Polkadot’s blockchain platform only launched its main network in May, but is already pushing to become a major competitive force in the industry. In late August, after a DOT token switch, Polkadot plunged into the top 10 cryptocurrencies, outperforming established altcoins like EOS, Litecoin (LTC), and others.
Kelvin Koh of Asian cryptocurrency mutual fund Spartan Black previously said Polkadot could be in the top three blockchain. On the flip side, Pantera Capital Management’s Dan Morehead recently shared his opinion with Bloomberg, noting that Although Polkadot is currently trading around 10% of the value of Ethereum, his company believes it “has a much higher 10% chance of being a competitor to Ethereum”..
While there is endless speculation about what factors determine the price of ether, one trend has emerged over the course of its life: The more developers create applications with user appeal and value, the more optimistic the price outlook for Ether appears.
If the same is true of polkadot, The forecasts of the analysts look promising. DeFi’s popularity led to the ETH price doubling this summer. Now, DeFi developers seem to be focusing on Polkadot as well to take advantage of its fast performance, the framework for substrate development and ultimately interoperability.
However, Peter Mauric, director of public affairs at Parity Technologies, told Cointelegraph so Polkadot has great potential to expand the DeFi ecosystem beyond its current capabilities. Para-chains are another type of smart contract that allow varying degrees of implementation.. He explained in more detail:
“Once we have this primitive DeFi turbocharger charged, the potential for new innovation will increase tremendously and we will see exciting new opportunities such as decentralized sovereign wealth funds and cross-chain money markets that will lay the foundation for the next generation of protocols from DeFi.”
Many of these new DApps and Para-Chains are also sponsored by grants from Polkadot’s main sponsor, the Web3 Foundation. Mauric confirmed that the Polkadot Treasury also reliably disburses funds in the chain for projects to be built on Polkadot. In order to, Who participates in Polkadot’s DeFi ecosystem and how do they compare to their counterparts in Ethereum?
A complete DeFi platform
Acala is a decentralized financial center known as the “All-in-One DeFi Service Center”. It has some features comparable to Maker that allow users to borrow and borrow their stablecoins from USD. However, it also operates a decentralized exchange within the framework of an economic model known as a “decentralized state fund” which is intended to represent a continuous means of maintaining the development ecosystem. Acala was also one of the first to participate in a new Polkadot-specific crowdfunding model known as the first-time offering for skydiving.
Acala is a classic example of a project that takes advantage of the great adaptability of substrates. Acala co-founder Bette Chen told Cointelegraph: “For example, by using Substrates to create Acala we can customize the fee plan and allow users to pay fees in any accepted token. The positive side of innovation is limitless as we can add new features and fix problems without the need for forks“.
Use and credits
Mantra DAO is a community DeFi platform for betting, lending and governance. The platform’s OM token confers voting rights that affect various factors such as inflation rates or interest rates. Mantra DAO will operate on the Rio chain infrastructure and is on the way to becoming a fully decentralized DAO managed by its community.
Mantra DAO sees scalability and interoperability as the main selling points for Polkadot, as co-founder and board member Will Corkin told Cointelegraph: “Interoperability is a step towards integrating DeFi and eliminating the current networking problems that platforms on Ethereum are facing.“He added:”Not only can we bring DeFi from Ethereum to Polkadot, but we can make all DeFi available to all peers on all platforms“.
Another project, StaFi (short for Staking Finance), is a protocol that allows users to unlock liquidity that is tied up in stake tokens. It works in a similar way to Yearn.Finance or Compound and issues synthetic tokens called rTokens, which represent a portion of the common fund and can be used in other protocols. Along with grants from Web3, the project received support from B-Tech, a tech accelerator affiliated with the Bitmax exchange.
DEX and liquidity
Uniswap’s Polkadot equivalent is Polkastarter, a decentralized exchange that allows users to launch pools of interoperable tokens with cross-chain exchanges. Projects can list their tokens and create a collective fund in a decentralized auction via the platform. The development team has created a proof of concept for Ethereum, with a roadmap that includes the migration to Polkadot from early 2021.
Equilibrium is another project that is migrating to Polkadot from another blockchain: EOS. It started as an equivalent to MakerDAO, but plans to add a decentralized exchange, a synthetic asset platform and a new interoperable stablecoin to its product range with the move to Polkadot.
A bridge to DeFi on Ethereum
Moonbeam is Polkadot’s para-chain bridge for Ethereum that allows developers to create Ethereum-compatible smart contracts. With Moonbeam, DApps can be integrated with other blockchains, including Bitcoin. This also means that existing Ethereum-based front-end designs can connect to Moonbeam to interface with Polkadot-based DeFi applications.
In an interview with Cointelegraph, Derek Yoo, CEO of Moonbeam developer PureStake, explained the functionality: “Moonbeam can be used to move ERC-20 tokens between Ethereum and Polkadot. This is necessary for cross-chain deployments where you have one instance of the application on both platforms.“.
Moonbeam is already catching on with Ethereum-based DeFi projects looking to expand in Polkadot. He has announced several partnerships with prominent DeFi projects including SushiSwap, BetProtocol and Linear Finance, and Yoo said more are in the works.
DeFi on Ethereum has grown organically, and several innovators have joined and are building on the work of their predecessors. However, many projects in Polkadot see the opportunity to layer the infrastructure using the Polkadot Para-chain for asset transfers and cross-chain transactions.
The DeFi Rio chain is a polkadot para chain created with Substrate that provides a set of tools for DApp builders in DeFi. This includes Rio’s generic asset bridge, the enables the simultaneous transfer of several assets in the chain. All major Rio tools can be accessed through the project website UI, including the Rio wallet and Rio Block Explorer.
The team behind Rio Chain envisions several cross-chain DeFi use cases, including a Bitcoin lending platform, a Bitcoin savings account app, and instant cryptocurrency-based stablecoin loans. Additionally, Rio Chain believes that the global ecommerce payments market can be disrupted by eliminating intermediaries like PayPal who generate significant revenue by taking some of the merchant payments.
Bithumb Global is also launching its own Para chain on Polkadot called Clover. To help drive DeFi development, Clover will seek to leverage its cross-chain features and will include some of Bithumb Global’s proprietary applications, including decentralized exchanges, wallets, and loan logs. Norelle Ng, Managing Partner at Bithumb Global, told Cointelegraph that the availability of layers of infrastructure like Clover will ultimately help improve the DeFi user experience: “Modules deployed at Clover significantly lower the technology development threshold for top-layer applications“.
Akropolis is an established Ethereum project that provides open source protocols for DApps developers on DeFi – effectively an operating system for DeFi. As part of DeFi for Polkadot, it has received a grant from the Web3 Foundation to provide a platform as a service for substrate nodes. It also offers a portal as a front end for the Polkadot chain. Akropolis is already integrated with Ethereum DeFi DApps, including Compound and Aave.
A long way to go
Given the scale of development, it looks promising for the DeFi ecosystem in Polkadot. Many projects already take advantage of the interoperability that the system offers. Polkadot is also trying to attract developers from other platforms.
However, it will take some time for the vision of interoperability to reach its true potential, mainly due to the current lack of compositional ability between the Ethereum and Polkadot applications. For example, It is not yet possible to get a flash loan on one platform to benefit from arbitrage on different decentralized exchanges between other platforms. Mauric said Polkadot is on track to achieve the compositional skill, admitting that it is a critical development:
“The cross-chain composition skill is a must for both DeFi and Web 3.0 overall. We are already seeing the thirst for Bitcoin Wrapped on Ethereum that works without trust and can be used on DeFi. This is a clear early indication of cross-chain connectivity and The ability to compose is coming. The solution to the cross-chain compositional ability is an important milestone. “
However, until a cross-chain composition ability becomes a reality, there is a risk that many DeFi-DApps on Polkadot will simply try to replicate existing applications on Ethereum. After all, this has already happened with Binance Smart Chain, where DApps such as BurgerSwap or BakerySwap copied the Ethereum-based SushiSwap.
The value of simply copying existing applications is debatable. So, DeFi on Polkadot needs to expand its offering to discourage users from Ethereum’s liquid and compostable DeFi ecosystem.
Finally, It is still a matter of time whether Polkadot will steal the DeFi crown from Ethereum. Perhaps a more pressing question, however, is whether Polkadot will ultimately be able to improve on DeFi to increase its adoption and make it more user-friendly and accessible to mainstream investors and consumers. Beyond interoperability, this seems like the ultimate achievement.