Messari: A Comprehensive Interpretation of 11 Parachain Projects in the Polkadot Ecosystem

Original Author: Nicholas Garcia, Messari

Original Title: 《Polkadot Ecosystem Overview》

Translation: Polkadot Chinese Platform

"The belief behind creating the parachain model is that the future of Web3 will involve many different types of blockchains working together. Just as the current version of the internet meets different needs, blockchains need to be able to provide various services. Parachains solve this problem." ------ Polkadot Founder Gavin Wood

Key Points

• The first 11 parachains of Polkadot are now live.

• The first 11 parachains have locked up 126 million DOT (11% of total supply; valued at $2.1 billion) during their two-year lease period.

• Each parachain brings unique features and use cases to the ecosystem.

• The next major technical task is to build the Cross-Consensus Message Format (XCM).

Introduction: Parachains Are Live

On December 17, 2021, after five years of conceptualization, Polkadot successfully completed its multi-phase rollout and launched its first parachain. Now that parachains are live, end users can finally transact on Polkadot.

What is a Parachain?

A parachain is a layer 1 blockchain that is application-specific and highly customizable, developed using Polkadot's blockchain development framework, Substrate. It has its own economy, tokens, governance, and user mechanisms, similar to traditional layer 1s. However, unlike traditional layer 1s, parachains are not isolated. Instead, they connect to Polkadot's other main technical component, the relay chain.

Related Reading: 《In-Depth Analysis of Polkadot Parachain Design Philosophy and Operational Mechanism》

What is the Relay Chain?

The relay chain is the core of Polkadot. It is the layer 0 foundational chain that contains all validators and is responsible for securing, managing, and connecting parachains. In addition to relay chain governance, parachains also have sovereign governance, which will be further explained in the analogy below. The relay chain can support approximately 100 to 250 parachains. The upper limit of parachains is primarily driven by the costs associated with cross-chain messaging (XCMP) that extend Polkadot and adheres to the optimal 10:1 validator-to-parachain ratio to maintain decentralization and performance quality.

Analogy to the United States: The relay chain is the federal government, and parachains are the individual states. The federal government protects, manages, and unites the states. In case of disputes, the federal government holds a higher status than state governments.

What is the Role of Polkadot Token (DOT)?

Polkadot's native token, DOT, is a utility and governance token used for participating in governance, paying transaction fees, securing through staking, and obtaining parachain slots. As of March 2022, DOT is the most held asset in crypto funds.

In addition to venture capital funding, Polkadot's unique architecture combined with the flexibility of Substrate has attracted the second-largest developer community. Now that parachains are live and have received significant venture capital funding, developers' efforts can be put to use for the public. In this report, we will take an in-depth look at Polkadot's first 11 parachains.

Ecosystem Overview - The First 11 Parachains

As mentioned, the relay chain can support an estimated 100 to 250 parachains. To gain the assistance provided by the relay chain, parachains must win candle-style parachain slot auctions by locking up the most DOT.

Potential parachains typically raise DOT through their communities in exchange for their native tokens. At a random time during the candle auction, the parachain with the most bonded DOT wins the slot. At the end of the lease period, the bonded DOT of the lenders will be returned (and they retain the parachain tokens).

After 11 auctions, 126 million DOT have been staked (11% of total supply; valued at $2.1 billion). The first batch of winners (auctions 1-5) joined Polkadot on December 17, 2021. The second batch of winners (auctions 6-11) joined Polkadot on March 11, 2022. Each winner brought unique features and use cases to the Polkadot ecosystem.

Please note that not all features described below are active.

Acala

Acala won Polkadot's first auction, raising 32,515,980 DOT. Acala is a decentralized finance network built on Polkadot that powers the aUSD stablecoin ecosystem. Acala has a suite of financial features centered around aUSD:

• Acala Dollar (aUSD)

Acala Dollar (aUSD) is a stablecoin generated by the Honzon protocol ------ a mechanism inspired by Maker DAO (DAI). Users mint aUSD by creating over-collateralized debt positions using approved reserve assets such as DOT, LDOT, and ACA. The team plans to expand collateral to include BTC, ETH, and other native tokens of parachains. Acala launched a $250 million aUSD ecosystem fund in collaboration with the initial 9 Polkadot parachain teams and several supporting venture funds. As of March 8, 2022, $6.17 million has been issued.

• Liquid Staking (L-Token)

Acala has liquid staking functionality through the Homa protocol. Users stake their tokens and receive L-Tokens (e.g., LDOT), representing the staked asset plus ongoing staking rewards. L-Tokens can be accessed as ERC-20 and Substrate-based tokens and can be used in Acala's DeFi protocols.

• Acala Swap

Acala Swap is a constant product AMM DEX that supports ERC-20 and native Substrate-based tokens. Acala Swap is hosting a liquidity bootstrapping event to celebrate its launch. Users can pay gas fees for Acala Swap with any token.

• Acala Token - ACA

Acala Token (ACA) is a utility and governance token used for participating in governance, transaction fees, and incentivizing Acala's collators.

Additionally, Acala has partnered with fintech unicorn Current, a community-operated treasury, and Acala EVM+ to achieve full-stack composability between EVM and Substrate. As of early March 2022, Acala has a TVL of $528 million.

Related Reading: 《Arrington Capital: Detailed Analysis of Acala's Product Architecture and Features》

Moonbeam

Moonbeam won Polkadot's second auction, raising 35,759,931 DOT. Moonbeam is a cross-chain smart contract platform compatible with EVM. Moonbeam allows developers to port their projects with minimal code changes or even no code changes, providing a developer-friendly environment for launching new projects:

• Ethereum-style Unified Account

Any parachain can provide EVM implementation by enabling the cutting-edge tray designed by Parity and Moonbeam. However, parachains with EVM implementation require users to have private keys for both EVM and Substrate accounts. Moonbeam provides a unified account - users only need one private key (EVM-style key) to interact with both EVM and Substrate. The unified account feature allows users to use their existing accounts on Moonbeam and interact with Metamask wallet.

• XC-20 Assets

Moonbeam introduces the XC-20 token class, a new token class that provides native interoperability for Substrate-based assets while allowing users and developers to interact through the familiar ERC-20 interface.

• Moonbeam Token - GLMR

Moonbeam Token (GLMR) is a utility and governance token used for participating in governance, transaction fees (80% burned, 20% allocated to the on-chain treasury), incentivizing Moonbeam's collators, and gas metering for smart contract execution.

As of early March 2022, Moonbeam has a TVL of $141 million, and the ecosystem is continuously evolving. Moonbeam plans to support new projects through grants and bounty programs.

Astar Network

Astar Network won Polkadot's third auction, raising 10,333,552 DOT. Astar is a multi-chain smart contract platform that supports Web Assembly (WASM) and EVM. Astar provides various solutions for developers to build smart contracts:

• Cross-Virtual Machine (X-VM)

Today, virtual machines are disconnected and difficult to communicate, such as the ability to call Substrate contracts from EVM contracts. To unify various smart contract engines, Astar is developing Cross-Virtual Machine (X-VM). X-VM allows smart contracts to execute calls and read storage data from different virtual machines and languages.

• ZK Solutions

Astar has been developing zero-knowledge scaling solutions. In the near future, Astar will implement the ZK plonk tray (plonk is known as a universal ZK Snark).

• dApp Staking

When building applications, developers often face significant costs that cannot be offset by revenue. dApp staking is a reward mechanism for smart contract developers or administrators. Astar staking rewards are sent to application developers based on a dynamic reward model. Ultimately, Astar will allocate 50% of the staking rewards to developers. Astar also plans to introduce features that allow developers to fund their projects directly from supporters.

• Astar Token - ASTR

Astar Token (ASTR) is a utility and governance token used for participating in governance, transaction fees, incentivizing Astar's collators, dApp staking, and second-layer application support.

Additionally, Astar supports Polkadot's largest DEX through TVL ArthSwap, recently raising $22 million led by Polychain, and has two Ethereum bridges. As of early March 2022, Astar's TVL is $386 million. Astar plans to connect with Cosmos and add many additional features.

Parallel Finance

Parallel Finance won Polkadot's fourth auction, raising 10,751,519 DOT (79% raised through the parachain auction loan platform). Parallel is a DeFi platform with a suite of features:

• Money Market

Parallel's decentralized money market protocol provides lending and collateralization features. Users who choose to stake can participate in leveraged staking. Leveraged staking allows users to borrow and stake simultaneously, thus earning double rewards. How? When users stake DOT, they receive a liquid derivative token xDOT. In addition to the current staking rewards, xDOT can also be borrowed back to Parallel to earn lending fees. Users can further choose to borrow xDOT to increase leverage. The Parallel Finance platform algorithmically selects the highest-performing nodes to maximize staking rewards.

• Auction Loan Platform

The auction loan platform raises DOT for potential parachains. Contributors are incentivized to lend their DOT through the auction loan platform, as they receive additional bonuses from Parallel and the anticipated parachains while maintaining liquidity through the liquid staking derivative cDOT. cDOT can be used in Parallel's DeFi protocols.

• Parallel Token - PARA

Parallel Token (PARA) is a utility and governance token used for participating in governance, transaction fees, incentivizing Parallel's collators, and staking in the security module.

Additionally, Parallel plans to release an AMM with stable swap functionality, multi-chain wallets, and many additional features. As of early March 2022, the Parallels Auction Loan Platform has raised $553 million, capturing 22% of the market share.

Clover Finance

Clover Finance won Polkadot's fifth auction, raising 9,752,487 DOT. Clover is a cross-chain infrastructure platform compatible with EVM, providing developers with tools to migrate and scale their applications. Clover has a range of products, including:

• Universal Cross-Chain Tools

Clover has various wallet implementations for interacting with Substrate-based chains on Polkadot and Kusama, EVM chains, and applications on Solana. Users can send, receive, package, and unpack cross-chain assets across different networks without navigating between them (similar to Zapper).

• Clover Wallet

Clover Wallet is a non-custodial cross-chain wallet that helps users manage and track assets on Substrate-based chains on Polkadot and Kusama, EVM chains, and Solana, and interact with them. Clover Wallet is available on mobile devices, extensions, and the web.

• Clover Cross-Chain Explorer

Clover Cross-Chain Explorer is a cross-chain block explorer that provides multi-chain indexing for Substrate-based chains on Polkadot and Kusama, EVM chains, and Solana. Users can search for blocks, transactions, and accounts.

• Clover Token - CLV

Clover Token (CLV) is a utility and governance token used for participating in governance, transaction fees, incentivizing Clover's collators, and fund management.

Additionally, Clover plans to release cross-chain bridges, cloud service APIs, gas fee redistribution (sharing a portion of transaction fees with developers), gasless end-user experiences, and identity-based fees to offer better prices for reputable users.

Efinity

Efinity won Polkadot's sixth auction, raising 7,695,377 DOT. Efinity is an NFT-specific blockchain developed by the Enjin team. Efinity aims to support NFTs from any blockchain:

• Token Standards

Efinity is introducing new standards for interoperable cross-chain tokens. It will be compatible with Substrate-based chains on Polkadot and Kusama, ERC-20, ERC-1155, ERC-721, and other chains and their standards. The token standards support fungible tokens, non-fungible tokens, and grouped NFTs.

• Fuel Tanks

Fuel Tanks are used for transaction fees. Developers deposit EFI into their fuel tanks to subsidize the costs for their users/players.

• Discrete Accounts

Discrete Accounts allow new users to easily get started without needing a crypto wallet. On-chain items can be placed in wallets controlled by developers, and players can claim them later when they are ready.

• NFT.io Marketplace

Efinity and Enjin are developing a new NFT marketplace called NFT.io, which is planned for closed testing in March. NFT.io is a cross-chain NFT marketplace that offers a novel price discovery mechanism through Efinity.

• Efinity Token - EFI

Efinity Token (EFI) is a utility and governance token used for participating in governance, transaction fees, facilitating liquidity, rewarding network participants, funding fuel tanks, and increasing transaction limits on Enjin's JumpNet EVM chain.

Additionally, Efinity will launch novel user-friendly features and leverage Enjin's existing infrastructure. Over 100 projects are committed to building applications and games on Efinity and Enjin.

Composable Finance

Composable Finance won Polkadot's seventh auction, raising 6,075,487 DOT. Composable is a DeFi infrastructure platform designed for cross-chain interoperability. Composable is building a comprehensive tech stack:

• Cross-Chain Virtual Machine (X-VM)

The Cross-Chain Virtual Machine (XCVM) is a virtual machine that provides developers with an environment to run cross-chain smart contract functionality. XCVM connects Substrate to other networks through its innovative usability layer. It uses a routing layer to determine the best route for instructions.

• Mosaic

Mosaic is a cross-chain transfer availability layer that integrates with EVM-compatible chains, including Ethereum, Arbitrum, Avalanche, Polygon, Fantom, Moonriver, and more. Mosaic uses various guarantees to ensure the delivery of transfers, including liquidity forecasting, rebalancing of liquidity vaults, and community-operated liquidity bots. Developers can build using Mosaic through the Mosaic SDK.

• Mural

Mural facilitates cross-chain transfers of NFTs using Mosaic.

• Composable Token - LAYR

Composable Token (LAYR) is a utility and governance token used for participating in governance, transaction fees, and incentivizing composable collator nodes.

Additionally, Composable has gained attention in the annual Electric Capital developer report for its increase in developer numbers. You can find Composable's roadmap here.

Centrifuge

Centrifuge won Polkadot's eighth auction, raising 5,435,161 DOT. Centrifuge is bringing real-world asset financing to DeFi to lower capital costs for small businesses and provide DeFi investors with a stable source of returns unrelated to the crypto market. Centrifuge utilizes a multi-faceted tech stack:

• P2P Network

Centrifuge's peer-to-peer network provides a secure way to create, exchange, and verify asset data between collaborators and mark assets as NFTs. Asset originators can selectively share asset details with service providers, who can evaluate the data and contribute information to the minted NFTs. Data sources can be verified using cryptographic signatures.

• Tinlake

Tinlake is an application that acts as an open market for real-world assets. Businesses tokenize their financial assets as NFTs and use the NFTs as collateral in their Tinlake pools. Users can access all mining pools and invest DAI in the pools of their choice. Each pool contains two parts with different risk-return levels.

• Centrifuge Token - CFG

Centrifuge Token (CFG) is a utility and governance token used for participating in governance, transaction fees, incentivizing Centrifuge's collators, and rewarding network participants.

Additionally, Centrifuge leverages existing legal and business frameworks to securely finance real-world assets. As of early March 2022, Centrifuge's TVL is $76 million.

Hydra

HydraDX won Polkadot's ninth auction, raising 2,462,543 DOT. HydraDX is a cross-chain liquidity protocol that reduces liquidity fragmentation by accommodating many crypto assets into a single trading pool.

• Omnipool

HydraDX Omnipool is a liquidity pool that serves all assets. All transactions in the Omnipool are priced in LERNA (LRNA), meaning LRNA allows assets to price each other. The amount of LRNA available in the pool fluctuates relative to total liquidity - LRNA is minted as liquidity increases, and LRNA is burned as liquidity is removed. Since Omnipool mints LRNA to match each increase in liquidity, LPs can provide liquidity for any asset they want and earn transaction fees when purchasing those assets from the pool.

• HydraDX Token - HDX

HydraDX Token (HDX) is a utility and governance token used for participating in governance and stabilizing LRNA value.

• Interlay

Interlay won Polkadot's tenth auction, raising 2,751,954 DOT. Interlay brings Bitcoin to any blockchain.

• InterBTC

InterBTC is a fully collateralized and interoperable BTC-pegged derivative. To mint interBTC, users lock their BTC in a vault. The vault can be an existing vault or one created by the BTC owner. All vaults are over-collateralized with specific assets. If malicious activity occurs within the vault, the over-collateralized assets serve as insurance. If malicious activity does occur, BTC depositors will be repaid with discounted collateral. The first vault will be collateralized with DOT.

InterBTC is a decentralized and trustless BTC-pegged derivative. Anyone can become a vault in InterBTC (decentralized), and vaults cannot prevent users from minting InterBTC (anti-censorship), with vaults locking collateral in different assets (capital efficiency). If BTC is lost or stolen, users will receive collateral back at a discounted rate (trustless).

• Interlay Token - INTR

Interlay Token (INTR) is a utility and governance token used for participating in governance, transaction fees, and incentivizing Interlay's collators. The team plans to tightly integrate INTR into interBTC for advanced features, better rates, and higher insurance coverage.

Additionally, Interlay plans to add new vault collateral and connect with other blockchains, including Ethereum, Cosmos, and Solana. Interlay aims to become a decentralized Bitcoin bank, allowing vaults to reuse held BTC and store collateral for structured financial products.

Nodle

Nodle won Polkadot's eleventh auction, raising 2,475,528 DOT. Nodle is a decentralized wireless network that provides secure, low-cost connectivity and data liquidity for IoT devices. The Nodle network leverages low-power Bluetooth (BLE) through millions of smartphones and routers, enabling businesses and smart cities to connect IoT devices to the internet at low costs while maintaining privacy and security.

• Nodle Cash App

Nodle Cash App is a mobile application that allows users to connect to the Nodle network, also known as the citizen network. After downloading the app, users must enable Bluetooth and location services in their phone settings. The Nodle Cash app will detect sensors and smart devices and connect them anonymously. For the services provided, app users receive Nodle Cash, also known as NODL tokens.

• Nodle Token - NODL

Nodle Token (NODL), also known as Nodle Cash, is a utility and governance token used for participating in governance, transaction fees, rewarding participants in the Nodle network, and incentivizing Nodle's collators. NODL is distributed to participants in the Nodle network every six seconds.

Additionally, the Nodle Network has 5 million active smartphones and 30 million IoT devices transmitting approximately 100 GB of data daily across more than 100 countries.

Conclusion

Looking ahead, Polkadot plans to conduct 30 new slot auctions before February 2023 (bringing the total to 41). Arguably, the most important technical task during this period will be building Polkadot's Cross-Consensus Message Format (XCM). Today, the light client version HRMP is being tested on Kusama. The core mission of Polkadot's value proposition is to ensure the successful launch of XCM for seamless cross-parachain communication. Polkadot will continue to build its unique modular architecture and aggressively push for market share in 2022 and beyond.