From Ethereum "killer" to marketing "fool": a retrospective on Polkadot's decline

Author: Tuo Luo Finance

Recently, Polkadot (hereinafter referred to as "Dot") has had quite a story.

First, the report on the operation of the Polkadot treasury for the first half of 2024, released on June 29, caused a huge stir, with expenditures reaching as high as $87 million, including a marketing spend of $37 million. The $300,000 monthly fee for KOLs, which many users claimed was inflated, led to the remark that "the speed of spending money is faster than hackers stealing money." Following this, Asian project teams unleashed a torrent of negative information, claiming that the spiritual leader was merely a figurehead and that internal politics were rife with issues. In a short time, accusations against Polkadot became incessant. Signs of trouble had already emerged a year prior when Polkadot was rumored to have laid off a significant number of employees due to poor cost management, leading to a series of developers leaving the project.

However, if we rewind the timeline to five years ago, Polkadot was still celebrated as the "Ethereum killer," a cross-chain star known for its advanced technology, and was praised as a "doer" team within the community.

In just a few years, Polkadot has fallen from being the envy of all to relying on scandal marketing, playing a good hand poorly, which is quite lamentable.

When mentioning Polkadot, it is hard to overlook two key terms: the renowned founder and the technologically advanced cross-chain star.

Gavin Wood is one of the founders of Polkadot, and prior to this, he was the first CTO of Ethereum. In many introductions, while Vitalik Buterin proposed the technical concepts, the designer of the technical architecture, the first founder of the client, and the inventor of the smart contract development language Solidity all point to Gavin Wood. It is worth emphasizing that the widely circulated concept of Web 3.0 also benefited from Gavin Wood's clarification during a speech in 2014. The title of a technical genius is certainly well-deserved for him.

After leaving the Ethereum Foundation in January 2016, Gavin Wood co-founded the development team Parity Technology and the funding and operating foundation Web3 Foundation with Jutta Steiner, and the foundation's first project was Polkadot.

The original intention of the project was quite simple. Gavin Wood stated, "The initial design logic did not consider interoperability; we were waiting for Ethereum's sharding technology to be launched. But sharding has never been realized, and it still hasn't been launched. Therefore, I wanted to create a more scalable Ethereum myself, pushing the concept of sharding to a more extreme level, simply designing independent chains that could communicate with each other, ultimately achieving communication through a shared consensus layer."

To briefly introduce the background at that time, Ethereum was flourishing due to the rapid development of smart contracts, but the redundancy brought about by Ethereum's own architecture doomed it to bottlenecks in efficiency and scalability. To compare with a data point, Vitalik once calculated that executing computations or storing data on Ethereum was 1 million times more expensive than completing the same computations or storing the same data on commercial cloud platforms. Among many technical solutions, besides the governance perspective of representative democracy, layered architecture and sharding were the two most feasible paths. Layering included state channels and sidechains, while sharding was primarily focused on Rollup. At that time, Ethereum was moving towards ETH 2.0, in the beacon chain construction phase of Serenity Phase.

In this regard, Polkadot made trade-offs and proposed forward-looking technical concepts, constructing a heterogeneous multi-chain network that separates consensus and computation using a layered architecture. Its main architecture consists of three parts: the relay chain, parachains, and bridges. The relay chain is the core of the network, also known as the mainnet, which is a consensus ledger built on blockchain technology. Parachains are independent blockchains based on this, while bridges are a special type of blockchain that allows Polkadot to connect and communicate with external networks like Ethereum.

Without delving too deeply into the technical content, the problems Polkadot aimed to solve can include the following points: cross-chain, sharding scalability, multi-chain architecture, abstraction, etc. It can be seen that these are actually the areas Ethereum has only begun to focus on in the past two years, but Polkadot started exploring these ideas back in 2016.

The vision was grand, but the engineering implementation faced even greater challenges. In October 2016, the first draft of the Polkadot white paper was officially released, after which Polkadot fell into a period of stagnation, with the mainnet repeatedly delayed. During this time, a bug in the first private placement led to 300,000 ETH being locked. It wasn't until 2019 that Polkadot began to make rapid progress, releasing Substrate in June, an important development component for parachains, and launching the Polkadot testnet Kusama in August, laying a crucial foundation for future development.

While the technology was enticing, it could not attract user enthusiasm, which is akin to a tree without roots. A key reason for Polkadot's rise was its ability to tell a compelling Chinese story.

In 2019, with the development of its technical path, Polkadot also conducted extensive publicity, learning from the experiences of EOS, targeting the large population of Chinese users. In the first half of the year, the Polkadot China Tour began, with the team frequently holding sharing sessions in Hong Kong, Hangzhou, Shanghai, Beijing, and Chengdu, with core members present at all events, which were quite large in scale. The founder's background also aided the project's development, as he was semi-resident in Shanghai and had the Chinese name "Lin Jiawen," thus attracting several local capital firms. Technical experts + large-scale marketing + blue ocean market—this combination led to a rapid influx of Chinese users into the Polkadot ecosystem.

Data from 2020 showed that Chinese developers were particularly active in the Polkadot community. Among the 200 projects funded by the Web3 Foundation, nearly 20% of the beneficiaries came from China. Relying on Chinese developers, in May 2020, Polkadot's monthly active developers grew by 44%, a growth rate far exceeding that of Bitcoin and Ethereum. The Polkadot Chinese community, PolkaWorld, also played a significant role, with daily reports and weekly live broadcasts, making frequent community reporting and activities a driving force. Foreign media Decrypt even reported at the time that Polkadot was supported by Chinese capitalists, stating, "In China, people generally believe that Polkadot is similar to a newer, better EOS."

With the backing of Chinese traffic and capital, along with the favorable conditions of token splitting, Polkadot lived up to expectations. By the end of 2020, Polkadot's governance token DOT had increased by over 45% within a year, reaching a market value of $4.7 billion, briefly surpassing Chainlink to become the fifth-largest cryptocurrency.

The next development climax came with the slot auctions. For project teams, to connect to the relay chain and become a parachain, they needed to obtain a slot. Only through a slot could they link to the relay chain, but the number of slots was limited. The Polkadot team estimated that the maximum number of simultaneously operating slots was around 100, necessitating a selection process. Ultimately, the official decision was to complete the auction of staked DOT through candle auctions on Kusama. The core of this proposal was that project teams would stake DOT, ensuring the security of the mainnet through substantial lock-up, but the problem was evident: it sacrificed user liquidity.

However, to secure more chips, project teams needed to accumulate more stakes, and users could participate through staking, significantly reducing circulation in the short term, which would inevitably lead to an increase in DOT. In November 2021, the first parachain slot auction concluded, with winners including Acala, Moonbeam, Astar, Parallel, and Clover. Acala attracted over 80,000 members and accumulated more than 3.2 million DOT in support. In that month, DOT also reached an all-time high of $54.98, and Polkadot was once again successfully dubbed the Ethereum killer. As of now, Kusama has completed 128 slot auctions.

However, with the arrival of the bear market, Polkadot's fate took a sharp downturn.

After the candle auction, the price of DOT quickly fell, leading investors to question its intrinsic value. Due to a two-year lock-up period, the number of active users also began to decline.

On the other hand, Polkadot's focus on technology over experience, coupled with a more complex technical architecture, led to a gradual lag in ecological development. Compared to competitors like Cosmos and other new public chains, Polkadot missed the fast train of DeFi due to the staking nesting issue. In 2023, the daily transactions on the Polkadot network were merely around 10,000. Even with the wave of inscriptions at the end of the year, the daily active users were only 7,000 to 8,000, while Cosmos had around 20,000 daily active users, showing a clear gap. However, given the numerous infrastructure projects within its ecosystem, Polkadot has become a gathering place for developers.

In 2021, Polkadot had the second-largest developer community outside of Ethereum, with a total of 1,400 developers by the end of the year. Even after the turmoil, by the end of 2023, the total number of developers reached 2,100, firmly in the lead. Some expressed skepticism, claiming that Polkadot was merely a "developer ghost chain" severely lacking in application ecology.

From a purely technical perspective, Polkadot has made considerable progress in recent years, such as the successive launches of XCM V3, system parachains, asynchronous support, and parallel threads. However, in reality, even for developers, Polkadot is not friendly, especially for Asian developers.

The project Manta, which once won a slot auction, was the largest in terms of TVL and market cap (excluding DOT), but it left Polkadot last year. Founder Victor Ji expressed disappointment with the Polkadot ecosystem and team on platform X, stating he was no longer willing to engage with them. He emphasized that the Polkadot ecosystem is highly toxic, lacks real value for Web3, and does not focus on users or adoption rates. He also pointed out that the Polkadot team provided far more funding to European and American projects than to Asian projects, indicating discrimination and stagnation in the entire ecosystem.

This is not an isolated incident. In the crisis triggered by the treasury, several Asian projects criticized Polkadot. Harold, the founder of the Din project, originally a data analysis platform for the Polkadot ecosystem, stated that as an Asian-led project, building within the Polkadot ecosystem was quite difficult, requiring the resolution of many additional issues such as politics, relationships, and small circles.

This situation had long been foreshadowed. Many individuals had previously reported that Polkadot exhibited a one-man rule around Gavin, with major paths being decided solely by him. Perhaps due to this, in October 2022, Gavin announced his resignation as CEO of Parity, transitioning to chief architect. However, it is undeniable that he remains the absolute spiritual leader of the Polkadot project. Yet, the inaction of the spiritual leader has clearly hindered Polkadot's development. Internal employees have revealed that, "He does not clarify priorities and does not assist in promoting Polkadot."

Another typical example is the OpenGov governance model, which was entirely proposed by Gavin with a decentralized philosophy, eliminating the previous elite decision-making model of the technical committee and board, allowing a broader group of DOT holders to decide the development of the treasury through public voting.

However, it is evident that firmly implementing a completely decentralized governance model in an immature community has led to chaos and controversy. In September of last year, after PolkaWorld's proposal for official funding was rejected, this largest unofficial Polkadot Chinese community announced its cessation of operations. In their response, PolkaWorld attributed the problem to OpenGov, claiming that to maintain the token price, DOT holders tended to reject funding proposals. At that time, Brushfam founder Markian Ivanichok also expressed disappointment with Polkadot's governance system on platform X, stating that securing funding for proposals had become increasingly difficult, and ultimately, the team also left the Polkadot ecosystem.

In response, the funding manager sarcastically stated, "Over the past two years, Polkadot has already allocated $694,000 to PolkaWorld, and only when funding stopped did the media report on it."

Regardless, from the above description, it is clear that in 2023, Polkadot faced a wave of team departures. According to statistics from Electric Capital, most projects experienced a sharp decline in the number of developers in Q4 of 2023. Returning to the team itself, in 2023, Polkadot also experienced turmoil. In October, Parity announced a 30% layoff, causing the progress of Polkadot's code development to plummet since September.

Ironically, according to employees, Parity's extensive hiring led to financial difficulties, with executive salaries soaring, often exceeding $1 million, and even in a bear market, the company spent money as if it were a bull market.

If there was still a lack of tangible feeling at that time, this situation was fully realized this year. In the treasury financial report on June 29, Polkadot spent $87 million in just the first half of the year, which can only be described as burning money, with marketing expenses reaching an astonishing $37 million.

Delving into the details of this $37 million expenditure is even more amusing. According to the data released by Polkadot, KOL expenses accounted for the absolute majority of Polkadot's marketing promotion, exceeding half of the overall budget. In the first half of the year, Polkadot conducted four promotional activities targeting North America and three activities targeting Europe, with around 40 KOLs in North America and about 15 in Europe. From the budget perspective, the average KOL budget for each promotional activity was around $300,000.

However, citing a survey by Rhythm, the number of KOLs engaging in dubious practices was astonishing. Some accounts had fewer than 100 followers on platform X but over 70,000 subscribers on YouTube, indicating significant inflation, and there were even bot accounts among the followers. Moreover, in terms of advertising choices, Polkadot's selections were puzzling, as they even advertised with some general investment and gaming YouTube creators, achieving only a few hundred views, which the officials euphemistically called "precisely targeted high-net-worth audiences."

Not only did they show no concern for ineffective advertising, but their media placements and displays also highlighted Polkadot's peculiarities. They spent money on exclusive logo dynamic display services on two major cryptocurrency price websites, Coingecko and Coinmarketcap, with Coingecko costing $50,000 for six months of exclusive logo dynamic display and Coinmarketcap nearly $480,000 for two years of logo dynamic display and management fees. It makes one wonder, "Can a cool dynamic logo make DOT move?"

Also perplexing were the expenditures on PC hardware website ads, logo printing for private jets in Europe, and sponsorship of sports events, often amounting to tens of thousands or even millions of dollars. This clearly indicates a deviation in Polkadot's understanding of its positioning and core audience, as it seems intent on aligning with Europe and the West while neglecting the previously hopeful Chinese user base.

What is even more noteworthy is that despite spending so much on marketing, those in the industry have not felt any impact. If it weren't for corruption in the treasury, it could only prove the extreme disparity in governance efficiency. Just months ago, Polkadot community members were still claiming, "For community participants, the greatest value of Polkadot lies in the treasury."

Currently, the remaining total value of the Polkadot treasury is $245 million, equivalent to 38.2 million DOT. In terms of revenue, Polkadot's regular network fee income is only 20,000 DOT per quarter. Regarding treasury expenditures, Web3 Foundation CEO Fabian Gompf refuted claims, stating, "This is not the expenditure of the Web3 Foundation, but rather the on-chain treasury expenditure decided by community votes. The foundation has over five years of operational funds even without selling any DOT," but he also acknowledged that "the on-chain treasury has spent too much on activities with potentially low returns in recent months."

Looking back at Polkadot's development journey, it has done many things right but also made many wrong choices. In terms of ecological development, Polkadot has moved too slowly; after seven years, the mature mainnet system has not yet been fully tested, and even user-friendly wallets are hard to find. The cross-chain bridge Snowbridge, which should have existed two years ago, only began to be prioritized this year, while another high-demand hybrid bridge, Hyperbridge, is not even in this year's plans. On the governance side, Polkadot has moved too quickly, prematurely launching a centralized governance framework that allows an immature community to control votes, posing challenges for incubation and investment. Other more controversial issues include severe centralization, frequent changes in plans, discrimination against Asian teams, and a disregard for user experience.

Fortunately, the Polkadot team has begun to make changes. For example, in response to the liquidity shortage and increased development costs caused by slot auctions, Gavin mentioned in November last year the possibility of canceling slot auctions and shifting the focus to applications. This year, Polkadot has also launched the JAM chain and is attempting to change the parachain auction model using agile Coretime by purchasing usage time.

It cannot be denied that Polkadot's vision is grand. Even now, one can feel the difficulty of building a multi-chain ecosystem. Does proposing market demands at inappropriate nodes signify a mistake? This question is thought-provoking.

However, with projects leaving for Ethereum and weak revenue, along with countless missed opportunities, Polkadot may indeed be running out of time.