When its developers finally unleashed it on the market on August 20 after multiple delays, Polkadot (DOT) sparked a frenzy of excitement among investors, soaring from $2.82 to a high of $6.82 on September 1. At the time of writing it was $5.32, creeping back up from a low of $4.75 after Thursday’s market crash.
The protocol has even knocked rising star Chainlink, the much-vaunted “Ethereum killer,” out of fifth place on CoinMarketCap, a highly respectable position for a crypto that was largely unknown outside the nerdosphere until quite recently. Only two assets now stand between Polkadot and Ethereum, a tenacious occupant of the number two position – XRP and Tether.
What is Polkadot?
An open-source project founded by the Web3 Foundation, Polkadot is a sharded protocol that enables blockchain networks to operate in synergy. The DOT token serves three distinct purposes: governance over the network, staking and bonding.
One feature that sets it apart from the “Ethereum killers” – projects like Cardano (ADA) and Chainlink (LINK) – is that it is designed to coexist with the leading smart contracts blockchain protocol rather than compete against it. In the eyes of some investors, this relationship may make it more appealing because knocking Ethereum, which is already a widely utilized working product, off its pedestal could be a Herculean challenge, even for a technically superior project.
Like Ethereum, Polkadot has an active ecosystem. It is already home to 197 projects, according to data from PolkaProject, and that number is expected to steadily grow.
Polkadot was created in 2016 by Gavin Wood, a key player in the development of Ethereum’s solidity programming language and Parity Technologies.
Spartan Black’s Kelvin Koh, who correctly predicted that DOT’s price would exceed $5 shortly after its launch, expects it to continue climbing the market cap ladder. He said, “Within a year DOT will be Top 3 market cap on Coingecko/CoinMarketCap.”
Polkadot also has plenty of friends on YouTube, where it is being hailed as the biggest thing to come along since Ethereum.
Others are perplexed by Polkadot’s meteoric rise following its sudden appearance on the scene just two weeks ago.
Bearable Bo$$ tweeted: “Can someone explain to me what the f**** Polkadot is and where the hell it came from that its in Top 5 crypto right now and was only recently launched August 20th??? WTF”
Polkadot’s combination of an active community, plenty of excitement being generated on social media and YouTube, a growing number of projects in its ecosystem, the involvement of a developer of Wood’s caliber, and the fact that it is one of the projects riding the decentralized finance (DeFi) wave may provide the impetus for Ethereum-like price action at the top of the next cycle. However, it remains to be seen whether it has the stamina can go all the way. Looking at it strictly from an investment perspective, it may just be another flavor-of-the-month crypto (remember NEO?) that soon cedes the spotlight to the next project that generates a buzz.
Some analysts believe investing in small-cap projects operating in the Polkadot ecosystem – ChainX, for example – will yield far better gains than Polkadot itself. But with higher profits comes higher risk.