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 tokens are 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 that 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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