CoinDesk Report:
Polkadot (referred to as “Polka” hereafter) has recently been a hot topic in the news. It all started with the uproar caused by Polka’s semi-annual treasury report on June 29, 2024, revealing expenditures totaling $87 million, including a hefty $37 million on marketing and $300,000 on KOL endorsements perceived as inflated. Users mockingly dubbed it “spending faster than hackers steal.” Subsequently, Asian project partners unleashed a torrent of accusations, alleging leadership shortcomings and internal political maneuvering within Polka. Rumors had been circulating for a year about poor cost management leading to significant layoffs, prompting developers to leave in droves.
However, rewind five years ago, and Polka was known as the “Ethereum killer,” a cross-chain star celebrated for its advanced technology and praised within the community as an action-oriented team.
In just a few short years, from admiration to scandal-driven marketing, Polka’s once-promising hand was played poorly, evoking lament.
When discussing Polka, two key figures cannot be overlooked: the esteemed founder and the forward-thinking cross-chain star.
Gavin Wood, one of Polka’s founders and former CTO of Ethereum, is credited with conceptualizing technical ideas, designing the technical architecture, founding the client, and inventing Solidity, the high-level language for smart contract development. Notably, the widely adopted concept of Web3.0 owes much to Gavin Wood’s 2014 keynote speech. His title of technical genius is well-deserved.
After leaving the Ethereum Foundation in January 2016, Gavin Wood co-founded Parity Technology with Jutta Steiner and launched the Web3 Foundation, with Polkadot as its initial project.
The project’s original concept was simple: as Gavin Wood put it, “Originally, the design logic did not envision interoperability; we were waiting for Ethereum’s sharding technology. But sharding has yet to materialize. Therefore, I decided to create a more scalable Ethereum by pushing the shard concept to an extreme, opting out of sharding altogether and designing independent chains that could exchange information, ultimately achieving communication through a shared consensus layer.”
To summarize the background at the time, Ethereum was flourishing due to the rapid development of smart contracts, yet its architectural redundancy meant inherent inefficiencies and scalability limitations. As an example, Vitalik Buterin once estimated that executing computations or storing data on Ethereum costs a million times more than on commercial cloud platforms. Among many technical solutions, layering and sharding emerged as the most viable paths, with layering featuring state channels and sidechains, while sharding leaned towards Rollup. Ethereum was advancing towards ETH2.0 during its Serenity Phase, constructing its beacon chain.
In response, Polkadot made choices and proposed forward-looking technological concepts, constructing a heterogeneous multi-chain network with a layered architecture that separates consensus and computation. Its main architecture comprises three parts: relay chain, parachains, and bridges. The relay chain, also known as the main network, forms the core of the network with its blockchain-based consensus ledger. Parachains are independent blockchains built on top of this, while bridges allow Polkadot to connect with external networks like Ethereum and communicate with them.
While delving too deeply into technicalities is beyond the scope, the issues Polkadot seeks to address include cross-chain interoperability, sharding for scalability, multi-chain architecture, and abstraction.
This aligns with Ethereum’s focus over the past two years, yet Polkadot had begun envisioning these solutions as early as 2016.
The vision is ambitious, and the engineering realization faces significant challenges. In October 2016, Polkadot’s first draft whitepaper was released, followed by periods of stagnation and multiple delays in launching the mainnet, including a bug in the initial private placement that locked 300,000 ETH. It wasn’t until 2019 that Polkadot made rapid progress, launching Substrate in June—a critical component for parachains—and Kusama, the Polkadot testnet, in August, laying essential groundwork for future developments.
While technology excites, it alone does not attract users. Examining Polkadot’s rise reveals a pivotal factor: its compelling narrative in China.
In 2019, alongside technological advancements, Polkadot launched extensive marketing campaigns, learning from EOS’s experiences, and targeting China’s vast market. The first half of the year saw Polkadot’s China tour, with frequent events in Hong Kong, Hangzhou, Shanghai, Beijing, and Chengdu, featuring core team members. Founder backgrounds also facilitated project growth, with Gavin Wood having a semi-permanent base in Shanghai and a Chinese name, Lin Jiawen, attracting investments from local Shanghai capitals. The combination of technical expertise, extensive marketing, and an untapped market quickly drew Chinese interest into the Polkadot ecosystem.
Data from 2020 shows Chinese developers were particularly active in the Polkadot community. Of the 200 projects funded by the Web3 Foundation, nearly 20% were from China. Leveraging Chinese developers, Polkadot saw a 44% increase in monthly active developers in May 2020, far outpacing Bitcoin and Ethereum. The Chinese community platform PolkaWorld played an instrumental role, with daily reports and weekly livestreams, serving as a catalyst for community engagement.
Even at the time, foreign media like Decrypt reported that Polkadot was supported by Chinese investors, stating, “In China, Polkadot is widely regarded as an updated, improved EOS.”
Backed by Chinese traffic and funding, coupled with the benefits of token splitting, Polkadot surpassed expectations. By the end of 2020, Polkadot’s governance token DOT had surged over 45% within a year, reaching a market capitalization of $4.7 billion, briefly overtaking Chainlink to become the fifth-largest cryptocurrency.
The next surge came with slot auctions. For projects seeking to connect to Polkadot’s relay chain as a parachain, obtaining a slot was crucial. The official predicted a limit of around 100 simultaneous slots on Kusama, necessitating selection through candle auctions, where DOT was staked. The proposal required project stakeholders to pledge DOT to ensure the mainnet’s security, albeit at the expense of liquidity for users.
To accumulate more chips, project stakeholders needed to amass more tokens, while users could participate through staking, leading to reduced circulation and a corresponding rise in DOT prices. In November 2021, Polkadot concluded its first parallel chain slot auction, with winners including Acala, Moonbeam, Astar, Parallel, and Clover. Acala attracted over 80,000 members and accumulated over 3.2 million DOTs in support, coinciding with DOT reaching an all-time high of $54.98 that month, solidifying Polkadot’s “Ethereum killer” reputation.
As the bear market arrived, Polkadot’s fate took a sharp downturn.
Following the candle auction, DOT’s price plummeted rapidly, raising doubts among investors about its intrinsic value. With a two-year lockup period, active user numbers also began to decline.
On the other hand, Polkadot’s heavy emphasis on technology over user experience and its increasingly complex technical architecture resulted in lagging ecosystem development. Compared to competitors like Cosmos and other new public chains, Polkadot’s day-to-day transactions were only around 10,000 in 2023, with daily active users under 8,000, significantly behind Cosmos’s 20,000. Nevertheless, with numerous infrastructure projects in its ecosystem, Polkadot remains a magnet for developers.In 2021, Polkadot boasted the second-largest developer community after Ethereum, closing the year with 1,400 developers. Even amid the turbulence of late 2023, the total number surged to 2,100, firmly maintaining its position. Criticisms arose, labeling Polkadot a developer ghost chain with a severe lack of application ecosystem.
Technologically, Polkadot has made significant strides in recent years, launching XCM V3, system parallel chains, asynchronous support, and parallel threads. Despite these advancements, Polkadot remains less than developer-friendly, especially for Asian developers.
Projects like Manta, once a leading non-DOT project in TVL and market cap/fully diluted market cap, exited Polkadot last year. Founder Victor Ji voiced disappointment on X platform, citing disillusionment with the Polkadot ecosystem and team. He emphasized the toxic environment, lack of true value for Web3, and neglect of users or adoption rates. Ji also criticized Polkadot’s bias in funding towards European/American projects, stalling overall ecosystem development.
This isn’t isolated; the recent treasury crisis prompted multiple Asian projects to critique Polkadot. Harold, founder of Din, formerly Web3 Go, a Polkadot ecosystem analytics platform, highlighted the significant challenges Asian-led projects face, including political, relational, and cliquish hurdles.
These issues aren’t new; previously, many disclosed Polkadot’s centralized decision-making around Gavin, influencing major pathways. Gavin’s shift from Parity CEO to Chief Architect in October 2022 didn’t diminish his role as Polkadot’s spiritual leader, but criticisms mounted about his passive leadership hindering Polkadot’s growth.
OpenGov’s governance, proposed by Gavin, aimed for full decentralization, replacing the elite decision-making of technical committees and boards with DOT holders’ broader vote. Yet, executing fully decentralized governance prematurely sparked chaos and disputes within the community.
PolkaWorld, the largest unofficial Chinese Polkadot community, ceased operations after its funding proposal was rejected in September. Founder Markian Ivanichok expressed disillusionment with Polkadot’s governance, citing increasing difficulty in funding proposals.
Despite significant marketing expenditures—$87 million in the first half of the year, including $37 million on marketing—Polkadot faced criticism for ineffective spending. KOL expenditures dominated, exceeding half of the total budget, with questionable effectiveness and allegations of inflated follower counts.
Polkadot’s development path has seen successes and failures; slow progress in ecosystem development contrasts sharply with rushed governance changes. Controversies over centralization, erratic planning, Asian team discrimination, and user experience neglect persist.
Despite challenges, Polkadot adapts; initiatives like JAM Chain and Agile Coretime reflect efforts to improve. However, with Ethereum’s exodus and revenue challenges, Polkadot’s future remains uncertain amidst missed opportunities and strategic misalignments.
