For a long time, we have been trying to understand the meaning and status of Polkadot in the blockchain world. From various written materials to market information, we have concluded that Polkadot is currently the best cross-chain solution. But we always believe that cross-chain is only a solution, not a goal. So what is the ultimate goal of Polkadot? With such doubts, Prophet Labs started research and tried to find a complete logical chain to clearly locate the meaning of Polkadot.

Usually when we are researching a certain project, we will first understand the idea of ​​its founder. In the process, we learned that Dr. Gavin Wood, the founder of Polkadot, founded the Web3.0 Foundation before creating Polkadot, so we I thought that maybe I could find clues in Web3.0 to study Polkadot in depth. In April 2014, Gavin published his vision for the real Web3.0 in the Ethereum community. He hopes to reshape the Internet from the bottom of the software based on the P2P protocol, and create a decentralized network service with privacy protection as the main feature. .

By sorting out and collecting existing materials, we can summarize the development path of Web3.0 as follows:

Experience Layer: Decentralized Identity, User Interface

Application layer: DAPP

Architecture layer: decentralized storage, decentralized communication and computing

Base layer: zero-trust/low-trust interaction protocol (blockchain)

After seeing this path, we immediately had a clear definition of Polkadot’s meaning and goals. We should understand Polkadot from a larger level, that is, the next stage of the Internet, rather than the simple blockchain world. In this At the level, what Polkadot defines is to implement the very important decentralized data computing and communication functions in the Web3.0 architecture layer. This function and distributed storage together build the underlying architecture of the entire Web3.0. Above this It will be the entire Web3.0 world. To understand Polkadot from this perspective, we can clearly understand Polkadot’s technical realization path, economic model and ecological development, and perhaps make some reasonable predictions. Next, we will organize and introduce the industry and the Polkadot project itself.

1. The relationship between the Web3.0 Foundation and Parity and Polkadot

The relationship among Web3.0 Foundation, Parity Technology and Polkadot

The Web 3.0 Foundation has been funding research and development teams building the technology stack that forms the foundation of the decentralized web. The Web3.0 Foundation was founded in Zug, Switzerland by Dr. Gavin Wood, Co-Founder and CTO of Ethereum.

1.1 Vision of Web3.0 Foundation

· Users should own their data, not companies;

· Global digital transactions are secure;

· The online exchange of information and value is decentralized;

1.2 Key projects of the Web3.0 Foundation

Polkadot: the underlying protocol project of the Web3.0 Foundation;

Kusama: the first version of Polkadot;

XCMP: a subset of Polkadot, a decentralized messaging protocol emphasizing privacy and security;

1.3 Summary

The Web3.0 Foundation manages and develops Polkadot to realize the decentralized communication and computing functions of the architecture layer in Web3.0. It can be believed that once the Polkadot project is successful, the progress of Web3.0 will no longer be possible without Polkadot.

2. Parity Technology

Parity Technology is a software development company with the most cutting-edge technology of Web3.0. Co-founded by Ethereum co-founder and CTO Dr. Gavin Wood, and former Ethereum Foundation Security Head Dr. Jutta Steiner, the company created the Parity Ethereum client, which has contributed significantly to Ethereum's success.

Parity's mission is to give open source software developers a space to jointly build revolutionary new technologies and achieve the common vision of a decentralized 3.0 network. The Substrate framework it created can help build blockchains and decentralized innovative applications. Polkadot is written using the Substrate framework, and the parachains on Polkadot also need to be written using Substrate.

Regarding the Substrate framework, perhaps one sentence sums it up as "the best blockchain building tool". Its core idea is to make the development of the state transition function of the blockchain as flexible and easy as possible. Substrate has built-in all the core components required to build a blockchain: database, networking, transaction queue, and consensus. (Quoted from "Polkadot one-click chain release, how to use substrate to build a blockchain")

2. Basic situation and valuation of Polkadot

1. Basic information

Polkadot's white paper defines Polkadot in this way. Through a heterogeneous multi-chain architecture, it essentially separates two very important parts of the consensus architecture (namely, consistency canonicality and validity) to support multiple heights. Differentiated consensus systems interoperate within a trustless, fully decentralized federation, allowing trust-free mutual access to blockchains.

We can also understand it through the words of Dr. Gavin Wood, the founder of Polkadot: Polkadot's design logic is not directly associated with interoperability, and we are waiting for the launch of Ethereum's sharding technology. But sharding has never been implemented, nor is it launched now. Therefore, I want to build a more scalable "Ethereum" by myself. In the design process, the concept of sharding has been pushed to an extreme level, so I don't want to shard at all, and just design an independent chain. With this design, different chains can transmit information to each other, and the final result is to achieve communication through a shared consensus layer.

At present, the main highlights of Polkadot include Substrate software development documents, nPos consensus mechanism, financial support from the Web3.0 Foundation, and the feature of automatic upgrade of on-chain governance.

2. Interpretation of Polkadot

From the current function of Polkadot, the most direct definition is cross-chain, but its implementation is very different from other solutions;

-Using the relay chain to achieve cross-chain, although it increases the burden of the relay chain to a certain extent, but it can guarantee security, as long as there are enough verification nodes on the relay chain, then in theory the mutual Communication can enjoy the accumulation of security brought about by the increase of verification nodes, without having to design a separate security mechanism for the communication between each chain;

- Risk-free expansion, the parallel chain method can theoretically be expanded without risk. At present, the blockchain is still a relatively closed circle, but once traditional Internet companies enter the blockchain, especially some Internet giants with their own ecology, Most of them will access in the form of alliance chain, so the scalability of Polkadot will become a core highlight to attract them to access.

- Polkadot has also funded a lot of cross-chain bridge projects to help parallel chains communicate directly. This is very practical for parallel chains that often need to communicate, which is somewhat similar to the state channel in the Layer2 solution.

-The combination of parachain and parathread is very friendly to the project party. It can participate in the slot auction, and the project party without conditions can also use the parallel thread to access. It is a bit similar to the WeChat applet and does not need to be online all the time. , just do some interaction when you need to use it.

-The function of the EVM virtual machine is also friendly to developers, allowing many Ethereum developers to migrate to Polkadot very easily.

3. Technological progress

Substrate2.0

Substrate can be understood as a general-purpose template that integrates various functions. Developers can call different modules (pallets) to speed up development. Gavin once wrote a chain in fifteen minutes at the fastest. The fork-free runtime upgrade is also one of the advantages of Substrate. When the system needs to be upgraded, as long as the runtime upgrade passes, the nodes in the network will automatically synchronize and abide by the new rules without hard forks.

In September 2020, Substrate launched version 2.0, adding more than 70 pallets and off-chain worker functions. The newly added pallet provides support for smart contracts, on-chain voting, virtual machine migration, and treasury. Off-chain workers are similar to oracles, but allow long-running or indeterminate-outcome tasks to run.

Kusama Testnet (Token: KSM)

In August 2019, the kusama test network was launched, and the Staking and on-chain governance functions were launched in October of the same year.

Kusama will exist in parallel with Polkadot after the Polkadot mainnet goes live, and its positioning is different:

4. DOT economic model

4.1 Total circulation = initial total circulation of 10 million (currently adjusted to 1 billion through community proposals) + inflation, the current price is around 40USDT,

4.2 In terms of token usage, the official hopes that 50% of the tokens will be mortgaged into the NPoS consensus system, 30% of the tokens will be used for parallel chain slot auctions, and 20% of the tokens will be circulated in the trading market. In terms of inflation rate, the official hopes that every year 10%, the average annualized rate of return of Staking is 20%;

4.3 Distribution of DOT: (Data from Web3.0 Foundation, HASH CIB)

-Seed round in 2017: 50%, 5 million pieces, 29 US dollars per piece, with a total valuation of 290 million US dollars. Investors in this round include Boost VC, Pantera Capital, Polychain Capital, etc.;

-2019 private placement round: 5%, 500,000 pieces, 120 US dollars per piece, with a total valuation of 1.2 billion US dollars, including IOSG Ventures, Fundamental Labs, etc.;

-Web3.0 Foundation: 22%, 2.2 million pieces;

-Parity Technology: 10%, 1 million pieces;

-Other external developers: 5%, 500,000 pieces;

-Team employees: 5%, 500,000 pieces;

- Existing issuance: 3%, 300,000 pieces.

4.4 Staking Yield

Polkadot uses a non-linear model to set inflation after the mainnet goes live. Those that start staking early on will see inflation steadily increase until 50% of DOTs are staked. This model is an important incentive for token holders to participate in the network during its earliest and most critical period.

The blue line is the inflation rate in the network, and the green line is the rate of return (inflation divided by the staking rate):

5. Slot auction gameplay

5.1 Polkadot's slot auction:

According to our current understanding, Polkadot is expected to start slot auctions in June this year, one slot at a time. After the auction is successful, there will be a random period of 1-2 weeks for testing the parachain, so the overall auction rhythm is expected It's about 2 weeks to auction a slot.

The auction is carried out by locking DOT. The minimum period of DOT locked in the auction is half a year. According to the economic model made by the Polkadot team, it is estimated that 50% of the DOT will be used for staking, and 30% of the DOT will be locked in the auction. Real market circulation The total DOT is only about 20%. Considering that the 20% of the shares held by the Web3.0 Fund** will probably not participate in the auction, only about 50% of the DOT on the market can participate in the auction. About 13%, it is estimated that only about 20% of the DOT that can actually flow into the auction market, that is, 2 million pieces, so the large holders of DOT will determine the ownership of the slots in the early stage.

5.2 Specific operation

Considering the long lock-up period of the auction, if the price of Polkadot is still high this year, the opportunity cost of participating in the auction is relatively high. It is recommended to hold DOT directly, and we can further analyze the circulation and distribution of DOT in the market through the data of previous auctions. The comparison of demand can then assist us in judging the trend of DOT price and choosing the right time to ship.

If the overall market environment declines in the future, the benefits brought about by the appreciation of the DOT value will be relatively considerable. At the same time, the project party Token rewarded by helping the project party participate in the auction can also bring additional returns.

3. Polkadot Ecological Project

At present, there are more than 300 ecological applications related to Polkadot, including Substrate-based projects, tools, forums, wallets, etc., which can be subdivided into asset bridges, privacy, DeFi, NFT, etc. List of Polkadot ecological projects:https://www.polkaproject.com/ 

-Key projects on the DeFi track:

Acala, Plasm, Moonbeam, Bifrost, Stafi, Zenlink, etc.

-Privacy track key projects:

Phala Network, Adavanca, etc.

- Key projects of the asset bridge track:

Darwinia, Bifrost, ChainX, etc.

4. Star Project

Acala

1.1 Introduction to Acala

The Acala network is the first DeFi infrastructure chain managed by a decentralized consortium, powering the financial activities of all chains on the Polkadot network. Specifically, it will address stability and liquidity issues:

Stability of financial instruments through the Honzon protocol (stablecoin aUSD) - a reliable currency for low-cost, borderless value transfer across all blockchains connected in the network;

Liquidity of staked DOT (L-DOT) - Extract all derived value of DOT and drive more financial activities without compromising overall network security.

1.2 Token Status: ACA

1.2.1 The total amount of issuance is 100 million, which will be minted when the main network is launched and stored in the ACA reserve pool, which will be distributed to the ACALA Foundation, seed round investors, IPO (the first parachain auction contract) and other networks Participants’ rewards are expected to be 20% for the team, 30% for bidding, and 50% for investors and network participants;

1.2.2 Acala established dSWF (Decentralized Sovereign Fund) and holds foreign exchange reserves and strategic investments, namely ACA, DOT and other digital currency assets. Its role is to ensure the stability of aUSD and ACA through the destruction and release of ACA long-term prosperity, by purchasing DOT to ensure participation in the sustainable development of the Polkadot parallel chain, and by purchasing other digital currency assets (such as BTC, ETH, etc.) to counteract Acala's own risks and market risks;

1.2.3 Acala’s first round valuation was 7 million US dollars, financing 1.5 million US dollars, the second round valuation was 60-70 million US dollars, and financing was 7 million US dollars. A total of about 30% of the tokens were released to investors, including Web3. 0 Foundation, Polychain, Pantera, DCG, ParaFi, ArringtonXRP, Hypersphere, etc.;

1.3 Project Highlights

1.3.1 The founder of the project is Jiang Fuyao, the founder of Polkawallet. He is the first person in China to start promoting Polkadot and has a friendly relationship with Gavin wood;

1.3.2 Acala is currently the number one project in Polkadot;

1.3.3 At present, the functions of aUSD, L-DOT and DEX have been realized, and a series of combination tools are provided for DeFi on Polkadot, which can share dividends with the rise of DeFi on Polkadot;

1.3.4 The community foundation is good, and many foreign organizations and individuals are promoting and promoting Acala.

Bifrost & Stafi

2.1 Introduction to Bitrost

Bifrost is a cross-chain network that provides liquidity for pledged assets. Currently, it starts from Staking and provides liquidity for Staking in the form of Staking derivatives (vToken). It is developed based on Substrate and built on the Polkadot network. Users can convert Pos currency into vToken through Bifrost protocol at any time to obtain Staking income and liquidity at the same time.

2.2 Token Status: BNC

2.2.1 The total issuance is 80 million, of which 16.2 million (20.25%) are used as vToken currency holding incentives. The incentive period is 10 years, and the output is halved every two years. 15.75% of BNC are used for Polkadot and Kusama auction rewards. The specific allocation details as following:

Among them, the specific allocation of 45% of Ecosystem is as follows:

In order to ensure the development of Bifrost functions, launch and the development of the ecosystem, different parts of the BNC distribution will have different lock-up times, and the BNC part of the team will also be released linearly half a year after the day of circulation, and will be unlocked for two years. The specific situation as follows:

2.3 Project Highlights

2.3.1 At present, Bifrost has received all-round support from the Web3.0 Foundation and Wanxiang Lab in terms of technology, products, capital, legal affairs, and ecological cooperation.

2.3.2 The game of the ticket market can allow Staking users to obtain deterministic returns and possible excess returns;

2.3.3 The proportion of locked tokens in the ecosystem is as high as 45%, which has a good role in promoting the development of the ecosystem.

2.4 Stafi VS Bifrost

Stafi is also a network that also releases cross-chain Staking liquidity. The overall logic is similar to Bifrost, but Stafi is currently an independent public chain, which means that security is guaranteed through its own verification nodes, and no Stafi has been seen so far. Regarding the news of the parachain auction, there is no share reserved for the parachain on the token.

However, compared to Bifrost, Stafi is a player who entered this track earlier, and his popularity in the circle is not bad.

3、Phala

3.1 Introduction to Phala

Phala aims to become the privacy protection infrastructure of Web3.0. It is developed based on Substrate and implements confidential smart contracts through the TEE blockchain architecture, which can provide privacy computing services for the Polkadot ecosystem. Phala Network is a private computing parallel chain on Polkadot. Phala releases the privacy computing power of countless CPUs and applies it to the Polkadot parallel chain, thereby serving other applications such as Defi and data services on Polkadot. The Phala-based applications pLibra and Web3 Analytics have received web3 foundation grants.

3.2 Token Situation: PHA

The total amount of PHA is 1 billion, and the distribution is as follows:

Phala hopes that 40% of the tokens will be mortgaged to the NPoS consensus system, and 60% of the tokens will be used for resource expenditure and market circulation. Phala expects annual inflation of 5%. At a staking ratio of 40%, the average annualized return on staked tokens is 12.5%.

3.3 Project highlights

3.3.1 One of the infrastructures in the Polkadot ecosystem, with the support of Polkadot, can become a composable and interoperable confidential smart contract network;

3.3.2 Relying on the Polkadot ecology, it can become one of the few players in this track to do cross-chain privacy calculations or privacy coins, with less competition.

In the long run, optimistically, we believe that the market value of Polkadot is expected to break through Etheruem, so the long-term strategy is to hold DOT; pessimistically, the Kusama slot auction is coming soon, which is considered a boot for the Polkadot ecology. If the ecological development after the auction keeps pace with If it is not as expected, it may instead usher in a wave of very pessimistic emotions. Everyone will refocus their attention back to Ethereum, so the final ecological development is the last word.

In the short term, if the market environment is good, then hold DOT and find the right time to sell for profit. If the market environment is not good, it will also be a profitable investment to use DOT in hand to help project parties participate in the auction means.

Disclaimer: This article does not constitute any investment advice.