot was second only to Solana and outdid Ethereum, Cosmos and Bitcoin most of the time. From mid-May onwards, Polkadot took the major lead with its surge in development activities amidst market downturn.

Token Holder & Investor

By the end of June, there had been 171 projects announcing that they would run a parachain, among which 36 had won an auction on Kusama and 21 on Polkadot, bonding 3.27M KSM and 131.45M DOT respectively.

The total number of DOT holders continued to rise past 850,000, meaning that it had more than doubled since the year started at 384,315 holders. May 12 witnessed the peak in incremental rate with 6,203 additional holders, yet this rate had significantly lowered compared to 2021, as evident in the flatter slope.

Polkadot Account Overview

As for investors, excluding ETH and BTC, DOT remained the most held crypto asset among VCs surveyed by Messari. From H1 2021 to H1 2022, the number of venture capitalists investing in DOT had steadily increased from 19 to 29.

However, their share had decreased from 43.18% to 35.37% due to a near double in VC sample.

Polkadot Investment by VCs 2021-2022

Governance & Treasury

At the time of writing, treasury spending through proposal approval was decided by the 13-member council, while referenda were limited to one active at a time, except for an emergency case that needed fast-tracking approval by the 3-member technical committee. Though this model was working well in ensuring the network's safety and fair delegation of treasury funding, it had raised concerns about centralization of authority and process agility.

During Polkadot Decoded 2022, a global event occurring both offline in four locations and online via live streaming from June 29 to 30, Polkadot co-founder Gavin Wood addressed these worries in his introduction of Governance 2. The council and technical committee would be removed, everything from proposal to tipping would become a referendum which would then be assessed and voted upon through a new mechanism that ensured the optimal and adaptive balance between safety and agility.

DOT Treasury Activity

Going back to DOT treasury activities, so far this year had seen more dynamics than ever: 57 out of 140 proposals, accounting for 40.7%, had been submitted within the first six months of 2022 only, with just one rejection. Inflation hovered around 7% and remained the main income source for the treasury, while burning took up the lion share of DOT output.

Treasury Output

Among approved proposals, Polkadot at Davos during the World Economic Forum’s Annual Meeting 2022, which was tabled via Motion 202 and passed as Referendum 64 through simple majority tallying, requested the highest amount of 120,897 DOT. However, due to the enactment period, the fund was not unlocked until block #11,289,600, approximately July 23.

The DOT treasury also expects another enormous spending of 993,286.08 DOT for the Polkadot Pioneers Prize upon the completion of Bounty 10. Though concrete details have not been announced, this so-called “biggest bounties in blockchain" promise to be a massive force that drives builders into Polkadot and propels development forward.

The DeFi Economy

Parachain

*Only DeFi parachains are discussed here. For analyses of DApps, please scroll down to the next sections.

Overall, DeFi activities were higher in Q1 compared to Q2, partly because token prices all declined in the bear market. Polkadot DeFi parachains far outweighed those on Kusama in terms of total value locked (TVL), with two leading representatives Acala and Parallel both oscillating around $500M during H1. Though began much later than Parallel, Acala got off on the right foot with an average of 15% higher in TVL compared to Parallel in the first two months, peaking at $767.30M, only to lose their lead by 20% on average in the remaining part of H1. Parallel took the opportunity to rise up as the reigning protocol in terms of TVL, even though this is a hard-to-confirm conclusion due to inconsistencies in data reporting between Defi Llama and Parallel Analytics.

TVL by Polkadot DeFi Parachains

In the Kusama ecosystem, Bifrost consistently took the lead throughout the first six months: at the peak in early January, its TVL was 32 times higher than Genshiro’s TVL which did not fluctuate much in the same period.

Karura’s chart pattern was roughly similar to Bifrost’s, and by the end of June the two lines seemed to have converged at some points.

TVL by Kusama DeFi Parachains

DEX

Both StellaSwap and Beamswap achieved skyrocket growth in their first two weeks by using the same lofty yield farming APY strategy to attract users, 2000%+ and 700%+ respectively. Within the first 24 hours, StellaSwap surpassed $500K in total value locked while Beamswap’s TVL shot up to $40M, even though the latter only had six staking options compared to StellaSwap’s eight farms at launch.

These diverse alternatives combined with the first mover advantage did prove their effectiveness throughout six months though: aside from three days in March with minor outpacing from Beamswap, StellaSwap were consistently leading the game in the Moonbeam/Moonriver ecosystem.

TVL by Polkadot DApp DEXes

An incentivization effort at the end of May pulled Solarbeam above both Beamswap and Zenlink, even nearing StellaSwap for two weeks. Their sister Solarflare on Moonbeam seemed to have lost community and marketing support after hitting $97.76M in TVL mid-January. Apparently, the Solarbeam Foundation’s new strategy was to veer away from the harsh competition with StellaSwap and Beamswap on Moonbeam and focus on pushing Solarbeam to be the number one native DEX on the Moonriver ecosystem.

Starting Q3, Zenlink, a DEX protocol running on Bifrost, Moonbeam and Moonriver plans to extend their activities to Astar Network, a step that will hopefully boost their decreasing TVL. They can face difficulties competing against ArthSwap, currently the number one DEX on Astar whose TVL peaked at $169.50M in April, but can also gain advantage as ArthSwap suffered severely from the LUNA/UST crash in May. Their TVL had dropped more than twice since that point without signs of resurgence. In fact, their TVL halved again at the end of June.

Lending & Borrowing

Three dominant lending protocols, unsurprisingly, were layer-two DApps built on Moonriver, Moonbeam and Astar. Moonwell Apollo was the first to launch with impressive records: it took the protocol only 3 days to surpass $100M and 9 days to surpass $150M in TVL.

Their latecomer sister Moonwell Artemis, which had just launched on June 23 on Moonbeam, was even more remarkable with $150M TVL achievement in less than 2 days. Thanks to Moonwell Artemis's exceptional launch, Moonwell Apollo enjoyed a spike in TVL on June 24, with an increase of 2.3 times from $81.90M to $190M before dipping back to $87.90M the next day.

TVL by Polkadot Lending Protocols

Compared to the two Moonwell protocols, Starlay was much more modest. Their TVL only reached $200M once on April 16 and had mostly declined since, going as low as $13M by the end of June.

Stablecoin

Deemed as the possible future of money, stablecoins were gaining popularity in Polkadot as more and more projects entered the ecosystem, meaning competition for adoption was getting intense. aUSD, a native overcollateralized crypto-backed stablecoin issued by Acala, remained the most common in Polkadot partly due to its $250M aUSD Ecosystem Fund and its rapid integration with DeFi protocols and parachains in the ecosystem.

At its peak, aUSD issuance on both Acala and Karura totaled $14.98M on May 7, before quickly plunging and arriving at $4.33M on Acala and $3.77M on Karura, adding up to $8.10M by the end of June.

This near halving in total supply is nowhere near attractive; instead, aUSD risks losing its leading position to AstridDAO's BAI, another native multi-collateral stablecoin developed on Astar Network, whose circulation oscillated around $5M at the end of H1.

aUSD Issuance

The most popular stablecoin USDT made its official entrance into Kusama on April 13. Before this event, multi-chain stablecoins such as USDT, USDC, DAI and BUSD had already been bridged to Polkadot via Moonbeam/Moonriver, but it was only after USDT’s entrance that Polkadot had native deposits.

However, 500,000 USDT on Statemint out of more than $80B in total circulation at the time of issuance signifies how loosely connected Tether and Polkadot are. Without a close, if not strategic partnership that results in an increase in total USDT supply in Polkadot soon, Tether might have difficulties in overtaking native stablecoins while Polkadot might struggle in onboarding USDT users.

Non-fungible tokens (NFTs)

Though still in its infancy, the NFT segment on Polkadot had seen some promising native players, including KodaDot, Moonbeans, Singular, Unique Network (NFT marketplace), Kusama Kingdom, Moonsama, Kanaria, Donkey Gang, Astar Degens (NFT collection). RMRK, the Kusama-based NFT protocol that owns both Singular and Kanaria, was dominating the field in H1 2022.

RMRK NFT Cumulative Sales Volume

Despite the bear market, RMRK's NFT sale volume in KSM continued to rise exponentially at the rate of 167 times in the first six months, topping 93,895.64 KSM (approximately $4.39M) at the end of June. Among trending collections, Kanaria Genesis (KANBIRD) stands out with a cumulative sale volume of 34,518.13 KSM, approximately 11.3 times higher than the runner-up Kanaria Background (KANBG) whose total sale volume in H1 2022 amounted to 3,040.69 KSM. Kusama Kingdom's two prominent collections Kusama Queens and Kusama Kings settled at third and fifth place respectively, adding up to 4,385.27 KSM in total.

NFT Market Overview

NFT Collection	Volume (KSM)	Transactions
KANBIRD	34,518.13	1146
KANBG	3,040.60	392
KQ01	2,831.00	78
RMRK profile banners	2,346.43	2252
Kusama Kings	1,554.27	26
EVRLOOT_TAROT_CA...	1,149.23	400
KANPRTN	1,128.78	367

It is worth noting that NFT sales shot up on June 19 and 29, with Kanaria Genesis taking up the majority of volume. This was likely due to the Skybreach land sale which was scheduled from June 17 onwards. The overall hype surrounding Kanaria Birds came not only from Skybreach perks awarded to Kanaria holders but also from the technology behind it, known as RMRK NFT 2.0. NFTs built this way are far more advanced than the simple ETH-like version: besides being multi-chain, multi-resource and eco-friendly, they can also equip or own other NFTs and evolve over time.

RMRK NFT Daily Sales Volume

Web3

Projects

Web3 projects in Polkadot were starting to show positive signs. As the sole representative of SocialFi in the ecosystem, Subsocial was attracting users with their built-in donation program where supporters can choose from 15 types of tokens to tip their favorite creators. Although detailed data was not provided and there is much room for UI/UX improvement, Subsocial was showing ambitions with their expansion to Sub.ID and Polkadot Domains to compete with Polka Name System.

In terms of identity, KILT protocol, Litentry/Litmus and Fractal were three outstanding names. While Moonsama recently integrated KILT protocol, Litentry collaborated with Phala Network on the Spirit NFT minting event and Fractal joined forces with Beamswap. Sumi Network, a messaging protocol on Polkadot, prompted Gavin Wood to send the first message from Buenos Aires to New York City during the Polkadot Decoded event series. Meanwhile, the decentralized crowdfunding platform Imbue Network won parachain slot #40 on Kusama with no funding whatsoever.

Infrastructure

Polkadot utilizes WebAssembly (WASM), a much more advanced and efficient runtime that allows compilation of multiple high-level coding languages, including Rust, C, C++, compared to the restriction of only Solidity in EVM. It is no surprise, then, that Ethereum 2.0 is discarding EVM and moving towards WASM implementation. Advantages of WASM include portability, universality, near-native performance, fast startup time and security, making it the ideal option for deployment on decentralized blockchains. In Consensus 2021, Polkadot co-founder Gavin Wood stated that EVM legacy is important to support, but WASM is the future of smart contracts.

Current WebAssembly Language Usage

On May 31, Supercolony organized WASM conference 2022, a one-day virtual event that featured business and technical talks from industry leaders with the view to answering why WASM is the top choice for next-generation DApp development. The Astar team recently announced that its Kusama canary network Shiden was the first commercial parachain to support WASM smart contracts, meaning that WASM DApps can now be deployed on Shiden. They had also been working on Swanky Suite, the all-in-one tool to help developers build WASM smart contracts in Polkadot and Kusama.

Closing Thoughts

The bear market undoubtedly affected the Polkadot ecosystem as a whole, but hints of positive growth were still visible throughout H1, such as consistent development activities and DeFi incentivization campaigns with even more towering funds, such as Harvest Moon and the $100M Ecosystem Fund co-created by the Moonbeam Foundation and Arrington Capital.

New native projects sprouted up regularly, especially in the DeFi segment, such as Orcus Finance, Sirius Finance, Avault and SiO2 Finance on Astar Network, Tapio Protocol and RetroDex on Acala, and Athos Finance on Moonbeam Network. GameFi, an area that hopefully we can dive deep into next time, saw some potential players including Exiled Racers, PhalaWorld, MoonFit, Skybreach and Moonsama. Current projects are working hard to roll out new features: for example, we plan to introduce SubWallet mobile app in Q3.

The growth of these DApps are promising for the tipping point of Polkadot, because they will be the core actors that attract end-users to the ecosystem. It's a win-win situation after all: wherever users go, resources will follow. Tether will surely increase its USDT supply on Polkadot if the user base is tripled. More EVM multi-chain projects will jump in, and everyone gains benefits.

At that point, data will have to be reported in a precise and sufficient manner, ideally by a third party. While collecting data, we encountered several cases of data defects that could have been remedied if more attention had been paid. Because data speaks volumes about the development of an ecosystem, it is of major importance that both project teams and data aggregator platforms make sure that the recording and reporting are correct.

Contributors

DJ Hà Trang

Lead Researcher

Tu Tran

Data Engineer

Le Bui

Web Designer

Dung Nguyen

Frontend Developer

Hieu Dao

Co-founder
& Head of Product

Thony

Co-founder
& Head of Strategy

Ryan Dinh

Business
Development Manager

Marco Da Rocha (Pitcoin)

Portuguese Translator

Ly Nguyen

Vietnamese Translator

Eunice Feng

Chinese Translator

SrSlayer

Spanish Translator

Rudy Wicaksono

Indonesian Translator

Friends

We would like to express our sincere gratitude to friends who have supported us and provided data so that we can complete this report.

Disclaimer: The views expressed here are those of SubWallet. The data in here are acquired from third-party sources, including data aggregator platforms and team projects. While taken from sources believed to be reliable, SubWallet has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters.