👋 I write fluff-free & engaging content in crypto space, ECDSA to zk-SNARKs, Bitcoin to Polkadot, DeFi to NFTs 👨💻
We are approaching the end of Q1 2021, and it seems like the crypto bull run isn't showing any signs of slowing down. The public interest that the crypto market has gained during this bull run has been unprecedented.
As of Q1 2021, we have more than 1,050 public blockchains, and it is clear that we are moving towards a multi-chain universe, where each chain is specialized around solving a particular set of problems.
However, most of these chains exist in silos and have no cross-chain interoperability, which has resulted in a fragmented market for growing crypto users. As the number of chains is increasing, so is the problem of interoperability.
Polkadot is one of those projects that aims to solve this problem with its unique approach, where developers can launch specialized blockchain platforms on top of the Polkadot network, which can communicate and transact with each other, and also with external public chains like Bitcoin and Ethereum.
Today, we will explore the Polkadot ecosystem outlining five of my favorite projects making some headway.
If you are new to Polkadot, I' highly recommend reading my detailed all-in-one guide that can give you an excellent introduction.
So let's begin!
Acala is probably one of the most anticipated and promising projects in the Polkadot ecosystem right now that will serve as a DeFi hub, powering cross-blockchain open finance applications built on top of the Polkadot network.
Acala, with a native token ACA, is a specialized finance chain that offers a platform for smart contracts and bridges. It comes with the three main built-in financial primitives:
For those of you who aren’t familiar, Financial Primitives are the essential building blocks that sit at the core of any DeFi system. These primitives are independent, and when combined together, they can be used to build larger and complex systems.
As an analogy, we have cryptographic primitives like SHA-256, RSA, AES, etc., that serve as the backbone of any blockchain protocol we see today.
The decentralized stablecoin of Acala (ticker: aUSD), or the Acala Dollar, is trustless and backed by mature crypto assets like Bitcoin and Ethereum. Since the Acala chain is built with Parity Substrate Framework on top of Polkadot, the Acala Dollar is fully backed by the shared security of the underlying Relay Chain - one of the superpowers of Polkadot.
Interoperability is one of the key features of Polkadot, and it will greatly benefit the Acala Dollar as it will not only have access to other assets on Polkadot, but you could also transfer aUSD to other parachains on the network.
The second primitive is the decentralized exchange, which will be the first DeX ever built on Polkadot and Kusama. The DeX will incorporate a Curve AMM model that will minimize impermanent loss, fees, and slippage by building liquidity pools that will pair similar crypto-asset groups, like stablecoins.
This DeX will also feature a Unified Liquidity Provisioning mechanism for the Acala network, which means that instead of just trading, it can also be used for liquidation in cases where there is a risky position that needs to be liquidated.
Another noticeable feature that comes with the DeX is Flexy Fee, which allows you to pay gas fees in any token simply by tapping in the leverage.
Trustless Staking Derivative is the third primitive that sits at the core of the Acala chain. The reasoning behind offering staking derivative products is pretty genius; Polkadot has a PoS consensus and the native token DOT can generate yield, so it’s in natural competition with any of the yield generating DeFi activities happening on the network.
This trustless staking derivative was created to release some of the derived value out of the locked staking assets. Users can lock their DOT tokens into the staking pool, and in return, they get Liquid DOT (LDOT) as a representation of their staked assets.
This derivative can also be used as collateral across the network; you can swap, stake, or use it in other parachains on the network. The exchange rate between L-DOTs and the underlying DOTs is likely to increase over time as staking rewards are accrued.
These three primitives together will power Acala apps, an all-in-one DeFi service center where you can borrow aUSD, earn interest, trade tokens on DeX, and take part in the governance process.
Recently, Coinbase Ventures announced that they would invest in Acala and its sister network Karura on Kusama. This will further help the Acala project to accelerate its growth and adoption.
Moonbeam is a developer-oriented smart contract parachain on Polkadot that is fully Ethereum Compatible.
We are moving towards a multi-chain ecosystem where each chain specializes in certain aspects; think of Bitcoin, Ethereum, and Monero. However, these chains work in silos with no cross-chain integration, resulting in fragmented markets, both for users and developers.
Ethereum is the most affected because the bulk of the activity is happening on ethereum for the last two years, be it DeFi protocols, stablecoins, NFTs, DeXes, etc.
But, as you might have guessed, Ethereum has become a VERY congested place for new and existing innovations. The cost-efficiency and scalability challenges are among the many reasons pushing projects to explore other chains and build on them.
However, one of the main points of friction while moving to another platform is the prospect of taking all of the existing codebase and writing it in a different technology stack.
If Ethereum based projects want to deploy on Polkadot, they will have to port their solidity based smart contracts, and Web3 based frontend has to be rewritten using Polkadot.js and substrate, which can be a big point of friction.
Here comes the Moonbeam!
Moonbeam lowers that friction by creating support for solidity based smart contracts, and creating a Web3 compatible service provider so projects can easily move their frontends to Moonbeam.
Developers can quickly deploy their EVM based smart contracts to Moonbeam and become part of the Polkadot ecosystem, without worrying about building custom chains and working with complex integrations.
Moonbeam mirrors everything that Ethereum offers; Web3 RPC, accounts, keys, subscriptions, logs, and also add some enhanced feature sets like on-chain governance, staking, and cross-chain integrations.
With Moonbeam, you can:
By deploying your Ethereum applications on Polkadot, you can access an entirely new market segment and newer use-cases that come with Polkadot, without much of a hassle.
You can also take advantage of a range of different assets that will be available on polkadot like the Acala Dollar (aUSD) or bridged assets from Bitcoin and Ethereum’s ERC-20.
Moonbeam has a native token called Glimmer (ticker: GLMR) that is used to pay for the execution of smart contracts, transaction fees (which are already paid for), and governance. You can also use GLMR to nominate collators who are the block producers for the Moonbeam network.
PureStake, the company behind Moonbeam and Moonriver, has successfully raised $6 million recently. This funding round was led by Binance Labs, ParaFi, Coinbase Ventures, Fenbushi Capital and IOSG Ventures.
As Moonbeam is gearing up for the parachain slot auction, this financing round might play a significant role in winning the slot.
Bitcoin is coming to Polkadot, and PolkaBTC is going to make that happen.
PolkaBTC is a trustless Bitcoin gateway for Polkadot, developed by the awesome team at Interlay, using a trustless bridge from Bitcoin to Polkadot based on XCLAIM.
XCLAIM is a framework for financially trusted blockchain interoperability backed by top-tier research.
PolkaBTC is essentially a BTC-Parachain, where users will be able to mint 1:1 Bitcoin-backed wrapped assets as PolkaBTC tokens and move them across other parachains on the Polkadot network using XCMP/SPREE.
The BTC-Parachain has no central authority and will be run by a decentralized network of individuals. Anyone can operate this bridge, and you don't need any additional token to become a maintainer.
You can always redeem your PolkaBTC tokens for BTC or be reimbursed in any collateral currency - that’s a strong guarantee for the PolkaBTC token holders.
Here is how this BTC-Parachain works under the hood:
Issuance (Minting) - PolkaBTC can be created on the BTC-parachain by locking your BTC with vaults. Vaults are trustless and collateralized intermediaries on Bitcoin. Once you lock up your BTC, the Interlay’s monitoring service generates proof of payment and issues 1:1 PolkaBTC tokens.
Transfer and Trade - Once you have your PolkaBTC tokens, you can use them across a wide range of applications within the Polkadot ecosystem, like DeXes, stablecoins, lending, and borrowing protocols.
Redeem - Users can get the equivalent amount of BTC by burning their PolkaBTC tokens on the BTC-Parachain. The redeemed BTC are sent to your wallet address by a vault once the PolkaBTC tokens are burned. Users can also get reimbursed in DOTs, or in any collateral currency.
PolkaBTC tokens have no expiration date, and they can remain on Polkadot indefinitely until they’re burned to execute a redeem request. You can also get PolkaBTC tokens on Polkadot without having a BTC wallet, which is only needed if you want to redeem your tokens.
Let’s briefly talk about Vaults as they sit at the core of the whole process. They make sure the BTCs are locked, and the equivalent amount of PolkaBTC tokens exist. Users can choose a vault they like on the BTC-Parachain, or become their own vault if they want to, by providing collateral in DOTs.
Vaults are liquidity providers; they earn fees in PolkaBTC on issuance and redeem process and also earn a yield on their DOT collateral. Large liquidity providers can open up their own vaults and retain custody of their BTC holdings.
To ensure safety of the funds, Vaults must be over-collateralized by 150% with DOT collateral for their equivalent amount of BTC holdings. PolkaBTC bridge parachain ensures correct behaviour of these vaults.
If a vault goes offline, behaves in a wrong way or fails to execute a redeem request, then all the collateral is slashed. In that case, users can either try with another vault or be reimbursed in DOT along with a small bonus for the inconvenience.
To fully trust the BTC-Parachain bridge, you only have to ‘trust’ that these two statements are true;
Other than that, the whole system's design is highly secure and foolproof, and ensures that your funds are safe and secure.
Darwinia Network is a fully decentralized cross-chain bridge network that is built using Parity Substrate.
Their primary focus is to connect heterogeneous blockchains like EOS, Polkadot, Ethereum; and facilitate them with cross-chain assets transfer and general remote chain call.
This decentralized cross-chain bridge network can have a range of different applications in Defi, cross-chain NFT trading market, blockchain-based games, etc.
Darwinia Network allows any parachain on Polkadot to communicate with external public chains and transfer value in a decentralized and trustless manner. The beauty of Darwinia Network is that there will be no middlemen, and the assets will flow freely between any chain in a trustless environment.
Interestingly, Darwinia Bridge Chain has two separate operating modes; Solo Mode and Polkadot Connection Mode.
Solo Mode - In this mode, Darwinia Network will not be connected to Polkadot, and will operate as an independent public chain, with its own consensus, business logic, and applications.
Darwinia Network will also have the same cross-chain bridge functionality in solo operating mode to enable heterogeneous chains to communicate with each other and transfer value.
Polkadot Connection Mode - In this mode, Darwinia Network will act as a parachain on top of the Polkadot relay chain. It will benefit from the shared security model of the underlying relay chain and interact with validators and collators.
When connected to Polkadot, Darwinia Network will still use its local consensus through its own set of validators and staking mechanism. The local consensus will also be inline with Polkadot’s global consensus but will achieve faster block confirmation times and higher transaction throughput.
You might be thinking that Polkadot already has an official Polkadot-Ethereum bridge and a few other projects working on the same lines, then how does Darwinia Network differentiates itself from other projects?
Polkadot-Ethereum official bridge uses GRANDPA consensus model, with a bunch of authorities on ethereum that are authorized by Polkadot validators. For large amounts of transactions, this model can become computationally heavy.
Darwinia Network uses a light client of GRANDPA that uses Merkle Mountain Range (MMR) crypto algorithm to make things more efficient. The MMR algorithm essentially finger-prints the chain history and summarizes all blocks from genesis to the current block.
This greatly enhances the efficiency for block confirmation. Imagine if you want to confirm the 1,000th block on Ethereum; you will have to relay/store/verify every block in the range 0-1,000 to confirm the 1,000th block.
With MMR, since you have the fingerprint of the entire chain history, you can immediately verify the data integrity between any block within the range of 0-1,000 in a fraction of a time.
Darwinia Network has a thriving application ecosystem already. Some of the ongoing projects are:
Evolution Land - The world’s first NFT + Defi integrated virtual simulation blockchain game that supports cross-chain interactions.
Subscan (Explorer) - A high precision data explorer for substrate-based blockchains.
Defi Token DEX - A DEX that can realize automatic cross-chain transactions between tokens.
NFT Market - The decentralized NFT auction market supporting cross-chain auctions.
Darwinia Network also incorporates DVM or Darwinia Virtual Machine. DVM is an EVM compatible virtual machine that can run EVM based smart contracts and DApps.
The native token for Darwinia Network is called RING, which is used to pay gas fees for transactions, storage, and smart contract execution. Users can also stake their RING tokens on the network and earn KTON tokens as a reward.
Do you know what’s the ‘killer app' in the blockchain space?
The entire blockchain ecosystem is fragmented, and there is no platform offering all-in-one services for the application developers to build and launch their DApps. PolkaFoundry is going to change that!
PolkaFoundry is a One-Stop Production Hub for Defi and NFT applications on Polkadot. The whole platform consists of the following components to facilitate developers build DeFi & NFT apps in a frictionless way:
By providing these building blocks, PolkaFoundry makes it super easy for developers to manage identities, store files, and access Oracle data while building and testing their DeFi and NFT apps.
In Phase 1, the PolkaFoundry platform will be originally developed in Tendermint, and in phase 2, it will be built using the Parity Substrate framework.
By launching on Polkadot, PolkaFoundry will take advantage of the true interoperability offered by the Polkadot ecosystem.
The applications launched on PolkaFoundry will also interact with other assets and parachains across the Polkadot network and will also connect to bridges so applications could communicate with external chains like Bitcoin and Ethereum.
The decentralized oracle service (PolkaGate) will connect to external data providers like Chainlink, Kylin, Oraichain, and others. Along with the identity service (PolkaID), Oracle, and document storage service, PolkaFoundry offers a perfect recipe for DeFi apps that want to do KYC and rely heavily on external oracle data.
One interesting aspect of PolkaFoundry is that, unlike others, it focuses on solving UX issues that are commonly present in DApps. Due to so many complex crypto concepts and user journeys inside the Dapps, the audience is often just limited to crypto enthusiasts.
PolkaFoundry changes that by offering the following three things to the DApp developers.
Signing Key - The signing key will be used instead of a private key, and comes with an expiration date and a small set of permissions.
Flexible Payer - The transaction fees can be paid in a decentralized manner and offer more monetization methods like pay-as-you-go, freemium, etc.
PolkaID - The PolkaID will convert keys into different parts (shards) and distribute them to multiple and secure key management services. This will provide more security and prevent illegal access.
PolkaFoundry is also EVM compatible, so you can seamlessly port your Ethereum based applications and smart contracts to PolkaFoundry without worrying about the code changes.
With that said, you can build a wide variety of applications on Polkadot, including NFT auction marketplaces, open lending platforms, cross-chain Dex, derivatives, insurance products, and prediction markets.
This is it from my side! The Polkadot ecosystem is getting better, and we will see a lot of exciting projects in the coming future.
Over and out! 👋
Haroon (Follow me if you like this article)
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