Messari Report Highlights Polkadot’s Uniquely Decentralized Governance Credentials
A new report from Messari shows that Polkadot’s native DOT token remains the favorite bet for institutional investors in the cryptocurrency space.
Of the 82 investment funds tracked by Messari in the first half of 2022, 29 were reported to be holding sizable investments in DOT. That puts Polkadot some way ahead of the second-most popular blockchain for institutional investors, with Oasis Protocol backed by 24 of the funds tracked, and Nervos Network owned by 23 of the funds. It also means it’s regarded more highly than prominent blockchains such as Avalanche, backed by just 18 funds, and Stacks and Solana, whose native tokens are held by just 13 each.
Polkadot developer Parity Technologies’ head of public affairs Peter Mauric said on Twitter that Messari’s report underscores the unique asset decentralization of the Polkadot blockchain. Whereas DOT is distributed among a wide number of institutional investors, there are plenty of hyped-up blockchain networks where the bulk of their token supply is owned by just a handful of venture capitalists. Not even Ethereum can really compete, as it’s widely reputed that between 30% and 50% of all ETH is held by two or three whales.
Shows incredible positive sentiment AND asset decentralization for @polkadot. This is on purpose.
— 𝐏𝐞𝐭𝐞𝐫 (@PAMauric) June 25, 2022
On the other hand, some hypey networks have the vast majority of their supply owned very few insider VCs.
This also misses that 30-50% of all ETH is held by 1-3 dudes. https://t.co/R6VvJR2DWi
This unique decentralization is a big deal because the complexity of blockchain governance structures often makes it difficult for developers to roll out major updates. Take Bitcoin for instance, where the Lightning Network upgrade was subject to intense and vigorous debate that lasted for years before it was eventually rolled out. A similar lengthy debate ensued over Ethereum’s switch to a proof of stake consensus mechanism.
The problem is that traditional blockchains are encumbered by complex rules that make it difficult to identify the key components that need to be updated to improve the system. Add to that, there’s a need to closely monitor any changes that are made, meaning it becomes time-consuming and difficult.
Polkadot fixes these problems with its well-drafted governance model and voting mechanism. Its code can only be updated following a community vote, and the widespread distribution of DOT assets ensures the process is extremely demographic.
The project recently announced Governance version 2 (Gov2) at its annual Polkadot Decoded event, with the aim being to further decentralize the community decision-making process. Gov2 removes any preferential, or first class citizens, such as the Polkadot Council and Technical Committee, from the equation. With that, voting is done by a single class of referendum participants. There have also been various tweaks made that aim to streamline the process, so that multiple decisions can be made at the same time.
That so many investors are backing DOT also underscores the belief that Polkadot has a very bright future ahead of it. While no one is saying it will displace Ethereum as the king of smart contracts any time soon, it certainly possesses some key advantages. Ethereum’s long struggle to implement PoS shows just how difficult it can be to obtain the community consensus needed to make radical changes to an existing blockchain. But Ethereum needs to change to solve chronic issues around its high gas fees and slow transactions, which have already pushed many DeFi and NFT projects to embrace other chains.
Polkadot already presents a viable alternative with its unique infrastructure that’s based on a Layer-1 Relay Chain. This chain plays host to a number of unique “parachains”, which are customizable Layer-1 blockchains specifically designed for different use cases. What’s more, they’re all natively interoperable with one another and they all benefit from Polkadot’s strong security. This means developers can build on Polkadot’s parachains rather than the main Relay Chain, helping to avoid network congestion and guarantee lower fees.
To date, there are already 20 parachains up and running on Polkadot, demonstrating rapid growth of the ecosystem since the first five parachains launched in December 2021. The growth of Polkadot is further illustrated by the 2022 edition of its annual user conference Polkadot Decoded, which takes place on June 29-30 in not one, but four host cities spread across the globe - in New York, Buenos Aires, Berlin and Hangzhou, with additional events taking place in locations such as Mexico City.
Moreover, the flexibility of parachains was made clear last month with the news that billionaire crypto investor Frank McCourt is teaming up with Polkadot founder Gavin Wood to bring his new social network, known as Project Liberty, to Polkadot’s network.
McCourt said Polkadot’s decentralization was a key reason for his choice, and that he aims to build a blockchain that will store user’s data so they can own it and control it. The idea is to create an alternative to existing social media sites such as Facebook and Instagram, which store data on each of their user’s for the sole purpose of monetizing it through advertising. In McCourt’s vision, Project Liberty will ensure that data cannot be controlled by a single entity, and allow it to be transferred from one platform to another. To that end, Project Liberty is working to create a decentralized Social Networking Protocol (DSNP) on Polkadot that will connect multiple blockchains to maximize speed and scalability.
Polkadot’s high level of decentralization has served as a magnet for institutional investors and crypto builders alike, and should help it to weather the current crypto winter that has seen almost every single cryptocurrency token fall far from their all-time highs. The price of DOT has been hovering between $7.50 and $8.00 per token for the last couple of weeks, far below its all-time high of $54.98 back in November 2021. However, with plenty of deep-pocketed and long-term hodlers continuing to have faith, as exposed by Messari’s report, that price could well prove to be a bargain by the time the next bull run takes off.
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