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Parachains Are Gradually Disrupting Ethereum’s Dominance in the DeFi Space

coingape.com 09 September 2021 12:30, UTC
Reading time: ~4 m

With only a decade of existence, the crypto ecosystem has burgeoned into one of the most promising industries. As of press time, the total market capitalization stands at $2.1 trillion, hosting over 9,000 coins, according to Coingecko. Recent developments in Decentralized Finance (DeFi) and Non-fungible tokens (NFTs) have been a significant part of this growth. 

Notably, DeFi and NFTs started on the Ethereum blockchain, but the focus is now shifting to more efficient blockchain networks. Innovators are finding ways to escape the high costs and slow transactions associated with the Ethereum blockchain. This need for better platforms has seen Kusama network and Polkadot attract more projects within their ecosystem. 

There has also been an increase in new projects debuting as better alternatives to pioneer DeFi protocols. Today, the likes of Uniswap and Sushiwap are being challenged by upcoming exchanges, some of which feature both centralized and decentralized aspects to smoothen the trading process for CeFi and DeFi users. 

While it is still early to predict the fundamental trends, a few projects are emerging as clear winners in the race to create an advanced financial ecosystem. The past few weeks have been particularly eventful, with Kusama and Polkadot based innovations launching Testnets and upgrades in preparation for mainstream adoption. 

A Fast-Evolving Industry

In crypto, things move pretty fast, and one can easily lose track of the ongoing developments. The need to scale the potential of DeFi and NFTs has hastened the development of alternative solutions to the Ethereum network. 

It is no surprise that stakeholders are turning their focus to scalable platforms such as Kusama and Polkadot. These two ecosystems solve the scalability challenge by introducing parachains, which run parallel to a relay chain, reducing the computational workload. Ideally, blockchain projects leveraging Kusama and Polkadot can run their parachains (custom blockchains) while depending on the relay chain nodes for validation and network security. 

That said, the past few months have ushered in notable developments, with projects such as Polkadex challenging the value proposition of Decentralized Exchanges (DEXs), including Uniswap and Sushiswap. 

Decentralized Peer-to-peer Oderbook DEX 

The Polkadex trading engine is designed for Web3 and DeFi; this platform is built on the substrate network, which is essentially the backbone of the Polkadot multi-chain network. Unlike existing DEXs, where the infrastructure is based on Automated Market Models (AMM), Polkadex introduces a peer-to-peer orderbook-based crypto exchange. 

With the Polkadex mainnet launch around the corner, the project released its public Testnet on August 25. According to the medium post announcement, Polkadex now allows anyone to run a validator node to enhance the security of its Testnet. Prospects can claim test tokens to start contributing to this initiative. In addition, Testnet participants can stake the native PDEX tokens and nominate node validators to be eligible for staking rewards. 

However, it is noteworthy that the Testnet is just a preparation for Polkadex’s mainnet launch, which might occur soon. 

Is Parachains the Next DeFi Frontier?

Going by the current developments, Ethereum’s long-standing fort as the de facto DeFi hub is slowly dwindling. This can be seen in the recent activity in Kusama’s parachain slot auctions, which saw its native token surge by 30% on the announcement of a new round of auctions. 

Kusama, the experimental version of the Polkadot ecosystem, debuted its first parachain slot auctions in June this year. This initiative allows Polkadot and Kusama users to bid within a fixed time by staking their Kusama (KSM) or Polkadot (DOT) for their preferred project to be allocated a slot. The first parachain slot auction featured five rounds in which DeFi-focused projects such as Acala managed to raise over $100 million worth of KSM tokens. 

With the second round of Kusama’s parachain auctions kicking off earlier this month, the initiative has attracted more DeFi innovations to build scalable ecosystems. As it stands, some of the notable projects that have gained community interest include the KILT decentralized protocol, whose focus is to issue self-sovereign, verifiable, anonymous and revocable credentials.

Kusama will feature more parachain auctions scheduled for September 8, 15, 22 and 29. Though a new concept, the parachain auctions by Kusama are painting a picture of the futuristic DeFi ecosystem. At the core, Kusama introduces an ecosystem where DeFi projects can leverage its parachain solution and community support to advance their innovations. 

Closing Thoughts 

The crypto market has its fair share of challenges ranging from technical shortcomings to regulatory uncertainties. However, it is evident that the stakeholders are willing to develop long-term solutions for its prosperity. 

The adoption of parachain networks shows that more innovators are open to efficient solutions that will advance the growth of DeFi. With this mentality in place, cryptocurrencies are set for significant fundamental transition in the coming decade. 

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