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Gavin Wood’s vision of an interoperable network of customized blockchains is really taking shape. While 11 parachains have launched so far, by this time next year, Polkadot will have grown to more than 40 individual blockchains living on its network, dramatically expanding what has already become one of the most innovative ecosystems within the crypto space.
Polkadot is a Layer Zero protocol that serves as the nerve center of multiple parachains – Layer One blockchains built for different applications and use cases. This infrastructure enables the creation of a unique ecosystem of truly interoperable blockchains that all share the same network security and capabilities, with no need for complex token bridges to connect them all.
Polkadot’s Relay Chain can support anywhere from 100 to 250 parachains, and, as mentioned, almost a dozen projects are already building on it. To launch a parachain and gain access to a myriad of benefits the Relay Chain provides, projects must compete for a slot via an auction where the winner is determined by whichever locks up the most DOT tokens.
Auction Action
To secure a parachain, projects seek to raise DOT via crowdloans from their communities, offering their own native tokens in return for their backing. Whichever project wins a slot is entitled to lease that parachain for two years, during which time the bonded DOT tokens will remain locked up. Once the two-year period is up, those tokens will be returned to their owners, who also get to keep the parachain tokens they received.
To date, Polkadot has successfully completed 11 parachain slot auctions, with a total of 126 million DOT – worth $2.1 billion and around 11% of the total supply – bonded so far. The first five parachain auctions concluded last year, and those projects all went live on Polkadot in December, with the following six going live in March 2022. Each new project adds new functionality to the Polkadot ecosystem, expanding its possible use cases.
Live Parachains
One of the first parachains to go live was Acala Network, which aims to become the decentralized finance hub of Polkadot. The project is building a foundational layer for DeFi that will support various products and services, including a decentralized exchange, borrowing, lending, and staking, with the benefits of Polkadot’s streamlined interoperability, low fees, high scalability, and strong security.
Acala comes with various functionalities and features, including the Acala Dollar (aUSD), a stablecoin built on the Honzon protocol. Users can create an over-collateralized debt position with approved assets such as DOT, LDOT, and ACA in order to mint aUSD. The platform also offers liquid staking through the Homa protocol, enabling users to stake tokens and receive L-Tokens such as LDOT that can be utilized across Acala’s DeFi services.
While growing its protocol, Acala is looking to foster growth elsewhere in the Polkadot ecosystem too. In March, it announced it’s teaming up with eight other parachains and a number of prominent funds to launch a $250 million aUSD ecosystem fund. It is intended to back other promising Polkadot use cases and help them get off the ground quickly.
Another interesting parachain on Polkadot is Centrifuge, a DeFi protocol that is attempting to make credit more accessible for smaller businesses in underserved markets while giving investors the opportunity to earn high yields for supporting them. Centrifuge allows businesses to tokenize real-world assets such as unpaid invoices or real estate deeds, so these can be used as collateral for DeFi loans.
Growing TVL
One of the most popular metrics for assessing a crypto project’s growth is total value locked (TVL), which is a measure of how much money is locked into various digital wallets and smart contracts on a blockchain.
This is where Polkadot really shines, with its TVL rising dramatically in the past few weeks to top over $4.1 billion at the time of writing. That’s a huge percentage – almost 20% – of DOT’s total market cap of $22.35 billion. In other words, Polkadot’s parachains are generating a lot of excitement and widespread use.
A Taste Of Things To Come
It’s not just Polkadot that’s growing. To get an idea of the network’s true potential, one only needs to look at Kusama, a public pre-production environment for Polkadot developers can use to experiment and test new applications before attempting to win a parachain slot. Kusama is a kind of sandbox environment for Polkadot developers, complete with its own network infrastructure, parachains, and cryptocurrency token.
Kusama is even bigger than Polkadot, with 30 parachains up and running so far. It can be seen as a taste of things to come. By the time Polkadot hits that level, the value of its ecosystem could well be sky-high.
It won’t be long until Polkadot gets there. As Messari recently pointed out, there are 30 Polkadot parachain auctions scheduled to take place between now and February of next year. By that time, Polkadot will have 41 parachains up and running – three times as many as it has now.
While the crypto market is always a tricky thing to predict, Polkadot’s ecosystem is clearly primed for growth. Institutional investors certainly seem to think so, and developers clearly don’t want to be left out either. With dozens of new projects on the horizon, waiting to join its ecosystem, the Polkadot party should keep pumping for some time to come.