Investors View Polkadot as an Alternative Layer 1, Coinbase Says

The market cap of Polkadot’s DOT token relative to ether has been falling since November, according to the report.

AccessTimeIconJun 7, 2022 at 10:30 a.m. UTC
Updated Jun 7, 2022 at 1:52 p.m. UTC

Will Canny is CoinDesk's finance reporter.

Despite the growing amount of Polkadot’s token DOT being locked up in recent months, its market capitalization as a percentage of ether’s (ETH) has been in constant decline since the start of November 2021, Coinbase said in a report dated June 2.

  • DOT benefits from inflationary pressures as more tokens are locked up or bonded with every parachain auction. Parachains are individual networks running in parallel to create a harmonized, interoperable ecosystem.
  • However, DOT's market cap as a percentage of ETH has dropped to 4%, the report said. This level is similar to when Polkadot’s first mainnet was launched in May 2020, the report added.
  • Classification is an important reason in explaining the fall in DOT’s total market cap relative to ether’s, as many investors have categorized Polkadot as an alternative layer 1 competing with ethereum, rather than as a layer 0, analysts led by David Duong wrote.
  • From this perspective, DOT’s value can be seen as proportional to the total value locked (TVL) within it “as opposed to the value of its unique modular structure and cross-chain capabilities,” Coinbase said.
  • The reason for this misperception is that for a considerable time, Polkadot lacked the “cross-consensus messaging capabilities that allow parachains to actually transfer data and tokens among themselves,” but this finally launched on May 4 this year, the note said.
  • Last month, the platform said it was bringing liquid staking to its network of blockchains, allowing holders of cryptocurrency who have pledged to support the proof-of-stake (PoS) network an additional way to increase their revenue by earning extra yield in decentralized finance (DeFi) applications.
  • Polkadot is a nominated proof-of-stake (nPoS) blockchain that allows layer 1 applications to interoperate with one another.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

Investing in the Future of the Digital Economy
October 18-19 | Spring Studio, NYC