Dot Pulse #1 - The First Dive into Polkadot Opportunities

Also earn up to 120% APR, find out about the latest parachain auctions, stories of the week and the governance watcher! 📣

Welcome to Dot Pulse, your window into the Polkadot DeFi ecosystem.

If you’re a humble farmer looking to learn more about Polkadot’s DeFi opportunities, or even if you’re a seasoned DOT/KSM staker, this newsletter is the place to find all the latest events in Dot land.

Subscribe now to receive regular updates about Polkadot development, crowdloans and parachain auctions, new exciting DeFi projects, and anything else worth knowing about Polkadot.

We’re excited to introduce what is the first of a series of newsletters to dive deep into the Polkadot DeFi ecosystem. This will be the one-stop shop for learning all there is to know about Polkadot: DeFi news, governance, exciting new projects and interesting opportunities to farm some tokens!

But first, we need to answer some questions that pop into the mind of any Etherean when they read about Polkadot. There’s parachains, parathreads, and then there’s this Kusama thingy... It can be a bit confusing when you’re used to having just one blockchain!

A primer on how Polkadot DeFi is different

Polkadot is a sharded ecosystem composed of different “chains” doing their own localized computations, somewhat similar to the idea of Ethereum 2.0 sharding. Polkadot essentially took that initial idea and realized that you don’t need all shards to be the same. A Polkadot “shard” is heterogeneous and extremely customizable, almost like its own independent blockchain. When these chains are connected to Polkadot’s security model they’re called parachains or parathreads, depending on how exactly they’re paying for security (a parachain locks up a certain amount of collateral to secure the slot, a parathread is more of a “pay-as-you-go” solution).

The parachains can do a lot of different things depending on how they're programmed, though they usually allow other developers to deploy smart contracts on them just like on Ethereum. A pretty awesome innovation in Polkadot is that you can implement runtime upgrades without hard forking, which means you could add a DeFi protocol at a native blockchain level. In fact, there are two main paths you can take to have DeFi on Polkadot:

  • Launch a DeFi parachain and add DeFi protocols as runtime modules, which makes them faster and more efficient. Imagine if Uniswap was a native Ethereum function!

  • Deploy smart contracts written in ink!, Substrate's Rust-like language, or in Solidity/Vyper. You can do this on most project parachains or even “common good” parachains.

As for Kusama, it’s almost the same as Polkadot itself, so it has its own parachains and its token, KSM. It’s designed to be the “canary network” of Polkadot, where experimentation is tolerated and even encouraged. It’s a bit of a middle ground between a testnet and mainnet, so every major update to Polkadot goes through Kusama first.

What makes Polkadot valuable? 

The “secret” sauce to Polkadot is really the cross-shard communication framework and shared validator model. The former is key to make sure each individual chain is not segregated from all the others, thus maintaining composability in a single shared environment. The latter is useful because creating separate blockchains with their own validators is just a waste of resources if all you want to launch is a DeFi dApp. A few independent innovations like Web Assembly runtimes or natively-integrated on-chain governance are also very promising features.

Schematic representation of Polkadot, source: Arxiv

Polkadot is betting on interoperability and cooperation with other networks. Proper Polkadot “maximalists” are the hippies of the crypto world — they respect all chains and wish nothing but peace and prosperity to them.

“This sounds too good to be true,” you say, and you’d be right. One of Polkadot’s drawbacks is that it doesn’t support nearly as many validators as Ethereum 2.0, so the network as a whole isn’t quite as decentralized. It still uses 300 validators on Polkadot and 900 on Kusama, which is definitely much more than your run-of-the-mill dPoS chain. The number of validators is mostly limited by performance and may in time become much higher — if you want customizable parachains, you gotta make some compromises. That’s why a multi-chain future is the one that makes the most sense, as you’ll never be able to create the “one true blockchain” that satisfies everyone’s needs.

Who’s building DeFi on Polkadot?

For now, since parachains have yet to really come online for others to experiment on, we mostly have DeFi-native parachains. Perhaps the most famous is Acala Network, which currently has native iterations of lending and stablecoin creation (similar to Maker), an AMM DEX, and a liquid staking protocol (similar to Lido, allows using your staked DOT/KSM in DeFi). Other upcoming DeFi parachains are Equilibrium, Manta Network, Sora, Bifrost.

There are a few parachains that aim to be smart contract platforms in their own right, such as Moonbeam, Edgeware and Astar Network (rebrand of Plasm). Moonbeam is the “Ethereum on Polkadot” platform that wants to be identical to any other EVM chain like Polygon or xDAI (new farms, anyone?). For the sake of fairness, we should note that basically all these parachains expect to support EVM smart contracts. That also includes Acala, which is pretty open about wanting to onboard independent DeFi projects. 

We’ll take a deep dive into some of the exciting stuff these parachains are cooking up in later editions!

The first batch of Kusama parachain slot auctions is complete with five parachains joining the fold. For now, no announcements have been made for the second batch so there are no crowdloan opportunities available… That’s sad, but the network is still just launching!

In crowdloans, KSM holders lock their tokens to support the network’s parachain quest, as they’ll be used to bid in network parachains auctions. The holders receive a certain proportion of the new network’s tokens in exchange, making crowdloans somewhat like a long-term yield farming opportunity. Stay tuned for a deeper dive into crowdloans in the next editions!

If you missed out on the crowdloan train and are itching to farm something, we’ve still got you covered. As the first DeFi-focused parachain, Karura is offering very solid APRs for bootstrapping liquidity in their protocol through a familiar yield farm.

Active Farms

  • Earn KAR by staking into the KSM/kUSD and KAR/KSM pools on Karura DEX

  • You can earn 90% APR (or 120% with the loyalty bonus) by staking KSM/kUSD tokens, or 27% (55% with loyalty) if you stake KAR/KSM. 

  • The loyalty bonus is a really interesting Battle Royale: as more people “abandon” by claiming their rewards, their bonus is spread with the remaining LPs. May only the strongest hands remain!

We’re releasing our first edition shortly after the first batch of parachain auctions on Kusama was completed, so it’s a great opportunity to review what happened and what it means for the space.

First, let’s throw in some stats! Parachains raised 1.146 million KSM in crowdloans, which is a whopping $327 million at current prices. Another way of looking at it is that 13% of the entire circulating supply is locked just for the first five parachains out of 100. Safe to say that KSM might become pretty scarce if this trend goes on! 

Crowdloan results weren’t particularly even: Karura raised 501,000 KSM (43%), Moonriver 205,000 (18%), and Shiden, Khala and Bifrost raised around 135,000 each (13%). The final ranking shouldn’t be too surprising to long-time Polkadot fans, especially the top-2. Either way, all of these five projects are quite well known and there are still many parachain candidates looking to get into the next slots. The general vibe is definitely that of a major sports league running cutthroat qualification rounds for the initial roster.

Now, winning the slot is just the first of many steps towards reaching the full potential of the Kusama/Polkadot tech stack, and there were definitely some additional hiccups on the way. The first one came when RMRK inadvertently triggered a memory allocation bug that broke all three parachains at that time: Karura, Moonriver and Statemine. A few days later, Moonriver stopped producing blocks once more due to an issue in the runtime upgrade procedure.

Things have been relatively quiet since then and the parachain teams are gradually enabling the full feature set of their chains. Karura, as the first parachain, is also the first to be fully functional for DeFi. The others are still getting there and slowly plowing through the full launch procedure (removing admin access, enabling token transfers, bridges etc.).

The slow rollout of features is definitely a bit frustrating, but you can’t rush things at this stage. The bugs we’ve seen show exactly why it’s important to take things slow, and even the value of Kusama as an “incentivized testnet” of sorts.

TL;DR: Khala has completed a bridge between ERC-20 PHA and the Kusama-native K-PHA. When activated after Sudo removal it could be the first bridge between the two chains.

TL;DR: Astar Network distributed the SDN tokens on Shiden and is completing the staking tests, getting quite close to a full launch.

TL;DR: The team has removed Sudo (admin access) and is getting ready to enable the EVM.

TL;DR: This update introduces fast sync, improves gossip topology and fixes some of the flaws that contributed to earlier incidents.

TL;DR: Governance has launched kUSD minting and launched the crucial kUSD/KSM pool, which is used by the system to automatically perform collateral auctions when required.

  • (Polkadot) Referendum 29, to increase the validator count on Polkadot from 290 to 399. It seems likely to fail due to performance concerns if parachains are fully loaded.

  • (Polkadot) Motion 101, passed to secure funding for an upcoming hackathon in China.

  • (Polkadot) Motion 103, passed to increase the nominators’ bond (stake delegators) to 80 DOT due to exhausting available slots.

  • (Kusama) Motion 336, passed to provide 458 KSM in funding to the creator of Ask!, an AssemblyScript-based language for Substrate.

All info in this newsletter is purely educational and should only be used to inform your own research. We're not offering investment advice, endorsement of any project or approach, or promise of any outcome. This is prepared using public information and couldn't possibly account for anyone's specific goals or financial situation. Be careful and keep up the honest work!