The State of Polkadot Ecosystem in 2022: Innovations, Expansions, and Challenges Ahead
Last year was one of the most turbulent ones we have ever seen in cryptospace — starting from a slow decline of the bull market up to the collapse of giants like Terra Luna, BlockFi, or FTX (we feel for everyone who lost funds with those entities). We have also experienced hacks of various protocols and bridges like Nomad or Wormhole which just proves the desperate need for truly decentralized infrastructure in the crypto ecosystem.
On the other hand, there are great news as well — despite all these failures we have proven that decentralized applications really work and anyone can use them no matter what the centralized players do or how big is the market volatility.
For Polkadot, it was a very interesting year during which we have seen many new parachains rise, a lot of development improvements, and also a launch of a new, truly inclusive governance. So let’s have a look at all the good and bad and also what’s going to happen in 2023 and why we feel so excited about it!
Content
General
To this day, we have seen 41 auction winners on Polkadot and 71 on Kusama — meaning that we already have more than 100 auction rounds completed! This is a great success for the ecosystem and proof that the auction system works as intended.
Since the summer, the excitement and community involvement in crowdloans & auctions is declining but there are two obvious reasons for this — a bear market (thus less interest in crypto in general) and the fact that the most well-known projects have already taken their slots.
However, this doesn’t mean that all the interesting stuff has already happened, quite the contrary! We must consider that the whole Polkadot ecosystem is still in its very early stages (with most of the projects under heavy development) and the auction system is going to stay with us for a long time. So it’s only a matter of time before the demand for new slots will be on the rise again.
Developer numbers on the rise
It may be surprising to many but Polkadot has the biggest inflow of developers after the main smart contract platform — Ethereum.
As you can see in the report from Electric Capital, Polkadot, and Kusama has more than half of the full-time developers of Ethereum.
This is proof of the superiority of the Substrate framework — the reusable code upon which parachains are built on. Substrate is so popular thanks to its flexibility, use of Rust (the most loved programming language amongst developers), and ease of use that allows almost anyone to build its own blockchain which is something that wasn’t possible before. For this reason, Substrate is getting more popular even outside of the Polkadot ecosystem — projects like Joystream, Aleph Zero, or Futureverse are already building on top of it.
So this is certainly positive for the entire ecosystem and we will see a lot of interesting applications rise popularity in this year.
Attractive for a big capital
If you want to know which projects are posed to success, follow where the big money flows (although Three Arrows Capital showed us it doesn’t need to be true every time :)). As you can see from the Messari report, DOT is the most held asset among 82 hedge funds that invested in crypto (apart from BTC and ETH) — and although we don’t like whales buying too much of the supply of the crypto projects, in this case, it is a clear proof of the trust that big funds are putting into Polkadot and its ecosystem.
User experience
Wallets
The year 2022 finally saw an arrival of a few really user-friendly wallets which brought comfort and ease of use even for newbies. Namely, Nova and Fearless wallets for mobile devices are really slick and Talisman with its app serves as a great replacement for the Polkadot JS browser extension.
All of these wallets allow you to stake, see balances of your accounts on various chains and also other perks like displaying NFTs or voting in governance. We can only recommend to everyone to give it a try if you haven’t already!
Staking
Staking was one of the biggest pain points of the Polkadot ecosystem for an average DOT holder — be it the right choice of validators, integration with hardware wallets or navigating the Polkadot JS wallet.
So it’s great to see that most of these issues are already gone for many users — there’s a new staking dashboard, other wallets made staking relatively easy as well and a lot of staking issues were fixed thanks to the great work of the Polkadot team.
And there is also great news for Ledger HW users — both Polkadot JS and Talisman extension now supports adding a Ledger wallet (in a similar fashion to Metamask) so you can now use Ledger on any staking dashboard!
P.S. Feel free to nominate one of our Polkadot validators if you like this article :)
Nomination pools
One of the biggest limitations of Polkadot staking was a requirement for having a minimum DOT token number to be included in a staking reward mechanism. This number is currently around 200 DOTs and thus it’s not really inclusive for everyone. After a long waiting, this problem has been finally solved with nomination pools.
Each nomination pool is comprised of several validators that ensures the stable inflow of rewards for the nominator. Nominators can select any of these pools and we recommend choosing among active pools only! If you also want to support community validators, definitely go for ChaosDAO, DOT Validator Alliance, or ParaNodes!
Feel free to study more details in our nomination pools review & tutorial.
Decentralization
We have seen many very important development which strengthened the overall decentralization of the ecosystem. In our opinion, this is something that is widely underestimated by most of the projects (which are just focusing on the validator set decentralization and sometimes not even that) and thus this is where Polkadot really shines in comparison to its competitors.
Governance
The biggest event is certainly the launch of OpenGov, probably the most sophisticated governance system that is out there. In a nutshell, it dissolves all the centralized governance bodies we were used to (be it a council or a technical committee) and puts the control of the future of the chain and its treasury into the hands of token holders. This is a historical milestone and it lays a foundation for the truly decentralized Web3 world we are striving for.
Since the launch 3 months ago, we have seen over 100 Kusama proposals be submitted on-chain with many other individuals participating in the governance by either voting on commenting on these proposals. This means that Polkadot is on the right track to solving the low-voter turnout.
Also, there has been a brand new Polkadot Forum which is an off-chain platform to discuss everything regarding the Polkadot ecosystem — everyone is welcome to join and share his thoughts or concerns.
With the success of Kusama OpenGov so far, we expect it to launch on Polkadot later this year.
Fellowship
The technical committee served an important purpose — fast-tracking referendums that were vital for the stability and growth of the ecosystem. Therefore, this role will be taken over by the Fellowship, the first instance of the Polkadot collective that can host various communities and initiatives to represent their voice in the ecosystem and its governance.
In a nutshell, Fellowship is an organization of individuals with a deep understanding of the Polkadot protocol and therefore they can fulfill the role of the former technical committee with more transparency and commitment to the network.
Light clients
Albeit a bit technical for most of the Polkadot users, light clients present a significant step further to a complete decentralization of the network. To put it simply, whenever you are sending a transaction with your wallet, you have to connect to a so-called RPC node that will relay your transaction to the validators that will confirm it later on. As you might have guessed, the RPC node presents both a single point of failure and risk of centralization as we have seen with Metamask blocking certain countries last year.
The light client is the way how to get rid of these centralized RPCs and allow any user to transact with the validators directly. Feel free to try it on your own in the Polkadot JS app.
Gavin Wood and his new role
In October last year, Gavin Wood released the shocking news that he was stepping down from his role as the Polkadot CEO (or to be more concrete, CEO of Parity Technologies). While it seemed quite negative and Twitter was full of doom and gloom for Polkadot, it turned out to be actually quite positive for the entire ecosystem.
Gavin is a thinker and builder by his nature so being a CEO with a lot of business-related duties was a distraction from building the Polkadot protocol. On the other hand, Parity needs a CEO who will be fully dedicated to the promotion of the ecosystem and business activities and this is where new CEO Björn Wagner really shines. So rest assured, Gavin is going to stay with us as a Chief Architect and continue building the decentralized future!
Parachains
Last year saw an incredible development activity across all parachain teams and projects. Most of the major projects have already launched and attracted their users so let’s have a look at some of them.
Moonbeam
Arguably the biggest project by the TVL metric is Moonbeam. It quickly became one of the biggest EVM-based blockchains and it’s already hosting more than 100 applications with for instance Uniswap coming as well.
Kilt
This parachain focuses on self-sovereign identity and verifiable credentials. With a year full of delivered products like DIDSign (digital signatures for documents) or SocialKYC, Kilt is definitely one of the leading projects of the Polkadot ecosystem.
Astar
Astar is another EVM-based parachain with revolutionary concept of rewarding dApp developers called dApp staking. Also, it has attracted a lot of attention in Japan and organized hackathons for companies joining the Web3 space such as Toyota.
Interlay
Interlay has managed to successfully launch the most decentralized Bitcoin bridge that we currently have in the cryptospace and now continues to build a DeFi ecosystem around its wrapped token, iBTC. So far we have only around ~80 BTC locked but this is going to improve with the launch of their BTC trading and lending platform.
HydraDX
We finally saw the launch of one of the most exciting projects this year — the HydraDX. It revolutionizes the way how AMM pools work and thus allows for easy liquidity providing and low-slippage trading.
And many more interesting parachains are operational as well — Mangata X, Parallel Finance, Acala, Basilisk or Zeitgeist. However, we still see that the adoption of the Polkadot ecosystem remains rather low and we definitely need more mature and attractive projects to bring more users to the Polkadot world. This brings us to the least pleasant part of this article and that’s what went not so well.
The bad
It wouldn’t be a complete list without mentioning the bad stuff as well. This obviously doesn’t mean that Polkadot is not succeeding in its mission, however, it’s good to be aware of these issues and have a plan for how to solve them. Luckily, Parity and parachain teams are aware of this as well and we will hopefully see Polkadot shine in 2023.
Cross-chain experience
Although we have seen significant improvements with a rise of 3rd party wallets, there’s one issue remaining to be fully solved — how to seamlessly make transactions between various parachains. While Polkadot allows the best interoperability between various blockchains, we still haven’t seen it fully rise to its maturity — both in the technology adoption and in the user experience.
However, multiple parachains are working on a smooth cross-chain transfer experience and wallets like Talisman are not behind as well. So we can only expect the full potential of XCM to materialize this year.
Staking
While there have been significant improvements (be it a new staking dashboard or nomination pools), it is still a daunting experience for many users. The good news is that the staking process will be “outsourced” to its own system parachain which means that the whole system will be more performant and we will finally get rid of the DOT staking limits.
But overall, with the aforementioned improvements, Polkadot finally has some of the most robust staking systems and it’s getting to a state that is easy to use for everyone.
Overall slowness of development
This has been widely criticized all over the Polkadot community — we want it all and we want it now :). The truth is, everyone was expecting the ecosystem to mature faster — however, as it turned out, blockchain development is not as simple as writing a smart contract for Ethereum. There are a lot of moving parts involved and what’s worse, the Substrate framework is constantly evolving too, forcing teams to do frequent upgrades that are often time-consuming.
However, this gets better and better as time passes — tools are becoming more mature, teams more experienced and Substrate itself is getting more stable. There were a lot of obstacles for parachain teams to overcome but we believe that this is the year when the strength of this ecosystem will finally materialize!
The fall of Acala
In the summer of last year, around 1.3bln worth of aUSD stablecoin was minted in one of Acalas liquidity pools due to its misconfiguration. The team managed to get back most of the funds but some of the minted aUSD was left at Kucoin and the team never got it back. Since this unfortunate event, aUSD is still depegged with its price hovering between $0.15 and $0.9, depending on where it's trading.
This was certainly a hit to the reputation of Polkadot since aUSD was one of the flagship products of the entire ecosystem and its fall has caused disruption of the development of many parachain projects. Let’s hope that the team will be able to deal with this issue and bring the aUSD back to its life.
Missing killer app
We can safely say that each ecosystem needs its killer app — the one that changes the balance of power and attract new users. Ethereum has Uniswap, Arbitrum has GMX and there is also Osmosis on Cosmos. However, Polkadot is still waiting for such an app and only the future will tell which one is it going to be (and we are quite certain that there’s one!) — and this brings us directly to events that will be happening this year!
The future
There are a lot of exciting updates, new features and projects to be launched. This is precisely why we are so excited about Polkadot — the protocol is evolving rapidly and there’s always a ton of stuff to look forward to!
Launch of Snowbridge
After the hacks of Nomad (~$200m), Ronin (~$600m), and Wormhole (~$300m) bridges is more than clear that crypto space desperately needs a secure, trustless, and decentralized bridge to other networks — and the most important one of them being, of course, Ethereum with its enormous liquidity.
Snowbridge is set to solve this problem once and for all while delivering the biggest promise of Polkadot — the trustless interoperability between blockchains. To put it simply, the weakest link of Snowbridge is the Polkadot validator set with a few billions of dollars locked in stake — meaning that this will be the most secure bridge that is out there. And not only that, all parachains can bridge assets using Snowbridge and even call smart contracts on Ethereum or its L2s. So just imagine taking an Aave loan directly on Moonbeam!
The launch is scheduled for Q2 on Kusama and later this year on Polkadot. This could be the catalyst of liquidity inflow to the ecosystem and therefore we are quite excited about the Snowbrige project!
Technical upgrades
There are a few other technical improvements coming to Polkadot that will greatly enhance networks capabilities so let’s have a closer look
- Async backing — this upgrade will reduce the block time of parachains from 12 to 6 seconds, thus allowing for much faster transactions
- XCM v3 — further boosts communication capabilities between parachains that will be able to exchange any kind of messages
- Parathreads — pay-as-you-go parachains that connect to the relay chain only when needed. This allows for better scaling of the entire ecosystem and the creation of new business models around blockspace
OpenGov on Polkadot
We already talked about OpenGov on the Kusama network — and how it amplified the overall governance participation and decentralization of the network. Thus we are really excited about OpenGov coming to Polkadot and making it the most decentralized L1 platform that is out there.
The launch is expected in the 2nd half of this year.
Feature complete parachains
As we have discussed previously, the development of your own blockchain can be quite tedious and a lot of teams have taken a longer time than the community anticipated. However, there are a lot of projects that have already delivered — be it Moonbeam, Astar, Kilt, or others and more of them are coming down the line this year. Let’s see dive into some of them we are particularly excited about
HydraDX
HydraDX has recently launched, albeit with limited liquidity to test everything properly. However, these limits will be lifted soon and we will see other features like liquidity mining, dollar cost averaging or HDX staking so expect Osmosis on steroids!
Centrifuge
This is a project that has been quietly building last two years while having a working product on Ethereum. Their focus is real-world assets (RWA) and they are already the biggest one on the market — and a lot of people believe that RWA is the future of crypto. They are about to launch their first lending pools soon so this is gonna be an interesting ride.
Nodle
In the hyper-connected world, we certainly need projects that can leverage billions of user devices while maintaining their privacy. The answer to this is Nodle, a parachain that have already more than 500k active addresses participating in their network on devices. Can you imagine the backend of Uber running on a blockchain and rewarding people for sharing location in order to make it work? With Nodle, this might become a reality.
Manta Network
Manta Network has recently completed its trusted setup (the biggest one in history) which means that it is finally ready to start launching its products. The first is going to MantaPay (privacy payments) and then MantaSwap which is the first-of-its-kind privacy-oriented decentralized exchange. Exciting!
Phala Network
Phat contracts are finally coming to the Phala network! Can you imagine real-time computation running directly on a decentralized network? Phala will deliver just that and thus allow for the creation of games running directly on the blockchain!
Pendulum
Have you ever heard about Forex? The biggest market in the world for the exchange of currencies? Yep, you got it right, it’s coming to Polkadot pretty soon. Pendulum is implementing its own unique AMM that will be focused on trading foreign currencies together with a bridge to the Stellar network which already hosts plenty of them.
Launch of other interesting projects
So far we have talked only about the old dogs that are in the ecosystem for the while. But what about the new projects, are there any recent parachains that won the auction that should interest you? You bet there are some!
Frequencies
Have you ever heard of Project Liberty? It’s a long-term initiative that is set to democratize social media and fight surveillance capitalism that emerged with networks like Facebook or Twitter. Project Liberty has been researching this topic for the past few years, has a funding of $250m and Frequency will be the first implementation of the Decentralized Social Media Protocol (DSNP) that was already invented by the initiative.
I am personally really excited and can’t wait for the release to try it out!
OriginTrail
Origin Trail is one of the OG projects that were created in the early days of Ethereum. Its goal is to be a decentralized Google of the Web3 world that wants to index and process vast amounts of data that have already been created in the crypto world — be it NFTs, trades on DEXes, or supply chain applications.
Origin Trail has recognized the potential of the Polkadot technology and will be deploying its own parachain this year — pretty big stuff in our opinion.
Bittensor
Did you recently jump on the hype train created by Open AI and its ChatGPT? There are many crypto projects trying to decentralize the whole thing and one of them is BitTensor with its ultimate mission to decentralize the machine learning process and create an open market for AI learning data and models.
Gear
Gear protocol is a revolutionary L1 smart contract platform — it reminds Solana with its high transaction throughput and speed (less than 1s) but this time done right. Its standalone network Vara will be launching really soon, followed by the parachains on both Kusama and Polkadot.
Gear has been doing a lot of academies and hackathons for developers so we look forward to see its adoption rise!
Hashed
Hashed network is oriented towards businesses with its solutions for Bitcoin custody, fund administration, accounting, and others. This can be a really interesting project in the environment of new crypto regulations that are about to come because it will force all crypto custodians to comply with standards and Hashed will be there for them to take care of this regulatory burden.
Stablecoins
Stablecoins are vital for every crypto market to flourish — therefore that’s why we have seen so many of them rise in recent years, be it USDT, USDC, BUSD, or the ill-fated UST. Since the fall of the aUSD, there haven’t been basically any stablecoins that would have been liquid enough to allow for higher trading volumes.
The situation has finally changed recently with USDT which is now a native Polkadot/Kusama asset thanks to its integration with Statemine/Statemint. USDC will be coming soon in the same way — and guess what, Snowbridge launch will allow bridging any kind of stablecoin from the Ethereum ecosystem without having to trust any 3rd party bridges like Wormhole.
Conclusion
As you have seen, quite a lot happened last year — we have seen some exciting new developments but also had to take some hard-to-swallow pills. But overall, the positives and the initial goals why the Polkadot was created remain — be it superior sharding technology, interoperability, or the complete decentralization of the protocol.
This year will bring big changes —deployment of Snowbridge, OpenGov on Polkadot, launch of some really interesting protocols and it will fix some of the most pressing issues we are facing right now. This is what makes us excited and you should be too! The fact that this ecosystem has so many developers working on projects and has the trust of so many investors and funds means that we are on the right track to be a leading ecosystem of the Web3 world.
- Strengthen Polkadot decentralization by nominating your DOT tokens to POLKADOTTERS, community builders for the Polkadot ecosystem
- Support Polkadotters Shrimp and Polkadotters Octopus on Polkadot and be a part of a more secure Web3 future
- Discover our presence on the DVA (DOT Validator Alliance) pool and join our efforts to secure the network by using Nomination pools
