Polkadot Strategic Report: How to Break Through Current Predicaments and Achieve Sustainable Development?

Introduction

As a team that has been researching Polkadot for nearly five years, we have heard an increasing number of voices in the community expressing disillusionment with Polkadot recently. Many do not see hope and have even left the Polkadot ecosystem, which is something we do not want to see. With the recent launch of OpenGov on Polkadot, we see governance power being increasingly handed over to the community, allowing us to become a driving force for Polkadot's development. Therefore, we have decided to shift from a previously passive research role to an actively participating role. This article is a Polkadot growth strategy report that outlines how we believe Polkadot should grow, with many viewpoints being the result of our years of research.

This article will directly address the market rather than just the technology and ideals; we will confront the most real issues and propose ideas and suggestions for improvement. Of course, we also see many teams actively proposing solutions to some current issues of Polkadot in the official forums and communities. However, these solutions are often singularly focused on one issue and do not comprehensively address the problems from a broader perspective or solve multiple issues uniformly under a strategic thought system.

We welcome everyone to point out the shortcomings in this article, and we also welcome you to generously offer your advice and propose practical modification suggestions as much as possible. Our only hope is to make Polkadot better, so let's work together.

Current Status of Polkadot

In the past six months, Polkadot has made significant progress, successfully achieving two important milestones in its Roadmap. Among them, the launch of OpenGov introduced an advanced governance model, providing community members with broader participation and decision-making power; the release of XCM V3 improved the messaging format, enhancing Polkadot's functionality and interoperability, laying a solid foundation for future development.

The infrastructure of the Polkadot network remains strong, and the level of developer activity has significantly increased, currently ranking first among public chains, with the total number of developers rising to second place. This indicates that the number of developers attracted to Polkadot is continuously growing, and their contributions to its technological ecosystem are also on the rise.

However, despite achieving remarkable progress, Polkadot still faces some difficulties. The price trend of the DOT token is unstable, with significant fluctuations, which may bring some uncertainty to investors and ecosystem builders. At the same time, user activity has declined, the development of ecosystem projects is sluggish, and there are some urgent issues in treasury governance that need to be resolved.

Overall, Polkadot is constantly moving forward on a path filled with innovation, but it has also been facing challenges.

1. Technical Update Status

Polkadot has been committed to continuously improving its technology and features. In the first half of this year, Polkadot has implemented two important technical updates, releasing OpenGov and XCM V3 on June 15th. Currently, Polkadot has announced that it has officially completed version 1.0, and at the Polkadot Decoded 2023 event at the end of June, Dr. Gavin presented the vision for Polkadot 2.0.

OpenGov: The new governance model introduced by Polkadot achieves decentralization through community voting and checks and balances, employing a structured implementation lifecycle. The Technical Fellowship has replaced the old technical committee and acts as a developer DAO.

XCM V3: As the latest version of the cross-consensus messaging format, XCM has been launched for application on Kusama through governance. The release of XCM V3 brings innovative designs, supporting features such as external network bridging, NFT transfers, and asset locking.

With the complete delivery of Polkadot 1.0, Polkadot will enter a new stage of development. Polkadot 2.0 is a multi-core computer that will transition from a chain-centric to an application-centric approach, introducing several brand new concepts and technologies.

• Accord( Agreement): A voluntary treaty across multiple chains, where chains voluntarily comply with the treaty and ensure its faithful execution. In the process of realizing Accord, Polkadot introduces two key technologies: SPREE and Project CAPI.
• SPREE Technology: Runtime logic fragments based on relay chains, like a secure tunnel, ensure that information and value can be safely transmitted between different parallel chains.
• Project CAPI: A middleware project aimed at promoting the development of decentralized applications based on Polkadot ( DApp ). It provides developers with a lightweight client solution, enabling them to create cross-chain applications with a good user interface.

In the vision of Polkadot 2.0, Polkadot reaffirms its commitment to building a resilient (Resilience) application platform. Polkadot will focus on constructing a ZK primitive library, and the first library is set to be completed soon, which will provide privacy protection for on-chain collective (Fellowship). Polkadot will also invest in updates for several technologies including Hermit Relay, Smoldot light clients, Sassafras consensus, and Internode Mixnet.

In addition, technologies such as parallel threads developed by Parity, system parallel chains, and asynchronous support are also being fully supported and are awaiting implementation.

2. On-chain situation

As of the writing of this article, according to Messari's report on Polkadot for the second quarter of 2023, Polkadot's on-chain progress has experienced some ups and downs. Below is a brief overview of the on-chain situation of Polkadot in the second quarter.

Development activity status:

• The developer participation of Polkadot and Kusama has maintained a good upward trend, reaching peak active developers of 613.71 on May 28 and 600.29 on June 16.
• The number of core active developers reached an all-time high of 181 on March 22 and has remained relatively stable.
• Polkadot has the highest number of submissions in terms of protocols and ecosystems, as well as the most active developers, ranking first.

User activity and financial status:

• In the second quarter, the daily active accounts of Polkadot decreased from 6,290 in the first quarter to the current 5,810.
• Polkadot's revenue in the second quarter fell from over $120,000 to nearly $81,000.

Parallel Chain Lockup Value ( TVL ):

• In the Polkadot ecosystem, the top 6 parachains focused on DeFi are dominated by Moonbeam, Astar, Parallel, Acala, Moonriver, and Karura.
• The total locked value of parallel chains experienced a downward trend after a period of increase in the second quarter, dropping from a peak of $236.12 million on April 14 to $146.77 million on June 30.

DOT staking rate and return rate:

• The staking rate of DOT in the second quarter of 2023 was 46%, lower than the ideal staking rate.
• The current return rate is approximately 9%, but it varies with changes in the staking rate.

3. Developer Information

According to data released by Electric Capital, in the first half of 2023, Polkadot has a large developer base in the industry. As of September 17, Polkadot currently has 645 full-time developers, ranking second in the number of full-time developers; the total number of developers is 1923, rising from third place to second, and maintaining a relatively stable ratio compared to last year, with full-time developers accounting for about 33.54% of the total. This data indicates that Polkadot's developer community is continuously expanding and plays an important role in the development of the Polkadot ecosystem.

4. Ecological Situation

The Polkadot ecosystem is a rapidly developing and diverse blockchain ecosystem aimed at providing cross-chain interoperability and innovative solutions.

According to PolkaProject statistics, there are currently 580 ecosystem applications related to Polkadot, including DeFi, infrastructure, NFTs, browsers, wallets, forums, etc., developed based on Substrate.

On June 15, the launch of XCM V3 attracted widespread attention, providing advanced programmability, bridging capabilities with external networks, cross-chain locking, an improved fee payment mechanism, and support for the non-fungible token (NFT). In terms of parallel chain locked value (TVL), Moonbeam and Nodle are the two projects with the highest number of active accounts, with Moonbeam consistently being the leader in TVL, while the TVL of parallel chains like Acala, Astar, and Parallel also remains at a high level.

Slot auctions are the process of allocating access to the relay chain, with the winners gaining the rights to operate on the parachains. Additionally, the Polkadot ecosystem projects are attracting increasing attention and collaboration, with notable progress made by Mythical Games, Kilt, Frequency, Composable Finance, Aventus Network, and others.

Overall, the Polkadot ecosystem is continuously growing and developing, the Roadmap is progressing smoothly, and several key projects have been successfully implemented.

5. Market Capitalization Situation

As of the current date ( October 11, ), the market capitalization of Polkadot is approximately $3.375 billion, ranking 14th in the crypto market. Over the past few months, there has been a downward trend, with prices remaining relatively stable from early May to mid-June. Overall, the price of DOT has decreased by 31.87% in recent months.

Polkadot and Cosmos are both dedicated to solving the issue of cross-chain communication but have taken different technical approaches. Compared to Cosmos, the price of ATOM is currently in a relatively low state, having dropped about 27.42% so far this year, ( with only a brief rebound in June, ). However, overall, Cosmos's market capitalization has declined, currently standing at approximately $2.598 billion.

The migration of stablecoins to Layer 2 solutions has become a major highlight of 2023, such as Optimism. OP is one of the best-performing crypto projects of 2023, with an increase of up to 227% at the beginning of the year, and Optimism now has a market capitalization of approximately $1 billion.

Arbitrum( ARB) is another highly regarded Layer 2 solution, with a trading volume exceeding 1.7 billion dollars and a current market cap of 1 billion dollars.

6. Social Media Situation

Polkadot's official media currently mainly includes the Polkadot official website, Kusama network, Polkadot Twitter, Web3 Foundation Twitter, Reddit, YouTube, and other channels. The official website provides detailed information about the Polkadot project, including technical documents, news updates, community governance, ecosystem development, and other aspects; social media platforms such as Twitter, Reddit, and Medium are used to publish the latest Polkadot updates and important events, facilitate community interaction, and expand influence; YouTube offers video resources such as speeches, technical sharing, and community activities from the Polkadot team, helping users better understand the Polkadot ecosystem.

In addition, there are discussions on technology and the future of Polkadot in platforms such as the Polkadot Forum and Polkadot GitHub, as well as the Polkadot Support Knowledgebase ( Polkadot Support Knowledgebase ) which provides tutorial support and assistance for Polkadot. Overall, Polkadot's official social media is quite rich, offering users various forms of participation and communication, which is very important for strengthening community consensus and expanding influence.

7. Status of Treasury Management

OpenGov is a new governance system introduced by Polkadot, launched on the Kusama network in November 2022. It has significant advantages in improving governance efficiency and promoting community participation. However, OpenGov also faces some challenges, such as uneven voting rates and rapid treasury spending.

Efficient governance processing: Compared to the original governance system Gov1, OpenGov has improved the operational efficiency of the governance system, allowing for parallel processing of referendums. The large number of referendums significantly enhances governance efficiency.

Currently, there are several issues with OpenGov governance:

The difference in voter turnout is significant: there are noticeable differences in voter turnout for referendums across different tracks, especially the voter turnout for tracks related to treasury spending is relatively low. This may result in some treasury funds being spent without sufficient attention from the community, and some of these expenditures may not be entirely reasonable.

Treasury balance decreases: OpenGov has transformed the way treasury funds are spent, and since treasury expenditures are equivalent to a certain amount of USD in DOT, they will be affected by the DOT.