Polkadot (DOT) and Kusama (KSM) rose to par on June 3 as traders assessed a venture capital company’s significant investment in their blockchain ecosystems.
Nickname as Master Ventures, an Asian blockchain incubator and venture capitalist, announced that it has launched a $ 30 million venture capital fund called the Master Ventures Polkadot VC Fund. In a press release released on Wednesday, the company said its fund will support and finance “parachain offerings” of Tier 1 blockchain projects that seek to earn a parachain slot on the Polkadot Relay Chain.
Master Ventures also indicated that its proceeds would also help early-stage projects introduce into the Polkadot and Kusama ecosystems.
Traders took the announcement as a signal to increase their bids on the DOT and KSM pairs. His sudden interest caused the DOT / USD exchange rate to rise as much as 27.91% to $ 29.21 from its Wednesday opening. Kusama’s KSM / USD pair rose 39.35% to $ 511.91 over the same period.
Wild upward moves accompanied the bullish outlook on social media, with widely-followed analysts predicting a bullish continuation in the Polkadot and Kusama spot markets.
$ KSM What a monster. Hold the level it just flipped and there is no reason this shouldn’t go on. https://t.co/WEztyGwg9c pic.twitter.com/lCzTNqeZIr
to???? Trading tank (@TradingTank) June 2, 2021
The root of the bullish analogies was the promise that Master Venture’s $ 30 million investment in the Polkadot ecosystem would result in a faster auction of its “Parachain slots”. In retrospect, a parachain corresponds to a blockchain (layer 1) that is connected to a certain functionality, with its own specialized functions and governance structures.
For example, you can bid on the Polkadot Parachain slot, for example to build a decentralized oracle network on it. As a result, The result would be a single application-, user- and liquidity-specific blockchain that could query data from other parachains, with Polkadot being a Layer 0 solution, a node that enables communication between its blockchains.
Now Kusama is an experimental version of Polkadot, but it exists as an independent blockchain network. It works as a sandbox for developers who want to test preliminary versions of their projects before deploying them to the Polkadot mainnet.
Potential demand for DOT and KSM
Developers bidding on Parachain slots in Polkadot and Kusama would have to use the projects’ native assets, DOT and KSM, respectively.
The $ 30 million Master Ventures fund is designed to support and finance these developers and their Tier 1 projects. That means the venture capital company would have to buy DOT and KSM tokens to support Parachain’s auction bids. In return, Polkadot and Kusama would lock the tokens as long as the developers want to run their project on their parachains, which are between six months and two years.
If the Polkadot ecosystem is successful, it would mean an ever increasing number of DOT and KSM tokens locked for the duration of the Parachain slot. As a result, all of its outstanding supply would be exhausted. That could somehow explain why dealers at DOT and KSM suddenly turned bullish.
Mira Christanto, a researcher at crypto data analytics firm Messari, wrote in one of her May posts that 65% of the DOT supply has been staked. In the meantime, 30% of the DOT remains in circulation. Therefore, the next Parachain auction would take more Polkadot tokens out of circulation.. Christianto added:
“After the introduction of the Parachain, 40% of the DOT could be combined in the Parachain, which reduces the effective circulating offer to only 15%.”
Conversely, lower participation in the Polkadot and Kusama Parachain auctions could leave DOT and KSM with lower demand than expected, which could lead to spot price adjustments.