How does Polkadot achieve value capture?

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1 year ago
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Although the current public chain craze has passed for some time, it still has not prevented some public chains from continuing to race, nor has it led to a significant decline in public chain TVL, and even some public chains still have strong data.

And when we look back on this public chain boom, we will find that they have adopted some incentive measures to attract funds to participate in the development of their public chain, and let everyone participate in the ecological construction of the public chain through a similar "red envelope" method. Facts have proved that this method is indeed effective and rewarding, which has also prompted the lock-up amount on some public chains such as Avalanche and Fantom to quickly exceed the $1 billion mark.

With the continuation of these public chain development and welfare activities, we have also seen that the token carried by the public chain ecology has a good performance, which has also attracted the follow-up public chain to adopt similar methods to attract the attention of users. Faced with this It seems that Polkadot, which is also a mainstream "public chain", has not yet shown similar signs.

Therefore, in the face of the different development paths and directions of Polkadot and other public chains, where is the value capture behind it, and how should we evaluate the value carried by Polkadot? And, is it feasible to use Polkadot to distribute benefits?

How does the Ethereum public chain capture value

At the moment when DeFi and NFT are hot, Ethereum has become the largest blockchain platform worthy of its name. Its market value has also risen, and it is less than three times the gap from Bitcoin.

In addition to its own prosperous ecology, Ethereum's performance is also due to the design of its economic model.

In addition to the transfer of Ethereum's own ETH, the Ethereum network will also support the transfer of various project Tokens based on Ethereum. However, each transfer of these Tokens requires the payment of ETH as a miner fee. For the same reason, there are many other companies. Both chains have a similar design to Ethereum. And it is this design that makes it easy for Ethereum to capture value.

Because when Ethereum has passed the long ecological early stage and gradually formed its own ecology, the most important thing is that with many mature applications in the direction of DeFi and NFT, there are many projects, participants, and Developers continue to use it, which has formed a huge resource pool of Ethereum that gathers many talents, users and funds. This is also the network effect of Ethereum itself.

In this resource pool, people need to pay ETH as a miner's fee for every step, and for various reasons they have to play on Ethereum. This is a continuous demand for Ethereum. And many new projects also want to be deployed on Ethereum, because there are users and funds there, so for Ethereum, there is also a considerable market for new demands.

Therefore, we can regard the design of economic models such as Ethereum as a tax model. Any operation that wants to use the supercomputer of Ethereum, even if it is to use any of the above projects, needs to pay ETH.

The way this design captures value is that when there are many mature applications on it, because these applications are often accompanied by some bonuses, there will be a demand for using these applications. If such a demand is large enough, a large amount of ETH will need to be paid. Pay taxes to increase the value of ETH.

Such an economic model means that even if it is a successful application on Ethereum, its users have to pay fees to the Ethereum network, like many large Internet platforms today (not named here). Of course, such a design is also conducive to improving the value of the token, but it is a heavy burden for the entire blockchain ecology of the project. It is a joy for speculators and a pain for real users on Ethereum.

Where is the value of Polkadot

Unlike most public chains, Polkadot's own structure is different from ordinary projects, and the design of its economic model is naturally quite different.

For other public chains, they will refer to the Ethereum model when designing. This is because in their opinion, many of the Ethereum designs are mature and market-tested and feasible.

But Polkadot is different, because Gavin, the founder of Polkadot, was originally the person who knows Ethereum most technically. He is well aware of the flaws of Ethereum. In his opinion, taxation design similar to Ethereum is actually very inconsistent. Logical, therefore, he abandoned this idea when he designed Polkadot.

The design of Ethereum and similar public chains is that when users use the projects in their ecosystem and pay for their Tokens to obtain services and enjoy functions, they have to pay extra ETH to the Ethereum network, which requires two fees.

The design of Polkadot is the project in its ecology, and each is independent. Any user in these Polkadot ecology can use the functions of these projects to the full without paying any miner fees to the Polkadot network. The only thing users need to spend is the Token needed by the ecological project, and they only need to pay a lump sum.

The reason why Polkadot is designed in this way lies in its original intention. Ethereum was created on the basis of Bitcoin, which essentially makes the currency programmable, and the introduction of ETH in Ethereum is only to pay transaction fees and prevent spam transactions. In the final analysis, this is just an anti-spam mechanism. That is its main purpose.

From this point of view, at the beginning, the design of Ethereum is to stand on the shoulders of Bitcoin, and many designs of Bitcoin are also used and respected. Therefore, when designing Ethereum, it is designed to innovate on the basis of Bitcoin to truly let Blockchain technology is better to use, but this design even brings some of the original problems of Bitcoin into Ethereum. Today, although Ethereum's innovation in smart contracts is very useful, the design of its economic model requires users to pay high gas fees. It is very painful to use and is very inhumane.

Therefore, when Gavin designed Polkadot, he considered solving this problem fundamentally, and used some other mechanism to solve the need for anti-spam, such as connecting to the identity system of the oracle, then there is no need to set up so many fixed element. Therefore, there is no account and currency setting on Polkadot, so there is no need to worry about gas fees, and there is no mechanism such as DOT that needs to be paid for any operation. Its original intention is to face a more versatile, flexible and customizable direction. Therefore, it can be seen from its original intention that what Polkadot does is a huge innovation at the lower level of blockchain technology, and the development of an industry is often Originated from innovations that were originally intended to solve real key problems. Gavin of Polkadot is such an idealistic person with practical engineering ability, as are Elon Musk and Jobs. Such a design is conducive to the users in the Polkadot ecology to use the applications in the Polkadot ecology more conveniently and cheaply, but the increase in the value of the Polkadot itself is basically minimal. According to the logic of the Ethereum economic model, Polkadot is making users happy and depressing speculators. However, don’t worry too much, this logic is not completely applicable to Polkadot, because Polkadot’s architecture and design are more complex, so the way to capture value is not easy to be perceived by everyone. This is why many Polkadot participants have been very confused. The reason for how the card captures value.

How Polkadot captures value

So how Polkadot captures value depends on its main function-interoperability, or cross-chain function.

Polkadot has constructed a relay chain and parachain architecture. Parachains need to pass through the slots on the relay chain to transmit cross-chain messages with other parachains. Public chains with non-parachain structures need to pass through a transfer bridge. Only by linking to the slot on the relay chain can you enjoy the cross-chain function. Therefore, if you want to enjoy the cross-chain function provided by Polkadot, you need to obtain a slot for the relay chain.

To obtain the slot, it needs to be obtained through the Parachain slot auction. The auction method is to participate in the bidding of the number of DOTs. The project that buys the Parachain slot can get the use of the Parachain slot for six months to two years. Right, after the time expires, the bid DOT is automatically returned, and the slot is vacated again.

This is equivalent to using this part of the DOT to rent a parachain slot, and the participants obtain the Token of the promising parachain project by selling the opportunity cost of this part of the DOT. The cross-chain information transmission method of parallel threads requires bidding for each cross-chain information, and this part of the DOT is actually paid.

Both methods lead to one of Polkadot's value capture methods, that is, any project or individual who wants to use the cross-chain transfer function needs to use DOT. This means that when Polkadot's parachain develops well, it will encourage more developers to enter the Polkadot ecosystem and make more high-quality projects, and the development of these projects will greatly increase the impact on DOT. The demand, which in turn allows Polkadot to capture more value.

This is one situation, and the other is when Polkadot’s cross-chain requirements are verified to be a large market, for example, there are a lot of BTC or ETH assets or applications that cross the chain to Polkadot’s ecology through a transfer bridge. , And shine in different applications, it will also increase the demand for cross-chain information transmission, there will be more demand for DOT, and it will also allow Polkadot to capture more value.

In addition, there is a public interest parachain that will be an important way to capture Polkadot's value in the future. The public interest parachain requires not to have its own Token, and DOT can be used as a circulation or design economic model. Therefore, it is possible to launch a DOT-based smart contract chain in the future. At that time, the public chain's incentive strategy to boost the ecological lock-up capital and value enhancement path will work. If you take the existing Statemint as an example, it is mainly responsible for issuing assets, such as CBDC, various Tokens, stable coins, NFTs, etc. If Polkadot’s ecological development is very good, Statemint, which issues assets, will also get a lot of functions. It can also bring huge demand for DOT and capture massive value for DOT.

The way Polkadot captures value is a relatively long-term path, but it is the least burdensome for the development of the entire ecology. It is different from the design of similar public chains such as Ethereum, which is directly effective for value enhancement but is not conducive to ecological development. If we look at the development direction of things dialectically, it will definitely move towards cheaper, faster and easier to use. Therefore, even though the Ethereum ecosystem is so large, the way it obtains value is to suck the blood of the entire ecosystem, which is definitely not a direction that follows the law of development.

The method of value capture by Polkadot actually puts pressure on the project itself, which is why the parachain slot is auctioned, and it can only be rented for up to two years. According to Gavin's thinking, he hopes to use this mechanism as a test for the project. If the project develops well, it can successfully renew the lease. If the project develops well, he can only hand over the right to use the slot. , To use parallel threads. Such high pressure is conducive to removing the fake and keeping the truth, especially those projects that only want to collect money can not survive the second round of slot auctions. In the end, this will support the real high-quality projects retained by the Polkadot ecology.

However, Polkadot's value capture can be viewed from another perspective, which is similar to the valuation model of the Internet. It is like loses money year after year, but its valuation is soaring, and it can continue to obtain financing. It is because what it does is very valuable and its development prospects will be good in the long run.

So at the Polkadot level, what it does is to link all blockchains to become an important infrastructure in the industry, which is beneficial to the development of the entire blockchain industry in the long-term, so what it does is very valuable, and its The value of the capture will increase with the development of its ecology. At present, the TVL of several pioneer networks running on Kusama, such as Karura and Moonriver, has hundreds of millions of dollars, while the public chains such as EOS and Tezos that have been running for many years are only hundreds of millions of dollars.

Therefore, only the situation on Kusama has already begun to take shape. If the ecology on Polkadot develops for a period of time, it will definitely surprise people who only look at the price of Polkadot and not the development of the Polkadot ecological project. At that time, with the development of Polkadot, more and more people have realized and paid attention to their expectations of Polkadot, just as those who find the value of have higher expectations of, the tide will rise.

Polkadot officials also fully understand that Polkadot needs ecological projects to grow and develop. For this reason, the officials are also launching various measures to vigorously support the construction of Polkadot ecological projects.

1. Grant's funding method is revised, and the funding amount is no longer capped. 2. Launch more hackathons to encourage and promote the project. 3. Vigorously promote the "Builders For Builders" plan. This plan is to share the official experience on the Substrate Builders Program with these parachain teams, to help them provide support at the ecological level of operational project development, so that parachain projects can better Develop its own ecology and develop its own thriving builder community, thereby enriching the entire Polkadot ecology. Therefore, everyone does not have to worry about the value of Polkadot. The above is just a summary of the current situation and Polkadot's cross-chain function and public interest parachain. The scalability of Polkadot, the new interactive value between parachains and parachains, and more possibilities on its own. For example, its advanced architecture brings more possibilities to Polkadot's NFT ecosystem.

Polkadot's native NFT standard, such as RMRK, has more powerful functions than the ERC721 standard and ERC1155 standard on Ethereum. Such a powerful standard will support higher-quality NFT or chain game projects with unlimited potential. Again, the project should be viewed in a developmental perspective.

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Written by
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Topics: ETH, Defi, Blockchain, Dot, Investing, ...