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Polkadot Deep Dive

Q1 2023

Proudly Stepping Into The New Year

2022 was a bad year and a good year. Bad because of the downfall series that at times threatened the whole Web3 space, but good because of the persistent development and innovation regardless of bad actors. Stepping into yet another crypto-winter-new-year, Polkadot continued to thrive with technological updates happening all around the ecosystem.

Key Takeaways

  • Development activities at the core protocol (Parity Technologies’ public GitHub repo) remained strong and shared a fairly similar pattern with DOT and KSM prices. Daily active core developers reached an all-time high at 175 on March 23.

  • Ecosystem wide, quarterly new repos increased drastically year over year. From 2019 to 2021, new repos nearly doubled every year.

  • XCMv3 and OpenGov on Polkadot PRs were merged, promising a new era of interoperability and democratization on Polkadot. On April 5, XCM v3 officially went live on Kusama.

  • Nomination pool stake surpassed 3M DOT with 108 active pools and 8K+ pool members on April 4. Minimum active stake for nominator staking (the threshold to begin receiving staking rewards) rose exponentially past 300 DOT.

  • 73.2% of DOT treasury was spent on bounties. Ever since OpenGov was deployed, the KSM treasury had spent 134K KSM, of which 50.02% was on big spender track.

  • The Web3 Foundation Grants Program surpassed the 500 project milestone.

  • There were 42 parachains on Polkadot and 45 on Kusama by the end of Q1. Subsocial was the third parachain after KILT and Zeitgeist to successfully migrate from Kusama to Polkadot.

  • Moonbeam continued to be the most vibrant DeFi parachain, with StellaSwap as the biggest DEX player in terms of TVL. Acala topped the lending segment but fell considerably in lending and liquid staking due to whale movements.

  • Singular’s number one position in terms of NFT sales volume might not sustain into Q2 as RMRK announced their migration into EVM and their decision to phase out Singular on Kusama.

  • Total number of WASM smart contracts landed at 2,577, among which 2,551 (98.99%) were written in ink!. Aleph Zero became the second after Shiden to bring ink! and WASM smart contracts to mainnet on March 29. SubWallet is by far the only Polkadot wallet that supports ink! token standards (PSP-22 & PSP-34).

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Ecosystem Overview

Financial Status & Development Activity

Both development activities and token prices of DOT and KSM enjoyed a sharp rise after the New Year break, and both shared quite the same pattern throughout Q1 2023. Deviations appeared in late February and March as development activities remained consistent while DOT and KSM prices spiraled down to the quarter’s bottom. The reason for the price fall might have been a series of macroeconomic events: US regulators’ warning statement for banks on risk management of crypto asset funding, Silvergate’s shutdown and Silicon Valley Bank (SVB)’s collapse.

Starting March 10, however, along with the recovery of the whole crypto space, DOT and KSM prices bounced back roughly 30%. Development activities also shot up and peaked at 90.27 points in this period.

Token Price vs. Development Activity

Note that development activities here are counted by GitHub events happening on Parity Technologies’ public repositories, meaning activities on the Polkadot core protocol layer only rather than the vast ecosystem. At the core, daily active developers reached an all-time high of 175 on March 23 and averaged 153 in Q1 2023, a steady 10.04% quarter-to-quarter growth.

Polkadot Core Daily Active Developers Reached All-Time High In Q1 2023

Of course, ecosystem-wide development activities were much more remarkable. The 2022 Developer Report by Electric Capital ranked Polkadot second in terms of full-time developer count and third in terms of total developer count as of December 15, 2022. A look at the number of new GitHub repositories every quarter from Q4 2015 to Q1 2023 shed a light on the drastic year-over-year increase. Annual total new repos increased almost two-fold from 2019 to 2021.

Quarterly New Repos Increased Drastically YoY In Polkadot & Kusama Ecosystem

Decentralization & Staking

In Q1 2023, total DOT staked increased steadily past 600M DOT, of which around 0.3% came from validators and the rest from direct nominators and nomination pools. DOT staking ratio fluctuated marginally in the 40%-50% range, keeping inflation and reward rate stable around 7% and 15% respectively. Note that inflation and reward rate represent the incentives given to DOT holders to maintain the staking ratio around the ideal rate of 50%, balancing out economic security and market liquidity. If staking ratio falls under 50%, incentives go up to encourage staking and vice versa. More details can be found in Web3 Foundation’s token economics research.

Inflation & rewards rate remained stable as staking ratio slightly fluctuated

The staking ratio experienced two unusual increases due to whale movements. The first increase (by 2.44 percentage points) occurred on January 24, when 34M DOT was bonded in one single transaction. In the next era, 30.6M DOT was unbonded, causing the staking ratio to go back down. The second increase (by 1.42 percentage points) was on February 28. Two whales added 10.85M DOT and 7M DOT respectively, pushing the total stake past 630M DOT and the staking ratio past 49%.

Total Stake In Nomination Pools Surpassed 3M DOT With 8K+ Pool Members

Introduced in November 2022, nomination pool is a more user-friendly alternative to direct nomination and validator operation that allows staking natively and earning rewards as low as 1 DOT. The initiative saw steady growth throughout Q1 2023: just after the quarter ended on April 4, total pool stake surpassed 3M DOT with 8,302 members participating in 108 active pools. By April 5, 72.81K DOT was paid out in rewards to pool members, 44.40% of which came from Talisman Pool 1 according to Polkawatch. The remaining pools in the top 5 ranked by rewards are Amforc, SubWallet Official, decentraDOT.com and ParaNodes.io.

Polkadot Holder Distribution

  • Whale Account
    Whale Account Tooltip
    145
  • Dolphin Account
    Dolphin Account Tooltip
    591
  • Fish Account
    Fish Account Tooltip
    337,792
  • Shrimp Account
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    745,022

Kusama Holder Distribution

  • Whale Account
    Whale Account Tooltip
    176
  • Dolphin Account
    Dolphin Account Tooltip
    547
  • Fish Account
    Fish Account Tooltip
    94,549
  • Shrimp Account
    Shrimp Account Tooltip
    192,371

According to data from Subscan, total holders went well above 1M for DOT and 280K for KSM in Q1 2023. Among holders, whales (defined as accounts that hold more than 0.1% of the total token supply) possessed 869M DOT and 9.65M KSM, of which 173.02M DOT and 848.14K KSM were kept in system accounts. Since system accounts are not operated by users but by the systems for specific purposes such as holding treasury, crowdloan funds and nomination pool stake, their fund movements are expected and their impacts controlled.

This left the token ratio held by “real” whales to be 53.15% for DOT and 66.23% for KSM, which were still relatively high compared to ETH (38.78%) and BTC (10.04%). Though natural and normal in the real world, wealth clusterization goes against the decentralization ethos of Web3 and might present risks of security breach, governance disruption (especially in OpenGov model) and market manipulation. The extraordinary peak in staking mentioned in the previous section is one example of how much whale movements can affect the system.

Governance & Grant

Kusama Treasury Allocations by Category

Polkadot Treasury Allocations by Category

By the end of Q1 2023, DOT treasury sat at 44.55M DOT ($267.19M) and KSM treasury at 324.68K KSM ($10.82M). Spending by category varied significantly between Polkadot and Kusama treasuries. Five bounties accounted for 73.13% of DOT treasury expenditures, among which four were active in Q1: Polkadot Pioneers Prize (993K DOT), Anti-Scam Bounty (7.5K DOT), ORML Security Bounty (100K DOT) and Events Community Bounty (1M DOT). Meanwhile, infrastructure deployment ranked first in KSM treasury allocation at 31%, followed by software development (12.2%), liquidity provision (13.5%) and others (13%).

Treasury spending dominated kusama openGov Referenda

Since November 2022, OpenGov had been deployed on Kusama, meaning that the council was dissolved and every decision made on the Kusama network had to go through referenda to be voted by the community. With 6 out of 13 referendum tracks listed as subcategories, treasury spending unsurprisingly dominated OpenGov referenda, taking up 93 out of 144 proposals (64.58%), In total, the community had approved spending 231,403 KSM from the treasury, of which 47.9% (60,601 KSM) was on big spender track.

Kusama OpenGov Average Turnout By Track Remarkably Low

Among 40 unapproved referenda (including rejected, canceled and timed-out ones), an astounding 17 were called for rejection by the proposer due to technical errors. This 42.5% ratio means that many submitters struggled with the proposal submission process. Thus, an emphasis on education and communication about OpenGov is much needed, especially when average voter turnout (calculated as total amount of token voted without conviction - including aye, nay and abstain votes - divided by total token issuance) in Q1 was remarkably low. Alarmingly, the treasury tracks were among the lowest turnout tracks, which could pose risks of treasury misuse and depletion – a concern that some community members have raised recently (1, 2, 3).

Web3 foundation Grants program passed 500 grants signed

Besides the Polkadot and Kusama treasuries, the Web3 Foundation Grants Program had also been consistently awarding grants on a quarterly basis for teams looking to build Web3 projects. Stepping into its fifth year, the program marked a crucial milestone of surpassing 500 projects whose grantees came from more than 50 countries around the world. For more information about the Web3 Foundation Grants Program, check out this page.

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Parachain

Polkadot & kusama chains with more than 20K token holders

Q1 2023 marked the one-year anniversary of parachain on Polkadot and approximately a year and a half on Kusama. By March-end, 42 parachains on Polkadot and 45 on Kusama were running, locking 133M DOT and 3M KSM respectively. Moonbeam became the first parachain to reach 1M holders, and surpassed Polkadot by a small margin to become the number one chain in terms of token holders, possibly due to Moonbeam’s EVM compatibility that is easily approachable by EVM users. The 21 chains represented in the chart below (common good parachains not included) were fairly equally divided between Polkadot chains (9) and Kusama chains (12).

XCM Activities On Parachains By Transfer Count And Channel Count

Among the running parachains, 21 on Polkadot and 26 Kusama were actively engaged in XCM with 96 and 157 channels respectively. DeFi was undoubtedly the most widely used application of XCM, as the top chains with highest number of inbound and outbound transfers were chains heavily involved in DeFi activities. Bifrost Kusama and Karura were the most active channel pairs, with total transfers (41,479 transfers) more than doubling the next pair in rank Moonbeam and Acala (15,206 transfers). Interestingly, more opened XCM channels did not necessarily mean higher transfer counts. The introduction of XCM v3 on Kusama on April 5 would promise a more bustling quarter of XCM activities in Q2.

Top 10 XCM Channels On Polkadot
By Transfer Count

Origin Chain Destination Chain
Transfers
Moonbeam
Moonbeam Acala
Acala
8,009
Acala
Acala Moonbeam
Moonbeam
7,197
Acala
Acala Parallel
Parallel
3,883
Interlay
Interlay Moonbeam
Moonbeam
3,319
Parallel
Parallel Acala
Acala
3,082
Moonbeam
Moonbeam Interlay
Interlay
2,543
Moonbeam
Moonbeam Parallel
Parallel
2,029
Parallel
Parallel Acala
Moonbeam
1,857
Moonbeam
Moonbeam Bifrost
Bifrost
1,735
Acala
Acala Astar
Astar
1,720

Top 10 XCM Channels On Kusama
By Transfer Count

Origin Chain Destination Chain
Transfers
Bifrost
Bifrost Karura
Karura
23,515
Karura
Karura Bifrost
Bifrost
17,964
Kintsugi
Kintsugi Moonriver
Moonriver
3,699
Moonriver
Moonriver Bifrost
Bifrost
3,402
Karura
Karura Statemine
Statemine
3,333
Kintsugi
Kintsugi Karura
Karura
3,252
Statemine
Statemine Moonriver
Moonriver
3,220
Karura
Karura Kintsugi
Kintsugi
2,973
Karura
Karura Moonriver
Moonriver
2,726
Karura
Karura Khala
Khaka
2,624

In terms of chain fees, Phala’s canary network Khala topped the chart with $7.67K, more than doubling the runner-up Astar at $3.78K and the second runner-up Bit.Country Pioneer at $3.13K. In Q1, Khala had about 23K+ workers contributing to the computing power and constantly claiming rewards, hence the high total transaction fees.

Top 10 polkadot & kusama parachains by total chain fees Q1 2023

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The DeFi Economy

Throughout Q1 2023, total TVL of top DeFi parachains on Polkadot and Kusama hovered around $280M and peaked at $329.6M on February 21, a 61.67% decrease from the peak on 19 April 2022. Astar enjoyed a surge in TVL on February 9 after news of Upbit listing led to a sharp increase in ASTR price. On the contrary, Moonbeam and Acala suffered a heavy crash in TVL on March 10 and 11 as GLMR and ACA prices were affected by the Silvergate and SVB incidents. Nevertheless, Moonbeam retained their reign all through the quarter while Karura had the lowest TVL in top 6. Note that the sudden increase in Acala’s TVL was due to a fix by DefiLlama.

TVL Share by Top DeFi Parachains Q1 2023

DEX (AMM)

Thanks to ASTR’s price upsurge, DEX protocols on Astar such as ArthSwap, Avault and Zenlink experienced a sharp increase in TVL, yet the range of the increase correlated with the size of the already existent liquidity pools. ArthSwap’s TVL continued to rise to the peak of $26.19M on February 19 then began to fall. By the end of Q1, ArthSwap was the number one DEX in Polkadot at $16.23M TVL.

Top 10 DEX on Polkadot by TVL

The situation on Moonbeam was bleaker, especially with cross-chain DEXes Curve and Beefy. Their TVL dropped in early February when Lido stopped giving incentives for stDOT, and plummeted in mid-March after Lido announced their operation cessation on Moonbeam and Moonriver due to low protocol adoption and gloomy market conditions. Compared to the February peak, Curve lost 99.95% and Beefy 99.89% in their TVL. StellaSwap and Beamswap went through the same TVL decline as their stDOT pools were liquidated.

Top 7 DEX on Kusama by TVL

Similar to Moonbeam, AMM protocols on Moonriver such as Solarbeam and Beefy also experienced huge TVL loss due to stKSM’s pools. Solarbeam’s TVL decline presented an opportunity for Karura to take the lead. From February 15 onwards, the TVL of these two protocols share highly similar patterns with a correlation coefficient of 0.973.

Lending & Borrowing (Money Market)

Top Lending Protocols On Polkadot & Kusama by TVL

Overall, the prolonged bear market did not treat money markets well. Acala's lending TVL nearly halved overnight from $32.03M to $19.55M largely due to whale movements (discussed in the next section Liquid Staking). Though the impact was less considerable, Moonwell protocols on Moonbeam and Moonriver were no exception, yet only Moonwell Artemis managed to quickly bounce back to pre-incident TVL. The team announced on February 23 that Moonwell would expand to Ethereum L2 Base thanks to Moonbeam’s connected contracts integrations.

Liquid Staking

Top Liquid Staking Protocol By TVL on Polkadot

Acala liquid staking protocol suffered a drastic drop in TVL due to whale movements. On February 4, a whale withdrew 11.46M LDOT from aUSD collateral then immediately requested slow unstake of the same amount, leading to the ~$10M plunge in both Acala lending TVL and liquid staking TVL the next day. When the fund was unstaked 28 days later, the whale transferred all 1.35M DOT to Polkadot Relaychain via XCM.
Meanwhile, an additional $1M in vDOT liquid staking slightly boosted Bifrost’s TVL on March 19. It is expected that the collaboration with Filecoin to launch vFIL liquid staking will send an upward force to their TVL on Polkadot. On Kusama, Bifrost continued to lead the TVL race and shared a highly similar chart pattern with Karura with a correlation coefficient of 0.95. The team had changed their branding into Omnichain Liquid Staking Derivative (LSD) and focused full-force on being the number one LSD protocol on Polkadot and Kusama.

Top Liquid Staking Protocol by TVL On Kusama

Stablecoin

USDT on Statemine (Kusama)

USDT on Statemint (Polkadot)

In Q1 2023, USDT on both Statemine and Statemint was fully functional and in use. USDT supply on Polkadot ($7M) was twice that on Kusama ($3.5M), and in Q1 total USDT transfer amount on Polkadot was 2.36 times higher than on Kusama. February 7 saw a sudden decrease in the number of holders on both Statemine (from 443 to 400) with a peak of $1.61M in transfer amount and on Statemint (from 251 to 228) with ~$815K in transfer amount. There are two possible reasons for this: whale movements (such as this $120K transaction on Statemine and $204K transaction on Statemint imposing a large impact given the relatively low liquidity), and Binance’s announcement to suspend U.S dollar transfers on February 8. Nevertheless, the announcement did not have market-wide repercussions as data on Glassnode show abnormalities in neither USDT transaction volume nor holder count on that day.

Besides USDT, native stablecoins such as Acala’s aUSD and AstridDAO’s BAI managed to sustain their stable circulation supply. Newcomers including Equilibrium’s EQD and DAM Finance’s d2O made a strong start in Q1, both with about $250K in supply by March 31. According to Moonscan, d2O was consistently in the top 10 tokens by unique senders and unique receivers every day on Moonbeam.

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Non-Fungible Token

NFT Marketplace

Singular continued to dominate the NFT marketplace sector

Singular continued to dominate the NFT market with an average of $3.78K in daily sales volume, but this domination is unlikely to sustain into Q2 as RMRK decided to phase out NFT implementation on Kusama and focus solely on EVM implementation. Now that Moonsama has won their parachain on Polkadot, their NFT marketplace launch is expected to draw in huge sales volume in the coming months.

GameFi

Awesome Ajuna Avatars Concluded Season 1 With Impressive Stats

Q1 2023 welcomed new player Awesome Ajuna Avatars into the GameFi segment with impressive results in the first week of launching: 1,001 players used a total of 305,836 mints and 78,569 forges to create 999 Legendary, 1,778 Rare and 15,240 Common avatars. The growth slope largely flattened afterwards until Season 1 ended on March 1 at 1,090 players, 13.7K avatars and 318K mints, while trades continued in small amounts. As for MoonFit, the Incentivized Testnet rollout in December 2022 attracted a large number of weekly new users, aggregating to 1,689 by the end of March 2023. Total users in the Beta version rose moderately and shared a highly similar trend with total incentivized users (a correlation coefficient of 0.98).

MoonFit Weekly New Users In Beta Version & Incentivized Testnet

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Metaverse

By the end of Q1 2023, Bit.Country continued to be the leading metaverse platform in the Polkadot & Kusama ecosystem, with close to 4K NFTs traded for 500K+ NEER in total trade volume, and 693 metaverses created by burning 1.5M+ BIT. The first community metaverse project on Bit.Country Pioneer Kaosland saw their total land owners rising up past 10K with 181K+ NEER in marketplace trading volume and 1,086 estates created. On April 3, the first referendum on Pioneer requesting a bridge that connects Kaosland Land and Ethereum passed with 44,982 NEER in voter turnout, accounting for 0.04% total NEER issuance.

Bit.Country Pioneer Overall Statistics

Total NFT Trade Volume 543,726 NEER
Total NFTs Traded 3,897 NFTs
Total BIT Burnt 1,521,217 BIT
Total Metaverses Created 693 Metaverses

Kaosland Statistics

Total Landowners 10,574 Owners
Total Marketplace Trading Volume 181,166 NEER
Total Estates Created 1,086 Estates

Odyssey Key NFT Collection

Total NFT Trade Volume 543,726 NEER
Total NFTs Traded 3,897 NFTs
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Web3

WASM & ink!

The rise of WASM smart contracts written in ink! marked a new era of smart contract development in the Polkadot ecosystem in Q1 2023, starting with the launch of ink! 4.0 on February 23 and the approval of the $1.62M WASM Smart Contract Bounty proposed by Astar, Parity, 727 Ventures, Phala and Aleph Zero on February 27. By April 2, there had been 2,577 WASM smart contracts deployed on Aleph Zero Testnet, Rococo Testnet and Shiden Mainnet, among which 2,551 were written in ink!.

After Shiden, Aleph Zero was the second to bring ink! and WASM smart contracts to mainnet on March 29, and Astar was the third on April 6. Within one week of launching, 188 smart contracts had been created on Aleph Zero mainnet by 29 developers, with a peak of 65 new smart contracts on April 1 according to Tokenguard. These kick-starting moves signaled booming development of ink! and WASM smart contracts in the remaining months of 2023.

Network ink! Solidity ask! Unknown
Aleph Zero Testnet 1,813 3 0 0
Rococo Testnet 701 16 1 6
Shiden 37 0 0 0
Total 2,551 19 1 6

Daily New Smart contracts created on aleph zero mainnet

OCIF Staking

After the success of the OCIF staking beta test with over 9,300 participants, the InvArch Tinkernet team pushed the initiative on Tinkernet mainnet on March 24 with three initial DAOs: ChaosDAO, WAGmedia and YoudleDAO. Only a day later, the total TNKR stake had surpassed 1M, and by April 2 there had been a total of 666 stakers contributing in three DAOs.

Total TNKR staked in tinkernet OCIF

Closing Thoughts

If we had to choose a key phrase for Q1 2023 in Polkadot ecosystem, it would be "whale movements." The transfers of large amounts of funds had major and significant impacts on staking & liquidity in DeFi protocols this quarter, and this could be a warning sign for possible risks of voting and market manipulation caused by wealth centralization in the future. Polkadot and ecosystem teams need to find a solution to further declusterize token distribution should the decentralization vision of Web3 is to be achieved.

On the other hand, despite the bear market, development and building activities in the Polkadot & Kusama ecosystem remained robust. Ecosystem-wide innovations and updates rolled out on a regular basis, with OpenGov, XCM v3, ink! 4.0 and WASM smart contracts deployed on mainnets, whereas layer-1 projects consistently took part in parachain auctions. It is worth looking forward to launches in all sectors in the coming months.

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Dotinsights is a research-focused initiative by SubWallet, the leading non-custodial Polkadot and Kusama wallet. By providing the most comprehensive and up-to-date Polkadot & Kusama Ecosystem Map, along with data-driven Polkadot Deep Dive reports on a quarterly basis, our vision at Dotinsights is to become the official and trusted research hub and data platform of Polkadot.

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