Review the development of Polkadot ecology in one year

Original title: "The Polkadot Ecosystem is undergoing a paradigm shift"

Original author: Marvin Tong, PAKA

Reviewer: Shawn Lin@1PAR; MIDDLE.X

We believe that over the past two years, Polkadot has achieved early-stage success: achieved the occupancy of the underlying protocol in the Layer0/1 market; successfully verified The establishment of the DOT and KSM card slot economic model; what is surprising is that Kusama, as an experimental network, has succeeded far beyond the imagination of all early ecological participants. For example, Kusama has developed as expected. Compared with Polkadot community, it is more Radical community culture and more active supporters; more than 10 parallel chains have been running smoothly on Kusama, and the TVL of smart contract chains such as Karura and Moonriver has reached hundreds of millions of dollars.

The ecological paradigm of Polkadot is a three-tier structure:

· The bottom layer is the middle The following chain (Layer0), namely Polkadot or Kusama, provides the shared security of the entire network and is responsible for the consensus guarantee and basic functions of the parallel chain (such as cross-chain messaging).

· The middle layer is the public chain (Layer1) of the parachain and the external bridge. The parachain includes the public welfare parachain and the parachain accessed through the card slot auction. Responsible for business infrastructure, such as smart contract infrastructure, privacy infrastructure, and external public chains including value networks such as BTC and Ethereum.

· The top layer is the protocol decentralized application (Dapps) responsible for abstract logic, such as a DeFi protocol developed based on a certain parachain, or a public welfare parachain The developed DAO services, etc. also include future expansion protocols (Layer 2) on redundant parallel chains.

In the past year, we have noticed that the development of ecology has surpassed Dr. There are many new problems and new opportunities. Therefore, we will share the observations of PAKA DAO with readers.

Expecting Chaos : A Community Adventure in Kusama

We found , the Kusama community has grown into a more active community with its own cultural identity. Judging from the holding data, the current holder structure of KSM is more dispersed than that of DOT.

KSM holder data vs DOT holder data

Statistical note: remove mod and para addresses, cut off block heights respectively Kussma-10103285, Polkadot-7711658.

Kusama’s native token

$KSM basically It comes from the airdrop to $DOT holders and has a low valuation during the launch of the mainnet in 2019, which is a typical community-driven project. This affects Kusama's holder structure, which is mostly retail investors rather than institutions.

Community culturally

Kusama heavily encourages innovation and risk taking , the slogan of its community is "Expecting Chaos". And innovation does happen:

On Kusama, the fraternity culture of the "Society" module emerged early: Kappa Sigma Mu is based on the Substrate community platform membership club. This is a community organization motivated by social behavior, which aims to motivate users to join a community that can participate in the synchronous coordination of rule making. The Ministry of Finance incentivizes community members to join through reward payments. Currently, there is only one community on Kusama, and it is expected to have more communities after running the upgrade.

· Quick update of the "governance module": the "treasury" of the early governance module only supported proposals and approvals, however the Kusama community found that there was a need for a lot of follow-up to the treasury After applying for the grant, "bounty" and "tips" were developed to correspond to different scenarios of using financial libraries. bounty is for reward projects, the council can designate a project manager to follow up, and the project manager will get part of the reward after the follow-up is completed; tips are for small rewards, which can quickly allocate funds to the daily community incentives and reimbursement needs .

· There are native innovation projects like RMRK.

In the process of community development

Kusama's cultural gain Strengthened by continuous positive feedback:

· If you observe Kusama’s council, you will find that the Kusama council has a very high diversity of members and a large number of high-impact communities Leaders (like @DonnieBigBags, @Jam10o). We can basically judge that the Kusama community has gradually weakened its association with the Parity/Web3 Foundation and has become a truly autonomous organization.

· Religious: Take Kusama's bird logo as an example, through Kanaria of RMRK or bird-themed creations released by third-party artists Airdrops, the community culture has been continuously strengthened. You can confirm this from the name, introduction, and language of Kusama’s big Twitter V.

· A defensive attitude towards the community. You will find that the self-defense mentality of the Kusama community is extremely strong, and its actions are amazing: in the Integritee community war event, you will see that the community aggressively resisted launching the KSMStarter parachain to participate in the card slot auction in order to protect itself, and even A proposal was issued to delist the parachain and temporarily terminate the auction for the project.

The above phenomena were unexpected by the early Polkadot supporters. We can judge that the Kusama community will be on par with the Polkadot community driving energy. And there are the following possibilities:

· The innovation of Kusama ecology may develop better.

· Kusama card slot auctions may have a lower lock-up decay rate than Polkadot, because the entry of a new parachain must win the support of the Kusama community.

· Speculative capital and projects supported by such capital are more difficult to win the respect of the Kusama community.

· Kusama's business development in the Metaverse may far exceed expectations.

It is very interesting that this phenomenon is similar to the community phenomenon of DeFi2.0 and Social-Fi, which means that capital The ability behind it will become weaker and weaker. The specific manifestation is that institutions cannot obtain a large number of cheap chips as before, and the amount is getting smaller and smaller, and they need to join the community creation more radically to become early investors.

Technology Exploration: Public Welfare Chain, XCM and ink! Contract

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In the early design, Relay Chain included many basic functions of blockchain, such as asset module, transfer system, governance module, small smart contract (pallet), etc. However, during the evolution of Parity development, we found that the technical idea of Relaychain has been converted from the basic public chain to Layer0, which is only responsible for the most basic parts, such as cross-chain message routing and consensus security, while the asset issuance of the relay chain, Modules such as governance may all be dismantled and become separate parachains!

These parachains will exist as "parachains for public welfare", that is, parachains that can operate without auctions. The public welfare parachain that has launched Kusama and Polkadot is Statemine/Statemint, a basic asset module used to issue and manage the ecological token system.

Parallel chains for public welfare may also be open, such as: Canvas, a parachain that supports ink! contracts, is similar to Moonbeam in positioning, but Focus on ink! contract deployment. The cases of Moonbeam and Moonriver are quite special: Parity was deployed by an independent project party after the open source community basically realized Frontier, Substrate's EVM fully compatible technology. We believe that decentralized applications based on the two public welfare parachains of Canvas and Statemint will usher in an explosion.

In addition, third-party teams can also apply to become public welfare parachains. For example, the application submitted by the Encointer team is likely to become the first non-profit parachain implemented by a third-party team. This also confirms our judgment that the Kusama community has a unique culture. Interestingly, in the community's discussion on this proposal, the requirements other than "public welfare" and "beneficial to Kusama" include the appeal of "governance overlap", that is, the parliament of the public welfare parachain is best to be consistent with the Kusama parliament. This is the case with Statemint, for example.

We have also found some very high-quality Polkadot infrastructure development teams, most of them focus on infrastructure development, and there is no Expected to issue tokens. This is a manifestation of the open source ecology entering a higher level. We rarely observe similar phenomena in other ecology, and the ecology with this phenomenon has ushered in a fundamental mutation, such as Arvware. Notable Polkadot infrastructure builders include: Patract Labs, ChainSafe, Onfanality, zCloak.

In Q3 of 2021, Dr. Gavin Wood published three consecutive technical thoughts on XCM (cross-chain messaging). This is also the most important technical upgrade of Parity this year:

XCM: The Cross-Consensus Message Format

Abstract: XCM is not a message transmission protocol, but a general message format, and its scope of application is not limited to cross The chain can be extended to cross-consensus.

XCM Part II: Versioning and Compatibility

Abstract: As a general message format, XCM is like a language. A sudden change of language will prevent people from using it to communicate, but a fixed language cannot adapt to the changing world, so XCM needs a version management tool to realize its orderly upgrade, and this tool can make the communication parties mutually confirm the currently used XCM version.

XCM Part III: Execution and Error Management

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Abstract: XCM's execution environment XCVM is a very advanced, non-Turing-complete virtual machine. It is register based (rather than stack based) and has several special purpose registers, most of which hold highly structured data. XCM enables efficient command execution and error management.

We think that one of the more worthy of attention is that XCM will not only serve the imagination of asset cross-chain, data messaging Probably far more than most people realize.

In addition, the value of the ink! type contract is underestimated: the ink! contract may become the first to support cross-chain contract-level communication case! Please imagine the following scenarios:

· Sushi Swap deploys the same set of contracts on both chain A and chain B, which are called contract A and contract B respectively.

· A asset is only in A chain, B asset is only in B chain.

At present, if I want to exchange asset A for asset B, I can only cast the A’asset of chain B through a cross-chain bridge, and then complete the exchange . And there is no ability to call between AB contracts (limitation of EVM).

· But in the ink! contract, contract A can directly call contract B through xcm, and assets can be exchanged without mapping/casting.

This is just a case at the stage where our imagination is scarcest. In fact, the combination of direct calls of cross-chain contracts may affect The existing DeFi ecology has brought exponential efficiency and richness. For example, in the case of Phala Network practicing ink!, WASM is deployed inside trusted hardware to perform cross-chain communication, and the contract can even send Http requests! Phala positions this type of contract as a "fat contract", that is, to supplement the features that traditional smart contracts do not have, such as low latency, high-performance computing, privacy, etc. We believe that the capabilities of the ink! contract go far beyond this.

We have also observed the current technological advancement of each parachain, and members of PAKA DAO often exchange development issues. In addition to the prosperous developer ecology, we have also identified some noteworthy technical issues:

XCM standard in the rapid iteration, will affect the downstream parallel chain Updates and application deployments bring a lot of docking costs.

· Relaychain version upgrades are relatively frequent. As above, the development of parachains takes up a lot of pressure, which will lead to insufficient technical resources for business updates.

· The average speed of parachain online is relatively slow. Taking Kusama Slot Auction as an example, it will take about 30-60 days from getting the card slot to deploying the real business on the parachain (not just the shell chain), that is, the technology cold start will take up 15% of the slot usage time.

The rise of integrated applications

In the first two years of the Polkadot ecosystem, most entrepreneurial projects will choose to become parachains. However we have observed that things have changed recently. The rise of RMRK and Zenlink has brought us new ideas: Do you really need a parachain?

We even believe that integrated decentralized applications will bring great benefits to the Polkadot ecosystem A stage of prosperity, and this type of entrepreneurial direction will become an ecological star!

In the wiki documentation on Polkadot’s official website, we see the comparison between smart contracts and parachains :

· When you use a smart contract to achieve a certain function, the smart contract you write must be deployed on a specific Addresses are associated. In contrast, when you develop a Runtime or Module based on a parachain to achieve the functions you want, you create an independent state machine.

· Smart contracts must consciously achieve upgradeability, while parachains will be able to completely swap out their code through root commands or governance pallets, making upgrades more convenient.

When you build a smart contract, it will eventually be deployed to a target chain with its own environment. Parachains allow developers to declare the environment of their own chain, and even allow others to write smart contracts for it.

We believe that in the Polkadot ecology, there have been applications beyond this paradigm: integrated decentralized applications. Represented by RMRK and Zenlink, we have summarized the various characteristics of this paradigm application:

· The back-end logic of the application itself is decentralized.

· The interaction between the user and the application is actually the interaction with the chain.

· An application is not a parachain, but a pluggable module, a pallet that can (but not necessarily) be deployed on a parachain.

· Different backend modules of the application may be deployed on different chains. For example, Zenlink's swap pallet is deployed on multiple parallel chains.

· Upgradability: Application upgrades are flexible.

· Application tokens are issued on statemint.

This type of application is different from common smart contracts in the EVM chain (such as DeFi projects), integrated applications not only maintain decentralization And the characteristics of smart contracts are also very flexible technically. They can deploy multiple pallets on different parachains and use the best features and capabilities of multiple parachains to integrate them into new DAPPs with good experience and strong innovation. RMRK and Zenlink are the pioneers of such applications.

We believe that integrated applications will bring the best practices of XCM and create other A prosperous ecology that cannot be copied by the public chain.

Constraining factors: frequent XCM version updates and asset fragmentation

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After Kusama's top players Karura and Moonriver came online, we noticed that their TVL was not as good as expected.

As of November 11, Moonriver's TVL is about 377M , Karura's TVL is about $91M, ranking 18th and 34th in the TVL rankings of all public chains, and failed to enter the Top10. (data source)

One of the reasons we infer is that the Polkadot DeFi ecosystem has insufficient liquidity (except for the tokens of the protocol itself):

· Karura's main source of liquidity is KSM's vault mortgage, which can mint KUSD. Therefore, the number of KSM participating in minting KUSD determines the true liquidity of Karura. The usage scenario of KUSD determines the willingness to mint KUSD.

Karura TVL Distribution

· Moonriver's liquidity source is EVM bridge, such as Ethereum, BSC, Fantom, etc., and the current main source bridge is Anyswap.

MoonBeam TVL distribution

But it is strange, although Moonriver has many fork projects born, and the community fomo is good, its TVL is still only a few hundred million dollars. where is the problem?

We believe that this is caused by the superposition of multiple reasons:

· Due to the frequent update of the XCM version, the progress of multiple parallel chains in mutually confirming the version and docking and debugging XCM is relatively slow. This resulted in Kusama's 10 running parachains, with only Karura and Bifrost linked, and many more parachains left in silos. Therefore, the combination of parallel chains has not been fully utilized. This has led to the fact that the DeFi of the Moon ecology and the Acala ecology have not yet achieved interoperability, and it has also resulted in the inability of the assets minted by Moon bridge/Karura to be used in other parallel chains, so the willingness of the community to mint assets tends to slow down.

· Asset fragmentation: Karura parachain already has two types of minted KSM assets (lKSM, vsKSM), while the assets on Moonriver are more complicated. We believe that this phenomenon has led to the liquidity of Polkadot ecological DeFi projects being cut into N fragments, and because applications that can make full use of XCM for asset aggregation have not yet appeared, liquidity is scattered among various fragmented assets, and capital efficiency Not fully utilized.

Paradigm changes

To summarize the above points, we believe that Polkadot is in the midst of the most important paradigm shift:

· Community: The Kusama community is strongly driven One side has even formed the mainstream of discourse.

· Technology: Relaychain will focus more on Layer0, and the new public welfare parachain will become a new force.

· XCM: XCM is more complete. The ink! contract will become an ecological weapon and a dark horse.

· Parallel chain: The progress of online business is slow, but after the parachain business is fully launched, the fundamentals will be greatly improved.

· Application: The integrated application has already appeared characteristics that other public chain ecology does not have, and it is on the eve of the outbreak.

Insufficient liquidity: XCM progress and asset fragmentation problems are more prominent, but after Polkadot Defi goes online and the XCM version consensus is strengthened, Polkadot's Defi will win Come a new outbreak.

Key Opportunities

PAKA will focus on the following key opportunities in the near future and in the future (does not represent investment advice):

· Integrated applications: we will Recommend some parachain projects to transform into "integrated decentralized applications". And use RMRK and Zenlink as benchmarks to explore and practice, which will be the focus of PAKA in the next stage. Reference cases: SubDAO, SubSocial, OpenSquare.

· Head applications of each parachain ecological incubation, and projects closely integrated with Kusama community culture.

· Protocols that can solve Polkadot’s lack of ecological liquidity: such as bridge protocols, or protocols that can aggregate the liquidity of homogeneous assets.

· Applications or developers using ink! contract technology.

· Infrastructure: such as Subquery, Zeitgeist, zCloak, Manta Network.

Metaverse: eg bit.country.

PAKA is a starte `s fund of the Polkadot ecology. It is a DAO Venture jointly created by many parachain initiators, aiming to discover and help the innovation team of the Polkadot ecology. We hope to accumulate the entrepreneurial experience and technology of each generation of the Polkadot ecosystem, help the next generation of entrepreneurs through DAO, and promote the realization of the vision of Web3.0.

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