Recently, Messari Crypto released a data report on the state of Polkadot in Q1 2024. OneBlock+ has summarized the key data and content of this report to help readers gain a deep understanding of the current development and future trends of the Polkadot ecosystem. We look forward to welcoming a new breakthrough in the Polkadot ecosystem in 2024.
Key Points:
– The daily active addresses in the Polkadot ecosystem reached a record high of 514,000, a 48% increase compared to the previous period and a 192% increase in the past six months. Moonbeam remains the leading parachain.
– XCM cross-chain message consensus increased by 94% compared to the previous period and has been increasing every quarter in the past year.
– Gavin Wood shared a proposal for the future development of Polkadot, introducing the JAM chain, which aims to merge Ethereum and Polkadot functionalities to improve on-chain scalability while maintaining resilience.
– Proposal 457 seeks to diversify Polkadot’s financial management with USDT and USDC and allows financial proposals to be priced in stablecoins. This proposal aims to convert 340 million DOT using HydraDX’s DCA function.
Polkadot Overview:
Polkadot is a decentralized blockchain computing platform that serves as the underlying layer for other parachains. It is built using the Substrate blockchain development framework. The underlying layer of Polkadot is called the Relay Chain, which uses the Nominated Proof of Stake (NPoS) consensus mechanism and compiles its state machine to WebAssembly (Wasm).
The core function of the Polkadot Relay Chain is to validate and provide security for its parachains. Parachains are added to the Relay Chain through a parachain slot auction. Currently, the auction process is a candle auction that lasts for a week. During this period, potential parachains bid DOT tokens to secure a parachain slot. However, this model will be updated in 2024.
Finally, parachains on Polkadot can communicate with each other through Cross-Consensus Message (XCM). XCM is a messaging format that standardizes messages between Polkadot parachains, enabling greater interoperability.
Polkadot 2024 Q1:
Ecosystem Development Overview:
Financial Analysis:
Market Cap:
Ranked among the top 16 crypto projects.
In the fourth quarter of 2023, DOT’s circulating market cap increased by 111% compared to the previous year, reaching $8.4 billion. After a rapid growth in the first quarter of 2024, DOT’s circulating market cap further increased by 16% to $12.7 billion, a 270% increase from the lowest point during the bear market. At the end of this quarter, Polkadot ranked 16th among all crypto protocols, but DOT is still 80% lower than its all-time high of $55.5 billion on November 8, 2021.
Total Revenue:
Driven by extrinsics, continuous growth.
In the fourth quarter of 2023, Polkadot’s total revenue was $2.8 million, a 2,880% increase compared to the previous period. The significant increase in revenue was mainly attributed to the surge in extrinsics in late December, driven by Polkadot parachains. In the first quarter of 2024, the revenue indicators dropped significantly compared to the previous period, with revenue at only $241,000 (-91% qoq) and revenue in DOT at $28,800 (-92% qoq). Compared to the third quarter of 2023, revenue in USD increased by 249%, and revenue in DOT increased by 97%. It is worth noting that Polkadot’s revenue is relatively low due to the network’s structural design.
Supply:
Maintaining DOT liquidity.
As of the end of the first quarter of 2024, Polkadot’s staking rate was 52%. DOT has an inflationary monetary policy and no maximum supply. The monetary policy of DOT is determined by its ideal staking rate, which considers enough staked DOT to prevent potential security compromises while maintaining the liquidity of the native token. If the staked amount is below the ideal rate, staking rewards for nominators will increase, encouraging more staking. Conversely, if the staking rate exceeds the ideal value, staking rewards will decrease.
Treasury:
Diversified management mechanism forming.
The funds in the Polkadot Treasury come from block rewards, validator penalties, transaction fees, and staking inefficiency. The funds are stored in a system account and allocated for a 24-day spending period. Unused funds will be burned at a rate of 1%. It is worth noting that all treasury expenditures are executed on-chain, ensuring transparency and accountability.
Proposal 457 seeks to diversify the Polkadot Treasury with USDT and USDC and allows treasury proposals to be priced in stablecoins. This proposal aims to convert 3.4 million DOT using HydraDX’s DCA function, with daily conversions of 100,000 USDT&USDC and a target of 3.4 million DOT conversions in the next year (1.7 million USDT and USDC per conversion). Additionally, the proposal will send 5,000 DOT to HydraDX as a prepayment for transaction fees and utilize HydraDX’s pure proxy account for swaps. The acquired USDT and USDC will be periodically sent to the Polkadot Treasury in increments of 5,000 USDT and 5,000 USDC, increasing the predictability of the treasury.
As of the end of the first quarter of 2024, the Polkadot Treasury holds approximately 37 million DOT ($347 million). Compared to the previous quarter, the USD and DOT decreased by 5.3% and 16%, respectively.
Network Analysis:
Usage:
Increasing relay chain account activity driven by governance activities.
The Polkadot Relay Chain has several main functions, including protecting and connecting parachains. Therefore, end users typically transact and interact with the network across different parachains. Currently, the Relay Chain supports several end user functionalities, including token transfers, staking, validator elections, governance voting, and participation in parachain slot auctions. However, with the proposal RFC-0032: Minimal Relay, Polkadot plans to migrate several subsystems to the system parachain. By minimizing the state transition logic to the system chain, the Polkadot Relay Chain can maximize its core advantage of “secure block space.”
In late October, the unlocking of DOT from the first batch of parachain auctions two years ago led to a peak in active addresses on October 24 and continued to show positive momentum in the first quarter of 2024. Returning addresses reached 8,200 (+9% qoq), new addresses totaled 3,100 (+23% qoq), and active addresses reached 11,300 (+12% qoq).
In the Polkadot blockchain framework, extrinsics are crucial factors that drive state transitions within the Relay Chain. They serve as generic transactions that encapsulate external data that the network needs to validate and track. Typically, extrinsics carry signatures and references to specific functionalities, enabling interactions such as token transfers between accounts. Through extrinsics, Polkadot efficiently handles external inputs, ensuring the smooth operation of its blockchain network.
From December 20 to 23, there was a surge in extrinsics due to Polkadot parachains. During this period, the Polkadot Relay Chain processed an average of 4.3 million extrinsics per day. The Polkadot network successfully handled this short-term surge without compromising performance. Excluding these dates, the average number of daily extrinsics still increased by 100% compared to the previous quarter, reaching 17 million. In the first quarter of 2024, the daily extrinsics remained relatively stable compared to the previous fourth quarter of 2023.
Development:
One of the largest developer bases in the crypto industry.
Polkadot has one of the largest developer bases in the crypto industry. According to data from Electric Capital, in December 2023, the average total number of developers in Polkadot was close to 2,100, with 792 being full-time developers, second only to Ethereum.
Polkadot provides comprehensive development support through its open-source technology stack, covering various aspects such as user interfaces, tools, APIs and languages, smart contracts, chains and pallets, network maintenance tools, consensus, and networks.
Highlights of Q1 2024 include:
– Polkadot Blockchain Academy further expanding, including new founder growth programs and growth plans in the Asia-Pacific region, as well as remote options.
– Polkadot Alpha program to support developers throughout the entire development lifecycle, including Agile Coretime.
– Integration of Dune Analytics with Polkadot and Kusama data.
– Web3 Foundation shutting down the W3F registrar for Polkadot and Kusama trademarks.
– Web3 Foundation providing a grant to Decentered Studio for event production and community collaboration.
– Polkadot launching a new initiative for the gaming industry.Polkadot Founder Gavin Wood has released a whitepaper introducing the JAM Chain, which outlines a scalable and trustless virtual machine that combines the features of Ethereum and Polkadot. By combining a global singleton environment and cross-node secure computation, this virtual machine aims to improve scalability, performance, and compatibility.
Decentralization and Security:
The validator rewards model has been adopted by multiple entities.
Polkadot employs a unique consensus mechanism called Nominated Proof of Stake (NPoS). Validators receive payments every 24 hours based on the era points they have accumulated through completed payable actions. Every four hours, a random selection of validators is chosen to validate all the parachains, and a multiplier is applied to their era points. This combination of era points and random parachain validation creates a nearly equal probability of rewards. As validators receive almost equal rewards and distribute these rewards proportionally to their nominators, nominators are encouraged to stake with validators who have lower stakes to earn higher rewards. The validator nominator rewards model aims to decentralize the validator set of Polkadot.
Over the years, the active validator set on Polkadot has remained stable at 297, with no immediate plans for changes. In the first quarter of 2024, the validator rewards model continued to demonstrate its effectiveness in promoting validator stake decentralization. Among the 297 validators, 289 had stakes between 2.19 million and 2.8 million DOT. The even distribution of rewards encourages node operators to run multiple validators. This strategy has been adopted by multiple entities.
The Nakamoto Coefficient refers to the minimum number of entities required to control a significant portion of the network. For PoS blockchains, this threshold is related to the control of more than 33% of the total stake. The validator model of Polkadot resulted in a Nakamoto Coefficient of 93 in Q1 2024, higher than other major blockchain networks.
Governance: Proposal participation experiences rapid growth.
Polkadot introduced a new governance model called OpenGov in the second quarter of 2023, which changed the lifecycle of referenda and decentralized decision-making processes. The system includes a proposal submission incubation period, a decision period for voting and approval, and an implementation period for execution. OpenGov allows for multiple referenda to take place simultaneously, speeding up the process of motion approval. The Council and the Technical Committee have been replaced by the Fellowship, acting as a developer DAO, ensuring decentralization through community voting, power balance, conviction, and flexible delegation of tokens.
After the launch of OpenGov, governance activity in the Polkadot ecosystem has significantly increased. The number of referenda, representatives, and direct voters has increased for three consecutive quarters, indicating the practical impact of the system on governance participation. Specifically, the number of referenda increased to 217, a 5% increase compared to the previous quarter and a 57% increase in the past six months.
Ecosystem Analysis:
XCM: The number of active channels continues to increase.
Cross-Chain Messaging (XCM) is a standardized messaging format and language that enables seamless communication between cross-chain and other consensus-driven systems. XCM plays a crucial role in promoting interoperability and complex cross-chain interactions. It allows for message exchange, execution of operations, and asset transfers between blockchains.
In the first quarter of 2024, Polkadot’s XCM activity continued to increase, with daily XCM transfers reaching 2,700, an 89% increase compared to the previous quarter. The use cases for non-asset transfers, referred to as “XCM other,” increased to 185 per day, a 214% increase compared to the previous quarter. The total number of daily XCM cross-chain message consensuses reached 2,800, a 94% increase compared to the third quarter of 2023, achieving a 314% growth target. The number of active XCM channels grew to 230, indicating a 13% increase compared to the previous quarter.
Parachains: AI protocols lead the development in the Polkadot ecosystem.
In the first quarter of 2024, Polkadot conducted eight additional parachain auctions, bringing the total to 66. The auctions resulted in 1 million DOT being staked, the highest amount since the second quarter of 2022. Out of the eight auctions, five were renewals for Darwinia, Bifrost, Unique Network, Litentry, and NeuroWeb (formerly Origin Trail). The remaining three slots were allocated to new parachains: SORA, a non-debt-based token framework that uses encryption to promote global financial stability and inclusivity; Mandala, a hybrid Layer1 blockchain bridging the gap in emerging global blockchain markets starting from Indonesia; and Hyperbridge, an interoperability co-processor.
As part of Polkadot 2.0, parachain auctions and the general model will undergo a complete overhaul. It introduces a market for allocating “core time” through NFTs, allowing for more agile and on-demand access to resources. The new approach aims to address current pain points and encourage seamless application deployment and collaboration between chains. This shift will transform the Polkadot ecosystem from being “chain-centric” to “application-centric.”
In the first quarter of 2024, the number of active addresses on parachains reached a historic high of 514,000, a 48% increase compared to the previous quarter. Moonbeam maintains its position as the top parachain with 217,000 monthly active addresses (a 110% increase compared to the previous quarter). Nodle follows closely with 54,000 monthly active addresses, doubling from the previous quarter. Astar slightly increased to 26,000 (an 8% increase compared to the previous quarter), and Bifrost Finance saw an increase in active addresses to 10,000 (a 2% increase compared to the previous quarter). Acala’s monthly active addresses decreased to 13,000 (a 16% decrease compared to the previous quarter).
In the first quarter of 2024, the average monthly transaction volume for parachains was 11.8 million transactions, experiencing an abnormal surge due to the cancellation of DOT from the first batch of parachains in the fourth quarter of 2023, resulting in a 34% decrease compared to the previous quarter. However, compared to the third quarter of 2023, the transaction volume increased by 30%. The leading parachain, Phala Network, reported a monthly transaction volume of 4.3 million, a 3% increase compared to the previous quarter. Moonbeam’s transaction volume surged to 2.7 million (a 71% increase compared to the previous quarter), while NeuroWeb’s monthly transaction volume decreased to 2.1 million (a 38% decrease compared to the previous quarter), and Astar’s monthly transaction volume decreased to 940,000 (a 27% decrease compared to the previous quarter).
Other updates include the launch of the Liquid Staked DOT (lsDOT) by Composable, which will soon be integrated into their upcoming Restaking Layer. Picasso Network has integrated IBC with Ethereum, enabling asset and data transfers between the Cosmos, Kusama, and Polkadot ecosystems. DED Game has launched a promotional breakout game and a $1 million marketing campaign. Polkadot has also released a blog focusing on leading AI protocols in the ecosystem, including NeuroWeb for decentralized knowledge graphs, Phala Network for decentralized computation, and Bittensor for a comprehensive AI development network.
Roadmap:
Elastic Scaling and JAM Chain become new hotspots in the 2024 Polkadot ecosystem.
Polkadot has completed and shared the official release of Polkadot 1.0, marking the completion of the Polkadot whitepaper. Additionally, the network’s codebase has transitioned to community-managed repositories through Polkadot OpenGov and Technical Fellowship.
Polkadot 2.0, the next version determined by the community through discussions and consensus, will introduce mechanisms beyond the allocation of Polkadot block space to achieve more flexibility and capital efficiency, surpass the parachain model, and create selective “accords” protocols between multiple blockchains, as proposed by Gavin Wood, the founder of Polkadot.
Furthermore, in his annual year-end review, Gavin Wood listed the core technical priorities for Parity. These priorities include Agile Coretime, On-Demand Parachains, Ethereum Snowbridge, and Kusama bridge. He also introduced new technologies such as Elastic Scaling and JAM Chain, expected to be launched in 2024. The extension of DAO primitives, including new Fellowships, multi-asset sub-libraries, expanded XCM, and the development of new primitives, is currently underway. Sassafras, a non-forking block generation consensus algorithm, has been developed and will be tested in 2024. Parity Labs is actively researching and developing various new technologies, including CoreJam, to continue shaping the decentralized future of the network.
Conclusion:
Polkadot continues its strong performance from the previous year into 2024. In the first quarter, the ecosystem reached a historic high of 514,000 active addresses, a 48% increase compared to the previous quarter and a 192% increase in the past six months. Moonbeam remains the leading parachain, and XCM cross-chain message consensus achieves a historic high, with a 94% increase in the past six months and a 314% increase compared to six months ago.
Noteworthy developments include the introduction of the Join-Accumulate Machine (JAM), a trustless virtual machine derived from Ethereum and Polkadot, Proposal 457 seeking to diversify the Polkadot Treasury with USDT and USDC and allow for treasury proposals priced in stablecoins, and Picasso’s integration of IBC with the ecosystem.
Looking ahead, the Polkadot community is prepared to further shape Polkadot 2.0, and the development of technologies such as Agile Coretime, On-Demand Parachains, and Elastic Scaling will lead to further growth and innovation. With a strong developer community and a diverse ecosystem, Polkadot will continue to drive the development of blockchain technology, making it a promising year ahead.
