Will Polkadot be the next trillion-dollar asset?

Photo by Michael Dziedzic on Unsplash

Someone recently tweeted out a timeline for different companies to achieve trillion-dollar assets. These assets include Google, Apple, Microsoft, Amazon and Bitcoin. Out of these assets, Bitcoin took only 12 years to achieve the goal. And the most amazing thing is that Bitcoin is a completely automated system that naturally creates a trillion-dollar asset size. So the very natural question that follows is which crypto-digital asset will be the next to reach the trillion-dollar asset size first?

If we look at the current market cap of crypto digital assets, Polkadot and Cardano are already in the top 5. I think both of these public chain projects are very promising. But Polka has a better chance of being the first to reach trillion-dollar assets.

Polkadot has broader community support and its ecosystem is way ahead of the curve so far. Its main growth regions are currently in Europe and Asia, which allows it to differentiate itself from public chain projects that are primarily based in the U.S. region and facilitate its rapid growth. Polkadot has also been very positive in terms of market influence. Judging from the recent trend of its coin value, it is clearly gaining recognition from speculators as well.

So all in all, Polkadot is likely to be the next crypto-digital asset to reach trillion-dollar asset size first. However, the path for it to achieve this goal will only be more winding than that of bitcoin, and it will likely take more than 12 years.

Facing a lot of competitors

First of all, Polkadot faces a large number of competitors. Polka is not the first in its product category. Ethereum is the first, and Polka is trying to improve and be the best in this product space, just like other public chain projects. So it’s competing with both Ethereum and many other competitors. Bitcoin, on the other hand, has had a completely different evolution. Bitcoin was the first of its kind in its product category. And it existed as a unique product for many years after it was created, which gave it plenty of time to build up its influence in the market. Thus, it was impossible for a second competitor to emerge in the market. So as long as there is a demand for these products in the market, then it must be met through bitcoin. Despite its tortuous path, Bitcoin has enjoyed a unique competitive advantage. Polkadot, on the other hand, was required to compete to emerge in the same category. And now it seems that its most direct competitor is Cardano.

Whether a fiat-based stablecoin can be introduced early

The early introduction of stablecoins is an important factor in determining the success of all public chain ecosystems, including Polkadot. The most popular application on the public chain is DeFi, and DeFi is based on stablecoin. Stablecoins can now be generated using collateral based on crypto digital assets. But the number of stablecoins generated in this way is limited and very volatile because it fundamentally depends on the price of the crypto-digital asset being pledged. So once the crypto-digital currency goes into a bear market, the number of stablecoins generated in this way will be depleted and DeFi applications will therefore not be possible.

Therefore, for any blockchain ecosystem, the early introduction of a stable and scalable stablecoin is the most essential element to determine the development of the ecosystem. In this regard, the upcoming Diem ecosystem has a very strong first-mover advantage. This is because the Diem stablecoin is the basic product that is available at the start of this ecology. Stablecoin-based payments are the most preferred, easiest to implement, and the most widespread application. Once stablecoin-based payments are up and running, it helps to quickly achieve network effects. The foundation of the ecosystem will therefore be strengthened very quickly.

Whether a killer application can emerge soon

In a blockchain-based ecosystem, only the rapid emergence of killer applications that are popular in the market can help the ecosystem achieve rapid development. Now it seems that the most likely killer application is the stablecoin-based payment. In other words, the speed of the development of the ecosystem is determined by whether payment applications can be developed quickly.

As mentioned before, the payment application is the easiest and most effective application to build up the network effect, and it is a mechanism that works for a long time. I don’t think the current DeFi boom will last, and the reason why DeFi is so popular is that the participants are able to profit from it. And the main users of DeFi are speculators. Given the current bull market in cryptocurrencies, investors are able to take advantage of DeFi for profit opportunities. But I think the bull market will pass quickly, so DeFi-based applications are bound to diminish quickly as well. This will not help the blockchain-based ecosystem. So for the Polkadot-based ecosystem, it is important to start the stablecoin-based payment business as early as possible to help it achieve long-term ecosystem growth.

Will it be quickly accepted by institutions?

A key factor in whether Polkadot can truly achieve trillion-dollar asset size is whether it will be accepted by institutional clients.

Bitcoin is now achieving a trillion-dollar market cap because institutions have been gradually buying since the 2nd quarter of 2020, and reached peaks in early 2021. Institutional client buying is what pushed Bitcoin to the trillion-dollar size, and this factor holds true for Polkadot as well. But as of now, Polkadot is not trending very well in this area. If this issue is not addressed, it will certainly not achieve trillion-dollar size.

The compliance status of DOT to be clarified

The compliance positioning of cryptocurrencies varies across regulatory regions around the world. Polkadot’s operations in different regulatory jurisdictions face compliance risks. For example, in the U.S. market, the CRC, a cryptocurrency rating association, has previously rated some tokens in the market and considered DOT to have strong security-type attributes. The CRC rating scale ranges from 1 to 5, with higher scores being closer to being defined as a security. The rating of Polkadot tokens is 3.75, and XRP, which is now being prosecuted by the SEC, is rated as 4.0, so the probability of Polkadot token being defined as securities under current US securities laws is very high.

I think Polkadot’s current market cap of nearly $40 billion is not a true reflection of its value, but rather the result of market speculation. This is the same as the current state of the crypto market. At this stage, there is no application that has started running on the Polka ecosystem. Even if there are applications running on its ecology, the popularity of these applications by the market is yet to be tested. So the current market cap of nearly $40 billion for Polkadot is highly optimistic, or it could be said to be the result of speculative hype.

Overall, I think Polka is likely to be the next crypto digital asset to be the first to achieve a trillion-dollar asset size, but it only exists as a possibility now, and there are still many risks to its future.

But the mechanics of Polka’s product and the growth of its current community do give it a very strong competitive advantage. At least for now, it seems likely to be the next crypto-digital asset to be the first to achieve a trillion-dollar scale.

Article from Gu Yanxi, Founder of Liyan Consulting

Translated by Yang(Mengyan Finance)

To translate some latest policy and issues on blockchain and fintech happened in China