Polkadot Will Likely Bid Higher Based on Upcoming Parachain Auctions

Polkadot (CCC:DOT-USD) is now the 8th-largest cryptocurrency, according to Coinmarketcap. Its market capitalization was $52.8 billion at $53.37 just after the U.S. market closed on Nov. 3. This means DOT crypto has been on a stellar run in the past several months. There is every reason to believe that this upswing will continue.

the icon for the Polkadot (DOT) cryptocurrency
Source: Zeedign.com / Shutterstock.com

For example, when I last wrote about DOT crypto, it was at $37.73 as of Sept. 14. Since then the crypto has risen 41.5% in the space of fewer than 2 months.

In fact, since Sept. 28, when DOT crypto reached a trough of $26.84, the crypto has spiked 99% in less than a month and a half.

What is going on here? What is making the market so excited about the Polkadot blockchain platform?

Recent Developments With Polkadot Crypto

Polkadot’s essential usefulness is its ability to act as a bridge across all other blockchains. This includes private, public and permissionless networks. It is like how HTML allows sites, browsers and servers to interact with each other.

Recent news accounts for a big portion of the gains that the DOT crypto has experienced. Polkadot’s ruling council passed a resolution that will allow “developers to register parachains and explore crowd loan funding for projects,” according to Cryptoslate online magazine.

As a result, online parachain auctions are set to begin on Nov. 4. This will allow developers to register and crowd-fund loans for developers in the Polkadot platform.

This is important for the following reason: Polkadot does not support smart contracts on its main blockchain. But it can support small smart contract apps on its system of parachains, often written on top of the Ethereum (CCC:ETH-USD) blockchain platform.

Auctions Help the DOT Crypto Price Rise

The Binance exchange has also extended its support for the Polkadot parachain with auctions that are set to go live next week.

Parachains are highly specific blockchains operating atop the main Polkadot blockchain. They can be customized for any number of use cases and feed into the main blockchain, called the Relay Chain.

The auctions will allow specific customers to lend money to and invest in the parachain developers to develop their blockchains for the specific customer.

This likely accounts for a big portion of the gains with DOT crypto over the last month and a half.

Moreover, as long as the auctions continue in earnest, expect the crypto to continue to rise. I would expect this will be the case at least through the end of the year. This is based on other analyst comments on the success of similar auctions for Polkadot’s sister blockchain Kusama.

Investors in Polkadot Auctions

This auction system will be similar to loan programs for the various blockchain parachains. The whole process is described on Polkdot’s auction site.

The process of obtaining the loans from investors is so that developers can afford to “lease” space on the main Polkadot network to highlight their particular parachain’s utility.

The loans are essentially crowdfunded loans. But they could also be specific loans from customers of a particular parachain. The loans will fund purchases of DOT crypto that the parachain developers have to “stake” for up to 2 years to lease space on the main Polkadot network.

This helps develop demand for DOT crypto as the parachains use these loans to buy Polkadot crypto. It also gives investors another chance to earn interest or rewards paid out in DOT crypto from the various parachains.

The net effect will be to strengthen the demand for DOT crypto over the long run, especially if this proves to be an effective way of developing specific parachain blockchain utilities. For example, Defi (decentralized finance) contracts are very popular right now. To the extent that some of the parachains can find uses in the Defi arena, they are likely to be very popular.

The bottom line is that investors in DOT crypto are likely to enjoy a bumpy ride but significantly higher upside over the next several months.

On the date of publication, Mark R. Hake held a LONG position in ETH-USD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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