A paradigm shift is happening in the Polkadot ecosystem

Polkadot’s ecosystem paradigm is a three-tier structure:

· The base layer is the relay chain (Layer0), also known as Polkadot or Kusama, which provides shared security for the entire network, and is responsible for the consensus guarantee and basic functions of the parachain: such as cross-chain messaging

▸ Expecting Chaos: Kusama’s Community Adventure

We found that the Kusama community has grown into a more active community with its own cultural characteristics, even to some extent it is more distinctive than the Polkadot community. This is related to the token structure of $KSM and $DOT.

KSM Holders vs DOT Holders ( Source: subscan.io )

Kusama’s Native Token

Kusama’s native token, $KSM, basically comes from the airdrop of $DOT. When the mainnet went live in 2019, Kusama’s network value discovery was still in a hazy state. With market turbulence and a clear vision, it was a typical community-driven type. This project has formed a user structure where most of the $KSM holders are retailers, and most of its holders are retail users, not institutions, and it also promotes Kusama to become a typical community-driven project. In terms of community culture, Kusama encourages innovation and adventure, and the slogan of its community is “Expecting Chaos”. Innovation did happen:

  1. Fast Upgrade of Governance Module: Treasury in the Governance Module supported only referendums and approvals. However, after Kusama community found the need to follow up on a large number of grants applications from Treasury, they developed “bounty” and “tips” for different scenarios. Bounty is for specific projects with rewards, where the council can assign a project manager to follow up. After completing the bounty, the manager will get a part of the rewardas well. Tip is for small rewards, which can be quickly allocated to daily community incentives and reimbursement.
  2. Native and technical edge-breaking projects such as RMRK are emerging.

▸ Technology Exploration: Common Good Chain, XCM and ink! Contract

The early design of relaychain included many essential blockchain functions: asset module, transfer system, governance module, minor smart contract (pallet), etc. However, during the evolution and development of Parity, we found that the technical concept of Relaychain has been converted from a public chain to Layer0, which is simply responsible for the most fundamental parts, such as cross-chain message routing and consensus security. The modules of relaychain such as asset issuance and governance may all be disassembled into separate parachains!

▸ The Rise of Integrated Applications

In the first two years of the Polkadot ecosystem, most startups would want to be parachains. However, we have observed that things have changed recently. The rise of RMRK and Zenlink has brought us a new way of thinking: do we need parachains?

▸ Constraints: frequent version updates of XCM and asset fragmentation

After the launch of Karura and Moonriver, we noticed that their TVLs didn’t reach expectations.

Karura TVL distribution
MoonBeam TVL distribution
  1. Asset fragmentation: The Karura parachain already has two kinds of minted KSM assets (lKSM, vsKSM), while the assets on Moonriver are more complicated. We believe this led to a fragmentation of liquidity into N pieces for DeFi projects in the Polkadot ecosystem. Because applications that can fully leverage XCM for asset aggregation have not yet been built, resulting in liquidity being scattered among various fragmented assets and capital not being fully used to its utmost efficiency.

▸ Paradigm Shift

To sum up, we believe Polkadot is in the midst of one of the most significant paradigm shifts:

▸ Key Opportunities

PAKA will focus on the following key opportunities in the near future (not an investment suggestion):

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PAKA

PAKA

Founders fund in Polkadot ecosystem, running as a DAO venture. Long Polkadot, short Web2.0