Article by 0xzh Edited by Trewkat Cover Art by Tonytad

The Polkadot blockchain, founded by Ethereum co-founder Gavin Wood, distinguishes itself from other blockchains as a cross-chain platform that prioritizes interoperability. Thanks to its focus on enabling cross-chain communication with bridging technology, users of other Layer 1 chains like Bitcoin and Ethereum are able to easily integrate with the Polkadot ecosystem.

Polkadot was designed to solve challenges faced in other blockchain ecosystems, namely interoperability, customization, scalability, on-chain governance, self-upgradability, and security.

The Polkadot blockchain could be considered as a meta platform for developing your own blockchain. Creators of decentralized applications on Polkadot benefit from more customizable blockchains that are better tailored to the unique needs of their applications. This is possible because of the architecture of Polkadot, which is composed of a main chain (relay chain) and sub-chains (parachains) created using the Substrate Software Development Kit.

The separation between the processes required to add and validate transactions between parachains and the relay chain enables faster transactions to be executed between decentralized applications on the network.

DeFi composability (permissionless interaction between different protocols) is dependent on shared security. The relationship between the relay chain (where transactions are finalized) and the parachains is what makes DeFi composability possible on Polkadot. The security provided by the validators of the relay chain empowers the parachains connected to it to build quickly, compared to less secure platforms.

Polkadot attempts to provide a new approach to interoperability (cross-chain interactivity) with unique use cases built on its infrastructure. People are able to easily and quickly create DeFi applications that can be used on chains across the wider ecosystem. Using runtime modules, teams can build on parachains such as Moonbeam, Plasm, or Edgeware.

Kusama (also referred to as the ‘canary’ network of Polkadot) was introduced as a middle ground between testnet and mainnet for experimentation with products to be released on Polkadot. The use of real money in the environment makes the experiments as realistic as possible so that when the products are released on mainnet, people have a better idea of what to expect of launches.

Kusama makes it possible to upgrade chains without forks. This allows for greater speed of innovation for the Polkadot blockchain and its sub-chains. Projects can essentially make updates on a constant basis (as long as they receive on-chain approval). Additionally, Polkadot and Kusama are both governed on chain.

In some cases, projects run their products on both Kusama and Polkadot in parallel. Kusama becomes an informal lab or innovation arm for such projects.

Liquid staking is another key feature of Polkadot’s DeFi ecosystem that makes it different from other DeFi ecosystems. With liquid staking, users of decentralized applications on the blockchain can stake cryptocurrencies and get immediate liquidity in the form of synthetic tokens, without worrying about a lockup period.

Composable Labs plays a critical role in making interoperability on Polkadot a success. The Composable Cross-chain Virtual Machine (Composable XCVM) provides an interface for using smart contracts across different Layer 1 and Layer 2 networks.

The next iteration of applications could involve ecosystems of decentralized applications that are fluid, in that the users of the applications can easily gain access to the assets and features of applications on blockchains outside of Polkadot.

Auctions on Polkadot help to reduce the number of scam projects in the ecosystem. The auction model requires projects to gather support to win auctions. Bids are made in open auctions using the native DOT cryptocurrency, with hopes of getting the highest bids to win.

The Cubic Vault could be compared to a bank without the banker. The infrastructure not only protects funds but also provides the assurance needed for builders to create new decentralized finance solutions for users of vaults. The vault can be coded with instructions which make it operate like an automated fund manager, moving funds between different pools to execute different types of strategies across a variety of ecosystems, from Cosmos, Ethereum, and Polkadot, to its canary network Kusama.

The main features of the Cubic Vault technology include:

• Governance

• LP Token Share Management

• Deposit and withdrawal management

The Total Value Locked on Polkadot parachains is outlined below. The figures on the left were recorded at the time of this article’s original publication in November 2022, and the figures on the right are as at March 30, 2023. Increases in TVL are represented in green and decreases in red.

Acala users benefit from a DeFi hub and stablecoin known as aUSD. With the platform, one can interact with other blockchains connected to Polkadot to receive USD.

Astar network connects Polkadot to Cosmos, Ethereum, and all major Layer 1 blockchains. The ASTR token is designed to be used for on-chain transaction fees, on-chain governance, staking, the creation of Layer 1 blockchain applications, and the creation of Layer 2 blockchain applications.

Karura is made to operate parallel to Acala, serving the users of Polkadot and Kusama communities. The bridging of Kusama to Polkadot makes full interoperability between Karura and Acala possible. It also launched its own blockchain with intentions of creating an automated market maker DEX like Uniswap. Like other projects on Polkadot, it offers liquid staking to users. Acala’s liquid staking feature gives users a liquid token that represents a staked asset. The liquid token increases as the underlying staked token earn more rewards.

StaFi enables its users to stake without worrying about waiting for a period of time for their tokens to be unbound. Holders of the staking token on the platform can receive an alternative token: rToken.

Moonbeam is designed to make it easy to develop applications on Polkadot. Developers can use Moonbeam’s smart contracts and compatibility with Ethereum’s toolset to quickly build multi-chain decentralized applications.

Moonriver was made to be an Ethereum-compatible parachain on Polkadot. It also serves as a canary network (like Kusama). This means that it can be used for testing of decentralized finance applications in realistic economic conditions before being fully deployed on Moonbeam. The parachain’s native MOVR token is meant to be used for payment of transaction fees, incentivizing the production of blocks to support the network, on-chain governance, and execution of smart contracts.

Kintsugi serves as another canary network. The chain’s token, Kbtc, is maintained by a decentralized network of collateralized vaults and is 1:1 with Bitcoin. Kbtc creates many opportunities for Bitcoin liquidity to be injected into Kusama and parachains such as Shiden, Karura, and Moonriver.

Interlay, like Kintsugi, helps to inject BTC liquidity into the Polkadot ecosystem with a Bitcoin bridge. The interBTC token is used as a medium of value transfer for this purpose. The 1:1 Bitcoin-backed asset is collateralized, interoperable, and censorship resistant. Not only does it provide a means of getting access to Bitcoin liquidity in Polkadot, it is also designed to be accessible on networks including Avalanche, Solana, Cosmos, and Ethereum.

Parallel Finance offers lending, staking, and borrowing features for its users. Both Kusama and Polkadot assets are supported by its lending protocol.

Heiko Finance acts as a sister network to Parallel Finance. The native HKO token offers several utilities including token governance, network utility, economic utility, staking and security, economic utility, and exogenous utility.

Bifrost users can choose from a selection of interest-bearing derivative tokens. The users of the platform are also able to benefit from liquid staking, allowing them to participate in more DeFi activities than they would if they were not able to use their tokens while staking.

Energy Web is at the intersection of the DeFi and energy sectors with over 50 projects across 25 countries that help to power zero-carbon economies. It is working with Parity Technologies on a relay chain to bridge the gap between the blockchain and energy sector.

Genshiro users can earn, trade, and borrow with efficiency. Liquidity providers on the platform take part in liquidity farming, get extra yield from bailouts, and use non-custodial storage. Borrowers are able to take advantage of stablecoin generation and personalized interest. Traders on Genshiro may use leverage of up to 20x.

CLV aims to be the one-stop application for decentralized finance applications on Polkadot. It offers a share of fees to people who build applications on it, and also has its own wallet for users to download.

The developers of the Polkadot Kusama ecosystem had the benefit of learning from the phenomenal work of more established DeFi ecosystems such as Ethereum that have tried and tested many different concepts. This gives Polkadot a late-starter advantage. From on-chain governance to team auctions, there are enhancements made that could benefit not just Polkadot as a relatively new player in the DeFi ecosystem, but also other blockchains in continual need of safe connections to other blockchains and funnels for token flow.

A version of this article initially appeared in BanklessDAO’s DeFi Download newsletter on November 26, 2022.

Author Bio

0xzh is passionate about Web3 technology and its use to improve human development. He enjoys writing, sports, learning about tax regulations, video games and reading.

Editor Bio

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio

Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logo, flyers, cards, and covers

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

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The Polkadot Primer by Onodu Michael

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Article by 0xzh Edited by Trewkat Cover Art by Tonytad

The Polkadot blockchain, founded by Ethereum co-founder Gavin Wood, distinguishes itself from other blockchains as a cross-chain platform that prioritizes interoperability. Thanks to its focus on enabling cross-chain communication with bridging technology, users of other Layer 1 chains like Bitcoin and Ethereum are able to easily integrate with the Polkadot ecosystem.

Polkadot was designed to solve challenges faced in other blockchain ecosystems, namely interoperability, customization, scalability, on-chain governance, self-upgradability, and security.

The Polkadot blockchain could be considered as a meta platform for developing your own blockchain. Creators of decentralized applications on Polkadot benefit from more customizable blockchains that are better tailored to the unique needs of their applications. This is possible because of the architecture of Polkadot, which is composed of a main chain (relay chain) and sub-chains (parachains) created using the Substrate Software Development Kit.

The separation between the processes required to add and validate transactions between parachains and the relay chain enables faster transactions to be executed between decentralized applications on the network.

DeFi composability (permissionless interaction between different protocols) is dependent on shared security. The relationship between the relay chain (where transactions are finalized) and the parachains is what makes DeFi composability possible on Polkadot. The security provided by the validators of the relay chain empowers the parachains connected to it to build quickly, compared to less secure platforms.

Polkadot attempts to provide a new approach to interoperability (cross-chain interactivity) with unique use cases built on its infrastructure. People are able to easily and quickly create DeFi applications that can be used on chains across the wider ecosystem. Using runtime modules, teams can build on parachains such as Moonbeam, Plasm, or Edgeware.

Kusama (also referred to as the ‘canary’ network of Polkadot) was introduced as a middle ground between testnet and mainnet for experimentation with products to be released on Polkadot. The use of real money in the environment makes the experiments as realistic as possible so that when the products are released on mainnet, people have a better idea of what to expect of launches.

Kusama makes it possible to upgrade chains without forks. This allows for greater speed of innovation for the Polkadot blockchain and its sub-chains. Projects can essentially make updates on a constant basis (as long as they receive on-chain approval). Additionally, Polkadot and Kusama are both governed on chain.

In some cases, projects run their products on both Kusama and Polkadot in parallel. Kusama becomes an informal lab or innovation arm for such projects.

Liquid staking is another key feature of Polkadot’s DeFi ecosystem that makes it different from other DeFi ecosystems. With liquid staking, users of decentralized applications on the blockchain can stake cryptocurrencies and get immediate liquidity in the form of synthetic tokens, without worrying about a lockup period.

Composable Labs plays a critical role in making interoperability on Polkadot a success. The Composable Cross-chain Virtual Machine (Composable XCVM) provides an interface for using smart contracts across different Layer 1 and Layer 2 networks.

The next iteration of applications could involve ecosystems of decentralized applications that are fluid, in that the users of the applications can easily gain access to the assets and features of applications on blockchains outside of Polkadot.

Auctions on Polkadot help to reduce the number of scam projects in the ecosystem. The auction model requires projects to gather support to win auctions. Bids are made in open auctions using the native DOT cryptocurrency, with hopes of getting the highest bids to win.

The Cubic Vault could be compared to a bank without the banker. The infrastructure not only protects funds but also provides the assurance needed for builders to create new decentralized finance solutions for users of vaults. The vault can be coded with instructions which make it operate like an automated fund manager, moving funds between different pools to execute different types of strategies across a variety of ecosystems, from Cosmos, Ethereum, and Polkadot, to its canary network Kusama.

The main features of the Cubic Vault technology include:

• Governance

• LP Token Share Management

• Deposit and withdrawal management

The Total Value Locked on Polkadot parachains is outlined below. The figures on the left were recorded at the time of this article’s original publication in November 2022, and the figures on the right are as at March 30, 2023. Increases in TVL are represented in green and decreases in red.

Acala users benefit from a DeFi hub and stablecoin known as aUSD. With the platform, one can interact with other blockchains connected to Polkadot to receive USD.

Astar network connects Polkadot to Cosmos, Ethereum, and all major Layer 1 blockchains. The ASTR token is designed to be used for on-chain transaction fees, on-chain governance, staking, the creation of Layer 1 blockchain applications, and the creation of Layer 2 blockchain applications.

Karura is made to operate parallel to Acala, serving the users of Polkadot and Kusama communities. The bridging of Kusama to Polkadot makes full interoperability between Karura and Acala possible. It also launched its own blockchain with intentions of creating an automated market maker DEX like Uniswap. Like other projects on Polkadot, it offers liquid staking to users. Acala’s liquid staking feature gives users a liquid token that represents a staked asset. The liquid token increases as the underlying staked token earn more rewards.

StaFi enables its users to stake without worrying about waiting for a period of time for their tokens to be unbound. Holders of the staking token on the platform can receive an alternative token: rToken.

Moonbeam is designed to make it easy to develop applications on Polkadot. Developers can use Moonbeam’s smart contracts and compatibility with Ethereum’s toolset to quickly build multi-chain decentralized applications.

Moonriver was made to be an Ethereum-compatible parachain on Polkadot. It also serves as a canary network (like Kusama). This means that it can be used for testing of decentralized finance applications in realistic economic conditions before being fully deployed on Moonbeam. The parachain’s native MOVR token is meant to be used for payment of transaction fees, incentivizing the production of blocks to support the network, on-chain governance, and execution of smart contracts.

Kintsugi serves as another canary network. The chain’s token, Kbtc, is maintained by a decentralized network of collateralized vaults and is 1:1 with Bitcoin. Kbtc creates many opportunities for Bitcoin liquidity to be injected into Kusama and parachains such as Shiden, Karura, and Moonriver.

Interlay, like Kintsugi, helps to inject BTC liquidity into the Polkadot ecosystem with a Bitcoin bridge. The interBTC token is used as a medium of value transfer for this purpose. The 1:1 Bitcoin-backed asset is collateralized, interoperable, and censorship resistant. Not only does it provide a means of getting access to Bitcoin liquidity in Polkadot, it is also designed to be accessible on networks including Avalanche, Solana, Cosmos, and Ethereum.

Parallel Finance offers lending, staking, and borrowing features for its users. Both Kusama and Polkadot assets are supported by its lending protocol.

Heiko Finance acts as a sister network to Parallel Finance. The native HKO token offers several utilities including token governance, network utility, economic utility, staking and security, economic utility, and exogenous utility.

Bifrost users can choose from a selection of interest-bearing derivative tokens. The users of the platform are also able to benefit from liquid staking, allowing them to participate in more DeFi activities than they would if they were not able to use their tokens while staking.

Energy Web is at the intersection of the DeFi and energy sectors with over 50 projects across 25 countries that help to power zero-carbon economies. It is working with Parity Technologies on a relay chain to bridge the gap between the blockchain and energy sector.

Genshiro users can earn, trade, and borrow with efficiency. Liquidity providers on the platform take part in liquidity farming, get extra yield from bailouts, and use non-custodial storage. Borrowers are able to take advantage of stablecoin generation and personalized interest. Traders on Genshiro may use leverage of up to 20x.

CLV aims to be the one-stop application for decentralized finance applications on Polkadot. It offers a share of fees to people who build applications on it, and also has its own wallet for users to download.

The developers of the Polkadot Kusama ecosystem had the benefit of learning from the phenomenal work of more established DeFi ecosystems such as Ethereum that have tried and tested many different concepts. This gives Polkadot a late-starter advantage. From on-chain governance to team auctions, there are enhancements made that could benefit not just Polkadot as a relatively new player in the DeFi ecosystem, but also other blockchains in continual need of safe connections to other blockchains and funnels for token flow.

A version of this article initially appeared in BanklessDAO’s DeFi Download newsletter on November 26, 2022.

Author Bio

0xzh is passionate about Web3 technology and its use to improve human development. He enjoys writing, sports, learning about tax regulations, video games and reading.

Editor Bio

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio

Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logo, flyers, cards, and covers

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More Like This

Alternative L1s: Cosmos by Austin Foss

The Polkadot Primer by Onodu Michael

A Primer on Soulbound Tokens by Quilia