In the first half of 2023, the Federal Reserve raised interest rates three times, and the federal funds target range reached 5%-5.25%, the highest since August 2007, further exacerbating global market concerns about liquidity tightening. Although ChatGPT has led a wave of AI trends, leading to Nvidia’s market value exceeding 1 trillion US dollars and Nasdaq hitting a new high, these have limited effects on the cryptocurrency industry.
The current total market value of cryptocurrencies is $1.22 trillion, up 47% from the beginning of the year, and the news that BTC ETF may be approved has stimulated BTC prices to break through the $30,000 mark. However, due to recent SEC regulations on Coinbase and Binance, panic in the cryptocurrency market has spread, and the next paradigm of the cryptocurrency industry revolution has not yet arrived.
No ecosystem can be completely immune to macroeconomic and market fluctuations. Although the cryptocurrency industry has not completely emerged from the bear market, Polkadot performed well in the first half of 2023, and the Polkadot community is working together to create a new and agile Polkadot.
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Polkadot’s developer activity remains industry-leading, with active accounts and community metrics continuing to grow.
The number of active nomination pools has doubled, and the network’s decentralization and robustness have been further improved.
OpenGov was launched on Polkadot in mid-June to optimize on-chain governance in a more decentralized and efficient way.
XCM V3 has been successfully merged into the Polkadot codebase and will support many advanced features, as well as a significant increase in XCM transfers.
Polkadot has completed 7 seamless and non-fork upgrades, and the mainnet is running smoothly.
There are 82 parallel chains linking Polkadot and Kusama (referred to as “Dotsama”), and nearly 560 projects deployed in DeFi, infrastructure, NFT markets, games, social platforms, and other tracks, and the number is steadily increasing.
Gavin Wood has just redefined the next generation of Polkadot at Polkadot Decoded 2023. Polkadot will be an ubiquitous supercomputer, based on a more refined block space rather than a chain architecture, focusing on building middleware and elastic application-centric platforms, as well as more flexible ways to allocate and schedule core computing resources.
Part 1: Overview of the Mainnet
In the first half of 2023, the Polkadot mainnet runs smoothly, with the active validator count remaining at 297 (out of a total of 979 validators). The number of DOT user accounts has grown by approximately 22% since the end of 2022, with over 60,000 active accounts in the past week, indicating good overall usage of the Polkadot network in the first half of the year.
It is worth noting that the launch of nomination pools in the fourth quarter of last year greatly stimulated the number of active accounts on Polkadot. As of the time of writing this article, there are 129 active nomination pools, with a total of 11,629 pool members, a significant increase from the end of last year (64 nomination pools with 3,500 pool members). Members have much fewer restrictions in the nomination pools and have greater control over their staking rewards. Nomination pools allow more users to participate in Polkadot’s native staking and make Polkadot’s staking more decentralized.
In addition, the Polkadot mainnet has completed seven seamless and forkless upgrades so far this year, totaling nearly 60 upgrades to date. By comparison, Ethereum completed three hard fork upgrades throughout 2022, making Polkadot’s upgradability more apparent.
Figure 1: Key indicators of the Polkadot network in the first half of 2023 / Source: Subscan
Part 2: Core Technology Updates
XCM (Cross-Consensus Message) is a message format and language used for communication between consensus systems and is one of the core technologies for cross-chain interoperability on Polkadot. XCM achieves complex cross-consensus interactions by providing a standard message-passing format for blockchains, enabling seamless communication between them. Polkadot officially launched XCM in May 2022, enabling communication between parachains and is one of the most secure methods for cross-chain asset transfers.
In the first half of 2023, Polkadot officially launched XCM v3. There are several key improvements over v2, including the ability to connect to external ecosystems through bridging and new features such as multi-hop settings, cross-chain NFTs, and remote locking. The launch of XCM v3 marks the full implementation of the XCM functionality, further enhancing Polkadot’s interoperability, scalability, and programmability.
With the release of XCM v3, the adoption of XCM channels on Polkadot parallel chains has been accelerated. As of this writing, a total of 22 Polkadot parallel chains have opened 137 XCM cross-chain channels and relayed transfers 258,689 times, an increase of approximately 60% from the end of 2022.
Moonbeam, Acala, Blockingrallel, Interlay, and Astar are the most active parallel chains in Polkadot that use XCM. Among them, Moonbeam has the most parallel chain channels, with 24 in total, connecting 12 parallel chains in total. The XCM channel between Moonbeam and Acala is the most active channel for transmitting messages, with a total of 16,779 transmissions.
Kusama was an early adopter of XCM technology. As of now, a total of 27 Kusama parallel chains have opened 182 XCM cross-chain channels, relayed 264,230 transfers, and increased by 41% since the end of 2022. Moonriver, Bifrost Kusama, Blockingrallel Heiko, and Kintsugi are the most active parallel chains using XCM on Kusama. The channel between Karura and Bifrost has the highest usage frequency, with a cumulative transmission of 28,345.
Figure 2: The top 5 Polkadot parallel chains ranked by XCM transfers / Source: Subscan
Figure 3: The top 5 Kusama parallel chains ranked by XCM transfers / Source: Subscan
Part III: Progress in Decentralized Governance
OpenGov is the next-generation blockchain governance system for the Polkadot ecosystem. OpenGov has dissolved the Council and Technical Committee and created a more democratic and open on-chain governance process while maintaining security. Compared to Governance v1 (the old governance system), OpenGov’s referendum mechanism is more flexible, has a lower threshold, and is more efficient.
The OpenGov V2 governance system has been running successfully on Kusama for more than six months (launched in November last year). The fact proves that OpenGov can significantly improve governance efficiency. In Gov1, the fastest time for a referendum to be processed was once every 28 days, while in Polkadot OpenGov, more than 10 tracks can handle referendums in parallel, with different tracks capable of handling referendums ranging from 1 to 1,000 (e.g. Root has a capacity of 1, while ReferendumCanceller has a capacity of 1,000).
As of the writing of this article, a total of 228 referendums have been processed or are being processed in the Kusama ecosystem, of which 55 have been rejected, 134 have been executed, 11 have been approved, 3 are under consideration, and the rest are cancelled or timed out. Referendum proposal types include Stake, Treasury, Whitelist, etc.
Figure 4. Kusama Referendums Covering 13 Parachains / Source: Subsquare
According to the Polkadot Referendum 121 Resolution, the OpenGov V2 governance system was launched on Polkadot on June 15. As of press time, the Polkadot community has initiated 46 proposals, covering 9 categories of parachains (like Kusama, Polkadot OpenGov supports a total of 15 categories of parachain), with the most proposals in the medium spend category (nearly 44% of the total). As the 28-day voting cycle has not yet ended, all of these referendums are currently in progress.
Figure 5: Polkadot Referendums Covering 9 Parachains / Source: Subsquare
With the launch of OpenGov on Polkadot and Kusama, the decision-making power for the use of treasury funds has been transferred from the council and technical committee to DOT holders, thereby achieving decentralization of governance. The entire community’s attention and discussion on governance has increased, and some community members have begun to actively improve and audit the governance process so that OpenGov can operate more smoothly and reasonably. As time goes on, the number of Polkadot referendum proposals will also increase, and the democratization of Polkadot governance will continue to grow.
Part IV: Development of Parachains
4.1 Overall Auction and Operation of Parachains
It is worth noting that the first batch of parachains on Polkadot, such as Moonbeam, Acala, Astar, Blockingrallel, and Clover, will have their first lease expire in October this year. Acala and Moonbeam have successfully renewed their leases, extending the network’s block production capacity to the second quarter of 2025. Failure of other projects to renew their leases in a timely manner will affect the network’s ability to produce blocks. Given the overall decrease in Polkadot’s parachain slot auction frequency and the fact that new projects continue to apply for parachain slots, competition for Polkadot’s parachain slots may intensify in the coming months.
According to statistics from Blockingrachains.info, a total of 190 projects have announced their participation in Dotsama’s parachain auction, with 128 projects having completed cross-chain message testing based on Rococo (Dotsama’s parachain testnet), and 85 projects having completed cross-chain message testing. As of the writing of this article, the Dotsama ecosystem has 82 live parachains. Specifically:
Polkadot has successfully completed 44 parallel chain slot auctions and currently has 43 parallel chains, with a total of over 133 million locked DOTs (about 10% of the total supply, worth nearly $580 million).
Kusama has successfully completed 87 parallel chain slot auctions and currently has 39 parallel chains, with a total of nearly 108,000 locked KSMs, accounting for over 1% of the total supply and valuation, worth over $2.3 million. The parallel chain slot leasing period on Kusama is relatively short, and many projects have conducted multiple auctions to renew their leases. This is why although it seems that a large number of parallel chain slots have been auctioned off, the actual number of online parallel chain slots is quite small.
Looking at the quarterly situation of Polkadot’s parallel chain slot auctions (as shown below), the cumulative number of DOTs bound in the auctions has steadily increased, while the amount of DOTs bid for parallel chain auctions has gradually decreased, reflecting that the threshold for parallel chain auctions is getting lower. This will help attract more projects to enter the Polkadot ecosystem. At the same time, we can also see that the number of projects participating in the parallel chain slot auctions has been steadily increasing.
We know that in the early days, in order to win the parallel chain slot auction, candidate projects often needed to offer a large proportion of their native tokens as incentives. This situation has now been greatly improved. Looking at the nine projects in the first half of this year, the average cost of parallel chain slot auctions was less than 90,000 DOTs (currently worth $380,000), which will help attract more projects to develop parallel chain applications on Polkadot. We also found that more and more projects have the ability to win auctions through self-funding rather than crowd-funding.
Figure 6: Polkadot Parallel Chain Auction Statistics from Q4 2021 to Q2 2023 / Source: Blockingrachain.info & DFG
4.2 Performance of Leading Parallel Chains
Polkadot’s rich and diverse parallel chain ecosystem has a wide range of use cases in DeFi, smart contracts, decentralized identity, social media, gaming, metaverse, and many other fields. These parallel chains are constantly iterating and updating to drive the landing of Web3.
Astar Network, an intelligent contract parallel chain, has already partnered with large traditional companies such as Toyota, Sony, and Japan Railway Network JR Kyushu in the first half of this year. Over 100 companies have joined the Astar JaBlockingn Lab program, and Astar recently announced the launch of Astar 2.0, which will further accelerate the landing application of its network.
Moonbeam is still an EVM platform known for being developer-friendly and absorbing a large number of users and liquidity from the Ethereum ecosystem. The accelerator program of the Moonbeam Foundation incubated double-digit projects in the first half of this year.
Acala, the first parallel chain on Polkadot, launched the Acala EVM+ mainnet in the first quarter of this year and recently proposed the Exodus plan, updated product roadmap, and token economics, planning to establish attractive and sustainable liquidity and ecological prosperity.
Efinity, an NFT parallel chain, recently went live with a new mainnet called Efinity Matrixchain, which will make it easier to create and distribute NFTs on a large scale.
According to the DeFi TVL data, Moonbeam/Moonriver, Acala/Karura, Astar/Shiden, and Blockingrallel/Heiko are the best paired networks. The sister network Moonbeam/Moonriver has the highest TVL share in the entire Dotsama ecosystem, accounting for 37.18%, which is significantly lower than the end of last year (46.62%), mainly because Moonriver lost a large market share of TVL (from 16.33% to 6.67%). Acala and Karura (20.6%) ranked second; Astar/Shiden and Blockingrallel/Heiko have similar TVL amounts, of which Astar’s TVL share has increased significantly from 13.18% at the end of last year to the current 18.01%. Of course, due to extensive market sentiment, the overall DeFi TVL of Dotsama has shrunk by 44% (from US$251 million to US$152 million).
Figure 7: TVL share of leading parallel chains in the Dotsama ecosystem/source: Defillama
In terms of application protocol volume, the Moonbeam/Moonriver paired network ecosystem performs the best. Moonbeam and Moonriver both have more than 50 DeFi protocols, followed by Astar, which has 36 application protocols, while other parallel chains have less than 10 application protocols. Although the overall TVL of each parallel chain has been greatly reduced by the overall bear market compared to the end of last year, the top 10 parallel chains ranked by TVL have not changed much.
Figure 8: Top 10 TVL parallel chains in the Dotsama ecosystem / Source: Defillama
Part 5: Ecosystem Incentives
The Polkadot Treasury remained highly active in the first half of 2023. Of the 301 proposals for Governance 1, 95 (32% of the total) were initiated this year, surpassing the 57 from the same period in 2022. Of these, 52 proposals (nearly 55% of the 95) have been approved and awarded, and the Treasury has cumulatively allocated 1.397 million DOT ($7.12 million) to approved proposals since early 2023, with each proposal receiving an average of about 27,000 DOT (worth approximately $138,000). The funds have been used for a variety of initiatives, including infrastructure and application deployment, community activities, and providing liquidity.
The Polkadot Treasury is a collection of on-chain funds generated through inflation/block rewards, transaction fees, slashing, and low staking efficiency. Inflation is the main source of revenue (98.9%), at a rate of approximately 6.8%, and token burning accounts for the majority of Treasury spending, at around 65%. As of the end of the first half of 2023, the Treasury has nearly $46 million worth of DOT, or approximately $240 million, and the funds remain ample.
Figure 9: Incremental funds held by the Polkadot Treasury / Source: Dotreasury
With the launch of OpenGov, the efficiency of proposal voting execution and Treasury fund allocation will be greatly improved, and on-chain governance will be further automated and democratized. However, an increase in the number of approved proposals may also bring a series of issues, such as vote buying and fund misuse, which will pose new challenges for proposal quality review and Treasury fund management.
5.2 Web3 Foundation
The Web3 Foundation, founded by Gavin Wood, continues to advance the Ecosystem Incentives Program to support software development and research related to Polkadot, Kusama, and Substrate. So far, the Web3 Foundation has achieved a historic milestone of funding more than 500 projects. According to official disclosures, 82 projects have been funded up to 2023, a 21% increase from the first and second quarters of 2022, when 68 projects were funded. In the first half of the year, the number of projects supported by the Web3 Foundation remained high.
Fig.10. Number of Projects Funded by Web3 Foundation Grant from Q1 19 to Q2 23 / Source: GitHub
5.3 Other Funds
To stimulate overall growth and mass adoption of the network, some leading parachains launched grant and accelerator programs in the first half of this year. For example, Moonbeam distributed the first ecosystem grant in the spring of 2023 through community voting, and voted for the first time using snapshot voting in April this year. Winning projects include DAM Finance, BeamSwap, StellaSwap, etc. Astar and Sony jointly launched the Web3 incubation program to explore the possibility of Web3 commercialization, attracting nearly 200 projects to register and submit applications. At present, the first batch of incubation project selection has ended, and a total of 19 high-quality projects have been selected and obtained incubation qualifications.
Part 6: Ecosystem Funds
According to RootData statistics, as of May 2023, the crypto industry has disclosed 519 rounds of financing, with a total financing amount of 3.89 billion U.S. dollars, far lower than the financing amount of 18.51 billion U.S. dollars in the same period in 2022, a year-on-year decrease of approximately 79%. The $2.32 billion raised in the first quarter of 2023 also dropped sharply from the $3.46 billion raised in the fourth quarter of 2022, a quarter-on-quarter decrease of 33%. Recent financing rounds and financing amounts have hit new lows since 2021.
Figure 11: Cryptocurrency financing trend from Q4 2021 to Q1 2023 / Source: Rootdata and DFG
This indicates that after entering the bear market cycle, the rhythm of primary market financing has plummeted, and VCs are relatively cautious and have not actively participated. On the other hand, the inverted valuation of the first and second levels makes the secondary market more popular with investors than the primary market.
Despite the overall shortage of funds in the industry, DFG and AU21 are still firm supporters of the Dotsama ecosystem, and so far, their investment portfolios have included more than 50 and 40 Dotsama projects, respectively. NGC Ventures and Hypersphere have also invested in more than 30 projects. In addition, well-known large institutions such as Polychain, Coinbase Ventures, and Hashkey have also invested in the ecosystem with double-digit project investments.
Figure 12: Number of Dotsama projects supported by venture capital / Source: DFG & Blockingrachains.info
Part 7: Ecosystem Map
According to dotinsights data, there are currently 558 projects/applications in the Polkadot and Kusama ecosystems, covering 29 subcategories and almost all cryptocurrency market segments.
Specifically, the largest number of applications is in DeFi, with 137, including:
The largest native DEX project: ArthSwap (TVL $11.33 million), HydraDX (TVL $10.70 million), StellaSwap (TVL $5.82 million), Solarbeam (TVL $4.50 million), etc.
Native lending projects Moonwell Artemis (TVL $34.17 million), Moonwell Apollo (TVL $3.63 million), etc.
Native liquidity staking projects, such as Bifrost Stake (TVL $13.19 million), Algem (TVL $9.12 million), and Acala Liquid-Stake (TVL $10.95 million).
In addition to DeFi, these projects also stand out:
Infrastructure projects include Tanssi Network, Sumi Network, Ternoa, Crust Network, Bit.Country, RMRK, t3rn, etc.
Wallet projects include SubWallet, Talisman, CLV Wallet, etc.
Tool and data projects include Subsuqid, Subquery, dotinsights, etc.
SocialFi applications, such as Subsocial, Zeitgeist, PublicPressure, Saito, etc.
NFT trading markets include Unique Network, Singular, Beatport, etc.
Game platforms include Ajuna, Moonsama, Moonfit, etc.
It is worth noting that the same project in the figure below may be classified into different categories because many projects cover a wide range of products and businesses. For example, Subsquid and SubQuery both provide Web3 data indexing solutions for the Polkadot ecosystem and belong to the data and tool categories. Bit.Country is a meta-universe-as-a-service (MaaS) platform that supports users in creating metaverse and games on it, and belongs to the infrastructure, SocialFi, and metaverse categories.
Figure 13: Dotsama ecosystem map / Source: dotinsights
Compared to the 544 projects at the end of last year, the total number of Polkadot projects in the first half of 2023 has not increased significantly, but the emergence of more commercial cases shows Polkadot’s huge potential in large-scale adoption and commercialization, as follows:
Social networking application MeWe is adopting the Frequency parallel chain built on Polkadot, bringing blockchain-based self-sovereign identity to its 20 million users.
Mythical Games is the top-ranked blockchain game and the fourth-ranked blockchain in monthly NFT sales. It is leaving Ethereum and launching its new Mythos ecosystem on Polkadot.
Beatport, the global leader in the electronic music arena for DJs, producers, and fans, has partnered with Aventus to launch Beatport.io, a digital collectibles market that brings electronic music culture to Web3.
One of the well-known accounting firms, Deloitte, announced the integration of KILT and Polimec blockchain technology to issue reusable digital certificates that support KYC and KYB processes, enabling global fundraising of digital assets.
Leading fashion brand DUNDAS is bringing the next generation of NFTs to fashion enthusiasts around the world through collaborations with Unique Network, Polkadot, and UME Studio. DUNDAS is a popular women’s clothing designer clothing brand that combines fashion with modern technology and is worn by celebrities such as Beyoncé, Reese Witherspoon, Olivia Wilde, and Mary J. Blige.
Web3 media pioneer PublicPressure and KILT Protocol announced at SXSW that they will use KILT’s infrastructure to issue public credentials to verify NFT collections and log in to the PublicPressure marketplace.
Part 8: Community Trends
8.1 Development Activity
The developer activity of Polkadot has continued to rise in the first half of 2023, with a total of 81,815 development activities. Compared with the same period last year, the development activity has continued to increase, ranking second among mainstream public chains. Cardano still ranks first with 81,890 development activities, but its lead has narrowed compared to the end of 2022. Ethereum and Cosmos ranked third and fourth, with cumulative development activities of 56,000 and 54,000 in the past six months, respectively.
Figure 14: Developer activity as of June 20, 2023 / Source: Santiment
8.2 Community Metrics
In the first half of 2023, the total market capitalization of cryptocurrencies grew from $831.8 billion at the beginning of the year to $1.2231 trillion, a 47% increase, reversing the losses caused by the FTX crash, but the next paradigm shift-driven bull market is yet to come for the crypto industry.
In the first half of the year, Polkadot’s Twitter followers grew 2%, exceeding 1.4 million; Reddit community members increased from 80,500 in 2022 to 81,100 in the first half of 2023. The number of subscribers to the YouTube channel increased by 2%, reaching 48,600. Polkadot’s community metrics have steadily increased with the recovery of the cryptocurrency industry.
Part 9: Future Outlook
In the first half of 2023, Polkaot continued to promote network development and ecosystem expansion. In the past six months, Polkaot has successfully launched nine additional parallel chains (bringing the total to 43), launched the latest version of the governance system OpenGov, and continued to promote the adoption of XCM, with the usage of XCM steadily increasing. Multiple XCM channels have been implemented, and seven non-fork runtime upgrades have been achieved. In addition, the Polkadot project has disclosed multiple business partnerships with traditional well-known companies.
On Polkadot’s future roadmap, noteworthy development modules include XCM V3, OpenGov, and the ongoing iteration of the system parallel chain. It is also exciting to see Polkadot founder Gavin Wood mentioning the construction of an agile Polkadot at the Polkadot Decoded 2023 conference, a resilience platform centered on applications, which will help consolidate the Polkadot developer community’s position as an innovation center. Perhaps soon we will see a new Polkadot ecosystem.
XCM V3: The format of Cross-Consensus Messaging (XCM) version 3 has been merged into the Polkadot codebase, and this new version supports many advanced features, including bridging, cross-chain locking, swapping, NFTs, conditions, context tracking, and more. The widespread adoption of XCM V3 will bring more new use cases and opportunities to the Polkadot ecosystem.
OpenGov: After successful launches on Kusama and Moonriver, OpenGov was officially launched on Polkadot in mid-June and is expected to be widely used in the Polkadot and entire Dotsama ecosystems, further enhancing the governance efficiency and decentralization of these ecosystems.
Agile Polkadot: Gavin proposed that the allocation of Polkadot Core (referring to the entire computing resources of Polkadot, similar to CPU) should be changed. Unlike the existing Lease and Slots, the leasing and use of Polkadot Core will be more flexible and market-oriented.
Application-centric middleware: Polkadot will be based on application-centric middleware instead of chain-centric middleware and will host dapps through system chains rather than relay chains. This section will introduce some new architectures, such as Accord (selective joining treaties across chains), Hermit Relay, Project CAPI, etc.
Elastic application platform: Polkadot is creating an elastic system through the joint creation of ZK primitives, Sassafras consensus (a new non-forking block production consensus), large-scale adoption of light clients, mixnets between nodes, and human decentralization.
Overall, with the continuous development of core technology and parallel chains in the Dotsama ecosystem, improved features and infrastructure will be released one after another, which will eventually attract more application protocols and projects, resulting in more successful cases of Web3 commercialization. Polkadot is gradually realizing Gavin Wood’s grand vision of an ubiquitous supercomputer. Therefore, DFG still firmly believes in the Polkadot ecosystem, as well as the revolutionary underlying technology and economic system design from Gavin and the Blockingrity team, and looks forward to the next generation of the brand-new Polkadot continuing to bring more surprises to the encrypted world.