Editor’s note: This article was updated on Jan. 6, 2023 to correct that DOT contributions are locked for 96 weeks, not 96 months.
Polkadot (CCC:DOT-USD) launched its first five parachains in December. Ultimately, there will be 100 individual blockchains. Last week, I suggested that the launch of the parachains significantly upped the blockchain platform’s utility, a necessity in my opinion when evaluating cryptocurrencies and their long-term appreciation potential.
The five parachains that went live are Acala, Moonbeam, Parallel Finance, Astar, and Clover. All five focus on decentralized finance (DeFi), investments, loans, etc.
Seeing as utility is my focus when it comes to cryptocurrencies and blockchain — and not having any familiarity with most of the five — I thought it would be fun to figure out each blockchain’s primary utility.
By the end, I should have a winner.
Polkadot and Acala
There was no shortage of Acala supporters for the first parachains auction. The DeFi platform raised $1.3 billion from 81,000 wallets, an average of $16,049 per wallet.
Although it raised $60 million less than Moonbeam, it was the official winner because its contributions led for almost two-thirds of the auction period. The 10 projects hoping for a parachain slot collected almost $3.5 billion in DOT-USD.
Acala and Moonbeam were the two favorites. They accounted for 76% of the funds collected during the auction.
As I mentioned, Acala raised $1.3 billion in DOT-USD in the parachain auction. Those contributions are locked in for 96 weeks, the length of the parachain lease period. In return, contributors received 3.3 Acala Token (CCC:ACA-USD) as reward for every DOT-USD contributed, which vest over the life of the lease.
The big downside is you’ve locked in the Polkadot liquidity. You can’t touch them, sell them, trade them, use them as collateral, etc.
Acala’s solution was to create Liquid Crowdloan DOT (lcDOT) tokens on a 1:1 basis. So, if you contributed 100 DOT-USD, you got 100 lcDOT tokens, which you could trade, use as collateral for a loan, etc.
At the end of the lease period, you would turn in your lcDOT tokens for an equal amount of DOT-USD. It’s not quite having your cake and eating too, but if I’m reading the crowd loan figures correctly, approximately 74% of the contributed DOT-USD weren’t made directly but through the Acala Vault.
So, I must not be the only one who sees the benefit of the lcDOT option.
The Moonbeam Advantage
While not a crypto novice, I’m certainly no Gavin Wood, the founder of Polkadot. I remain in learning mode when it comes to the entire blockchain/cryptocurrency/DeFi movement.
However, the fact that Moonbeam provides a bridge between Polkadot and Ethereum (CCC:ETH-USD) decentralized applications (DApps) suggests Polkadot’s interoperability gives it a leg up on other blockchains.
Here’s what the Polkadot website has to say about Moonbeam:
“You can leverage Moonbeam’s full connection to the Polkadot Relay Chain, which the Moonbeam economic model pays for on an ongoing basis. This is much less expensive than paying for parachain- or parathread-based access on your own,” CryptoLots contributor Siamak Masnavi reported on Jan. 13.
Moonbeam was the first of the five initial parachains to launch on Polkadot. I look forward to learning more about the more than 80 projects Moonbeam has on the go.
The utility provided by Moonbeam is Ethereum-compatible smart contracts.
The Best of the Rest
Parallel Finance intends to be a major player in DeFi, specifically in decentralized lending protocol. Its products include leverage staking and auction lending to Polkadot investors. So, if you own DOT-USD and want to stake your crypto, Parallel allows you to create a tokenized staking derivative with xDOT. It is very much catering to the institutional market. That’s a good thing.
According to Czech bloggers Polkadot community builders, Polkadotters, writing on Medium, Astar Network’s big contribution is dApp staking:
“DApp staking is the most innovative feature that is currently offered solely by Astar Network (Shiden on Kusama) in the entire ecosystem. We believe this will be a huge differentiator for developers looking to build dApps on Polkadot because all smart contract developers on the Astar Network can now get passive income for building their dApps,” Polkadotters wrote on Oct. 22.
Smart contract development, Polkadotters argue, isn’t cheap. dApp staking gives developers the incentive to do so.
Finally, Clover believes its edge is that it provides layer-1 blockchain, a smart contract platform, a multi-chain DeFi hub and a cross-chain wallet. It very well might, but its website is light on details.
It’s going to take me a few weeks to figure Clover out.
The Bottom Line
I remain frustrated with the inability of the cryptocurrency industry to keep things simple.
I am not a dumb person, yet putting this article together made me feel that way. This tells me that all of these parachains have a lot of work to do before they’re commercially viable or successful. They’re terrible at speaking in plain English.
From where I sit, the parachain with the most significant utility is Moonbeam. However, I’ll continue to monitor all five to see if anything changes in the weeks ahead.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.