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How did Polkadot suddenly rank 5th in the digital currency market?


DOT, the digital currency of the Polkadot platform, came out of nowhere and became one of the most popular tokens. But what is the secret of the success of this digital currency and how did it suddenly reach the top of the market? In this article from Digital Currency, using an essay Published on the Decript website, we look at Polkadot, one of the most exciting recent projects in the digital currency industry.

Polkadot is a blockchain-based network designed to create separate dedicated blockchains on a network, to build flawless decentralized applications, and instant, fee-free transactions. The founder of this platform is Gavin Wood, who was one of the founders of Ethereum. Polkadot is now a competitor to Ethereum.

Three weeks ago, the interactive Polkadot blockchain project did not even make the top 100 digital currencies. But now (September 25), this digital currency, with a market value of about $ 4.5 billion, is ranked fifth in terms of market value. This astronomical increase is partly due to a process called token redefining.

On August 21st, after a vote by the entire Polkadot community, Token.com was redefined, meaning that the number of tokens in circulation increased 100-fold. This process is similar to the stock split process in the stock market, in which the shares of a particular company are divided into more shares. This could dramatically increase the value of the stock after the break-up, as small investors would find it more cost-effective and more willing to invest. However, in the digital currency space, such a concept is not very familiar.

During the redefinition of the Pulkadat token, an old dot token was split into 100 new tokens. As a result, the supply of this digital currency increased from the initial 10 million tokens created in the first block (Genesis) to 1 billion tokens.

This division does not affect the value of the total assets of the investors in this protocol. However, there are speculations about the relative impact of this event on increasing the token value of this platform.

Token parsing is a new type of stock parsing

The main motivation for stock splitting is to make stock more profitable for small investors and increase liquidity in the company’s stock market by encouraging small investors to invest. The Polkadot community makes a similar argument for redefining the token.

The decision was made to reduce the value of the dot in order to calculate and, as a result, purchase the token (or, as Gwenwood, the creator of the Polkadot platform, “more cost-effective”). In addition, the decision to limit the initial supply of Polkadot, early in the launch of the platform, was apparently a contractual decision.

This process required a referendum from the whole community, which took place in July. In this referendum, the division of 1 token into 100 tokens received 86% of the votes in favor. In the Polkadot network, any change in the Blockchaink requires voting by token holders. As you can see in the image below, the Polkadot community was given four options for redefining the token. The options (left to right, respectively) were: 1) Do not change. 2) Each token should be divided into 10 tokens. 3) Divide each token into 100 tokens. 4) Each token should be divided into 1000 tokens.

How Polkadot Surged From Nowhere Into the Top 10 Cryptocurrencies - Decrypt
Source: Polkadot website

The platform’s development team set a happy date (August 21) to redefine the token. On the same day, Tesla, an electronics maker, broke up its stock and saw a 12 percent jump in stock prices after 10 days.

Of course, dot growth was much more dramatic than Tesla shares. The token dot price rose from $ 2.92 before redefining to $ 6.84 on September 1.

How Polkadot Surged From Nowhere Into the Top 10 Cryptocurrencies - Decrypt
The effect of redefining tokens.com on the diagram of this coin on the coin market cap platform

However, analysts claim that breaking the dot into smaller units was not the only factor in the token’s rapid growth.

Thomas Kuhn, senior analyst at Quantum Economics Research Consulting, cites three reasons for the token market boom: The project has the right budget to start with; Therefore, it can finance a professional and powerful team. Polkadot is a relatively new project compared to the old platform like Ethereum, which is inevitably on the verge of upgrading and upgrading. In addition, .ot is a relatively new asset. He pointed out:

Investors of this token did not wait for years for the first price increase to sell it and make a profit.

The three-year journey of Polkadot

It cannot be said that .tok token is completely new. The Polkadot project was launched in 2017 and has been under development for three years. In recent months, in addition to redefining the token, several other major changes have taken place in the project’s growth process, including the launch of the main Polkadot network in May.

In fact, the most important event in the history of this project was another public vote that allowed investors to transfer their tokens. Previously, token transfer was very difficult and only possible through personal debt contracts and direct and off-exchange exchanges.

The Polkadot community’s positive vote to transfer tokens to exchanges allowed them to list this popular token. Bainance and Kraken quickly added the token to their list; In fact, the two exchanges did so quickly that they were accused by the Polkadot community of premature action; The two exchanges added Token.com to their list on August 18; That is, three days before the agreed date.

The same day, Gwyn Wood, a former Ethereum key member and founder of Polkadot, tweeted:

As we warned earlier, some exchanges were not faithful to their commitment and listed the new dot today (Tuesday, August 18) instead of Friday. Friday is the day the Polkadot community sets out to redefine its token.

Although we do not have the ability to control these centralized exchanges, we can ask them to remove the token from their list by the due date.

Their actions endanger our society.

How Polkadot Surged From Nowhere Into the Top 10 Cryptocurrencies - Decrypt
Gwynwood Tweets

With the addition of the transferability feature, the .ot market value jumped, pushing the token to the top ten digital currencies before the token redefining day. Following the token redefining event, Dot also made it to the top five digital currencies on the market. Of course, this token fell slightly with the decline of Altcoin markets, and with two declines, it was in seventh place for a while, but once again it was able to regain the fifth place with a dazzling growth in a few hours.

The market value of a token is the product of the token price multiplied by its working capital. However, while redefining the token supply increases its circulation, the total value of the .ot market has not changed. Thus, a dot investor who previously had only one token will now own 100 tokens, but the total value will remain the same despite the increase in the number of investor shares.

The future of the market for Polkadot

Dot trading volume has also grown in recent weeks, reaching a record $ 1.4 billion on August 27th.

It can be said that the addition of the portability feature and the token redefining event has caused a bit of confusion. But this has not dampened investors’ enthusiasm for the project.

Corey Miller, chief development officer at dYdX and a board member at Genesis Block Capital, attributes the growth of Pulcadat to the Web3 Foundation’s outstanding performance. The Better Web Foundation is the founder and financial backer of the Polkadot project. Miller stated:

These conditions are a reflection of the extraordinary work of the Better Foundation to build a community around the world. The results of such actions have increased the awareness and acceptance of developers.

Polkadot’s ambitious goal is to create an ecosystem that can compete with Ethereum. But will Polkadot remain in the top five digital currencies?

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