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Polkadot Next Stop $5 Billion TVL as More Auctions Loom

While the spotlight has shone on Bitcoin and Ethereum this year, interoperable blockchain platform Polkadot has achieved several notable milestones in its own right. 

The network not only allocated its first ever parachain slots via canary network Kusama this year, but also announced the creation of several trustless bridges to connect Substrate-based chains. A full code audit of Polkadot, meanwhile, was finally completed. Unsurprisingly, the price of Polkadot’s native DOT token has responded in kind, reaching a new high of $55 on November 4 having started the year below $10.

A Billion Reasons to Be Bullish

Against this optimistic backdrop, the first round of Polkadot parachain auctions recently commenced with almost $3.5 billion raised by ten hopeful projects. Cross-chain defi hub Acala Network was the history-maker, edging out Ethereum compatibility layer Moonbeam to claim the coveted maiden slot. Of course, when Acala is finally onboarded at block #8179200 on December 18, it will be alongside five other lucky auction winners. 

Parachains are specialized blockchains that connect to Polkadot’s main Relay Chain, and they represent the final piece of core technology described in the Polkadot whitepaper. By March next year, around 11 of these parachains will be fully operational with each slot ‘leased’ for 96 weeks. This lengthy time commitment ostensibly locks users into the ecosystem, all of them speculating that the value of DOT will rise during the leasing period. So far, almost 200,000 people have contributed to crowdloans to support their favorite projects. 

Given around $3.7 billion is currently locked, it’s not inconceivable that the figure will be closer to $5bn by the end of the first batch of auctions. That’s a hell of a lot of crowdloaned DOT pledged by fanatical supporters with skin in the game.

Of course, Polkadot’s success will ultimately depend on the applications and use-cases pioneered by projects like Acala and Moonbeam. With the 96-week clock ticking, no slot-holder can afford to stall or disappoint the community that bankrolled their auction campaigns. Not least because they’ll almost certainly be relying on the same community to win another parachain slot when their lease expires.

The Tokenomics of DOT

The tokenomics of DOT are worth highlighting. Unlike some other crypto-assets, DOT has numerous uses within the Polkadot ecosystem, variously functioning as a governance token, a staking token, and for bonding purposes to connect a chain to Polkadot as a parachain. 

Interestingly, those who choose to allocate their DOT to a crowdloan are impacting the APR for staking, since only unbonded DOT can be used to participate in the former. Thus, unbonding DOT from staking reduces the supply of DOT locked in staking contracts while pushing APRs higher. With that, demand for DOT could rise, and with it the price, with compensation for crowdloan participation following suit. That’s the theory, in any case.

To be sure, we can already see this dynamic in action with the number of staked DOT having decreased and staking rewards increasing.

One thing’s for sure, the momentum Polkadot has gathered to date seems likely to carry on into 2022 as its rolling auction schedule picks up pace.

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