Investors View Polkadot as an Alternative Layer 1, Coinbase Says

Despite the growing amount of Polkadot’s token DOT being locked up in recent months, its market capitalization as a percentage of ether’s (ETH) has been in constant decline since the start of November 2021, Coinbase said in a report dated June 2.

• DOT benefits from inflationary pressures as more token is locked up or bonded with every parachain auction. Parachains are individual networks running in parallel to create a harmonized, interoperable ecosystem.
• However, DOT’s market cap as a percentage of ETH has dropped to 4%, the report said. This level is similar to when Polkadot’s first mainnet was launched in May 2020, the report added.
• Classification is an important reason in explaining the fall in DOT’s total market cap relative to ether’s, as many investors have categorized Polkadot as an alternative layer 1 competing with ethereum, rather than as a layer 0, analysts led by David Duong wrote.
• From this perspective, DOT’s value can be seen as proportional to the total value locked (TVL) within it “as opposed to the value of its unique modular structure and cross chain capabilities,” Coinbase said.
• The reason for this misperception is because for a considerable time Polkadot lacked the “cross-consensus messaging capabilities that allow parachains to actually transfer data and tokens among themselves,” but this finally launched on May 4 this year, the note said.
• Last month, the platform said it was bringing liquid staking to its network of blockchains, allowing holders of cryptocurrency who have pledged to support the proof-of-stake (PoS) network an additional way to increase their revenue by earning extra yield in decentralized finance (DeFi) applications.
• Polkadot is a nominated proof-of-stake (nPoS) blockchain that allows layer 1 applications to interoperate with one another.

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