In its year-end report, blockchain analytics firm Messari revealed that Polkadot was the darling of fund managers in 2021.
Fund managers like the DOT
Polkadot has not had it easy in 2021. Despite several milestones like successfully closing its first Parachain auctions and the launch of the first Parachains, the price of DOT experienced fairly modest growth — at least when compared to the parabolic price explosions by competitors like Solana. DOT only saw a 3X growth year-on-year, meaning it vastly underperformed breakout stars like Solana (150X) or Terra (160X). Even compared to Ethereum (5X), Polkadot disappointed in 2021’s bull market.
That did not stop fund managers, banks, and other financial institutional entities from buying into Polkadot, though. According to Messari’s 2021 year-end report, it was the most commonly held asset by crypto funds outside of Bitcoin and Ethereum. 21 of the 53 most prominent fund managers actively invested in DOT in 2021, significantly beating out other layer-ones like NEAR and Terra (13 each).
That may have to do with Polkadot’s sophisticated architectural solution to the blockchain trilemma of reconciling, speed, security and decentralisation. Polkadot’s Parachains effectively build a net of layer-one blockchains secured by the Polkadot mainchain. This, in theory, allows the ecosystem to process many transactions at high speed and low fees.
However, despite being headed by Gavin Wood, one of the co-founders of Ethereum, Polkadot has taken considerable time to get off the ground with its Parachain solution, which could be the reason for its lacklustre price growth. In contrast to Ethereum’s launch-it-and-improve-it strategy, Polkadot has taken years to iron out issues that frustrate the average Ethereum user. That, however, comes at the expense of real-world usability.
Where is Polkadot going from here?
It’s thus easy to see why big money keeps betting on Polkadot. Its leadership has strong blockchain expertise, it offers a sound technological solution, and it finally seems to be getting off the ground.
Moreover, developer activity on Polkadot is strong and increasing, with high-quality developer talent flocking to its ecosystem. For instance, Polkadot boasts 1,500 active developers, less than Ethereum’s 4,000, but more than 1,000 on Solana. It is also growing faster than any other layer-one chain and faster than Ethereum did at a comparable point in history.
All of this should bode well for Polkadot’s medium-term prospects. Considering ongoing adoption by other integral blockchain infrastructures like The Graph, activity on Polkadot in 2022 could see the explosive growth that hedge funds are betting on. Still, much will depend on the macro situation and how much money will flow into the cryptocurrency sector as a whole.
2021 showed that investors are eager to “rotate” their investments into the next hot thing without batting an eyelid, implying that Polkadot will have to time its surge right if it wants to reap maximum rewards in the markets. Still, it has never been a bad thing to follow the smart money, and in this case, it seems to like the DOT.
