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 May 11, 2023 at 5:38 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

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.
  • BlackRock Joins Asset Tokenization Race; North Korea Hackers Stole $3B in Crypto Since 2017
    02:07
    BlackRock Joins Asset Tokenization Race; North Korea Hackers Stole $3B in Crypto Since 2017
  • Colorado Securities Commissioner Addresses Crypto Projects Who Raise Capital via Tokens
    14:55
    Colorado Securities Commissioner Addresses Crypto Projects Who Raise Capital via Tokens
  • Three Major Ethereum Stories to Watch in 2024
    02:12
    Three Major Ethereum Stories to Watch in 2024
  • Here's Why Ether Could Surge in 2024
    00:54
    Here's Why Ether Could Surge in 2024
  • Disclosure

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

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Author placeholder image

    Will Canny is CoinDesk's finance reporter.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.