In early November 2021, Polkadot (DOT) was still marking an all-time high. But since then, Polkadot has been losing momentum in competition with altcoins like Avalanche (AVAX). Why is that?
About ten weeks ago, Polkadot (DOT) was in a champagne mood: the long-awaited auctions for so-called parachains on Polkadot started and drove the price of DOT to an all-time high of $55 shortly before on November 4. But after that, a steady downward trend in DOT set in, pushing the price curve down to around US$17 now. During the same period, DeFi competitors of Polkadot such as Avalanche (AVAX) or Fantom (FTM) continued to post price gains for themselves. So why is Polkadot’s performance stalling?
1. the lynchpin for capital and innovation in the DeFi space is still Ethereum (ETH). As a result, other ecosystems have developed bridges to make their networks compatible and interconnected with Ethereum’s. But for Polkadot, no direct such bridge solution towards Ethereum exists, which excludes DOT from many attractive projects.
2. with the Parachain auctions, Polkadot aims to monetize and attract exciting projects. The concept is often described as “blockchain to go,” as outside projects effectively rent network capacity and raise capital in return. But the first such parachain project, Moonbeam (GLMR), didn’t go live until Jan. 11, 2022, when the crypto market was already stagnant. To be sure, Moonbeam, via Twitter, has reported more than 1 million transactions since then and has created a bridge for at least Ethereum’s ERC-20 tokens. But competing with Avalanche, Fantom and others, Polkadot is late to the game in expanding its ecosystem.
3. DOT lacks use cases. Investors expect Polkadot-class altcoins to be able to compete in the growth sectors of DeFi, NFTs, and blockchain gaming. However, the subdued response to parachain auctions and lack of project launches cannot fulfill these expectations for DOT. Thus, besides Moonbeam, Staking is mainly of interest at Polkadot, where 14 percent APR is targeted. However, staking also reaches such levels at competitors where other money-losing applications are available in parallel.
Conclusion: Polkadot faces the acid test
Experts continue to describe DOT’s prospects as good in the medium and long term. With a strong community and future-proof technology, Polkadot has arguments for surviving the competition. Some hope that the launch of Moonbeam will herald a turnaround and a race to catch up for Polkadot. If this optimism proves to be justified, the current price level of DOT could be a good time to get in.
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