Apollo’s Moonshots: A vibrant DeFi ecosystem expected to emerge on Polkadot
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David Angliss, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.
Lots of blockchains promise they’re the best single one. Polkadot takes a different approach.
“The ethos behind that Polkadot is that it’s coming at crypto in a different angle, where their ethos is that a cross-chain ecosystem is how the crypto world will operate in the future,” David Angliss says.
Founded by Ethereum co-founder Gavin Wood, Polkadot is the No. 10 crypto project with a market capitalisation of US$26 billion.
“It a blockchain that bundles,” Angliss says. “It can bundle all these different blocks together, at the same time in parallel, so it works like a multichain.”
“That essentially means that it can do significantly more than a single chain blockchain, in terms of its transactions and throughput.”
Ethereum is expected to split into 64 “shards” sometime next year as a means to dramatically increase network performance and reduce congestion and fees.
Polkadot takes this idea one further – rather than shards that are all the same, Polkadot’s “shards” are heterogeneous and extremely customisable, Angliss says. Polkadot refers to them as parachains or parathreads.
While Polkadot won’t have nearly the number of network validators as Ethereum 2.0, which will have thousands, its 300 validators will still make Polkadot significantly more decentralised than some other projects.
For example, Binance Smart Chain has just 21 validators, while Tron has 27 and XRP has 150.
“So concerns about it being centralised aren’t as big an issue,” Angliss says.
For those new to crypto, most of the community are passionate believers in decentralisation, both philosophically and because it makes networks censorship-resistant and difficult to control or subvert.
But increased decentralisation can lead to reduced performance and scalability.
“That’s the compromise, essentially, is through running these customisable multi-chain parachains, a part of the decentralisation isn’t compromised,” Angliss says.
Projects gain a slot on the Polkadot parachain network through a complicated competitive bidding process designed to show which projects have the most backing from the community.
Basically, DOT holders will be asked to loan their tokens to projects for up to two years, in return for that project’s native coins.
Polkadot’s experimental “canary” network, Kusama (KSM), held its first round of parachain auctions in June and July, with the second round set to begin on Wednesday and run through October 6.
Kusama holders who participated in the Karura and Moonriver (MOVR) crowdloans during the first round have already received excellent returns. They’ll also get their original KSM tokens returned to them in a little under a year.
— Bullish キッド (@bullishthekid) August 27, 2021
For me it was around 1000%. Crowdloaned 10 ksm worth 2000usd and got 150 MOVR worth about 20000usd. Also staking rewards are superrr high rn
— Maxim Verleye (@Maxverleye8) August 27, 2021
The Polkadot auctions will begin once a full external audit of the Kusama ones has been conducted.
“Apollo doesn’t have any long positions yet in projects that are coming out and launching on Polkadot, but we’re watching them very attentively,” Angliss says.
“And we believe the DeFi ecosystem on Polkadot’s going to be very exciting.”
Angliss cites Parallel Finance, which says it will have the highest capital efficiency in the Polkadot ecosystem. It’ll offer margin staking, auction loans, and staking derivatives.
Then there’s Clover, a “foundational layer for cross-chain compatibility”.
“It’s an operating system that sits on Polkadot,” Angliss says. “So it allows indexing across multiple chains, provides applications such as multichain wallets, so users can see all their assets in one place.”
“We’re looking at looking at investing in some of these projects coming out, because we believe they’ll have quite a vibrant DeFi ecosystem, like Avalanche and Polygon,” Angliss says.
Meanwhile last week two projects previously mentioned by Apollo, Automata and Solana, had a great week.
A protocol for protecting against “sandwich attacks” in Ethereum’s “dark forest” (i.e., trading bots that front-run transactions) Automata was trading for US71.9c when Apollo analyst Matthew Harcourt highlighted the project in mid-June.
ATA tokens began surging on Wednesday, tripling in price from 60c to $1.88. (Neither Stockhead nor Angliss could see an obvious catalyst for the pump).
On Sunday, ATA were changing hands for US$1.67, making Automata the No. 207 crypto with a market cap of US$287 million.
Solana meanwhile had jumped into the No. 8 crypto spot, according to Coingecko.
Apollo’s chief investment officer, Henrik Andersson, told Stockhead in mid-June that the investment firm wasn’t selling any of its Solana tokens despite their massive gains for the year.
That turns out to have been a wise decision. Solana tokens at the time were trading at less than US$30.
On Sunday afternoon they were changing hands for $94.90, up 10 per cent from yesterday.