Background
DOT is the native token for Polkadot, a protocol that connects interoperable blockchains (built on the Substrate framework).DOT is required for governance and staking, as well as for bonding by parachains that want to use Polkadot’s interoperability features.
Framework for new markets
First, given that YFI/USDC market has made up between 10-20% of trade volume recently, with a trading volume of $2.8 million the past two days, adding new markets makes sense. Additionally, the value-add of Perpetual Protocol is to offer perpetual swaps and leverage to markets that don’t have it yet.
It seems like the potential markets Perpetual Protocol could add can be divided into 3 categories. Each has its own strengths and weaknesses with regard to the future growth of the protocol:
1. Non-ERC20 cryptos (DOT, XRP, etc.).
- Strengths: Existing large trade volumes for these tokens.
- Weaknesses: Outside the Ethereum ecosystem, meaning could be less interest, and liquid markets already exist for the important tokens.
2. Non-crypto indices (S&P500, TSLA, etc.).
- Strengths: No markets exist in DeFi — i.e. blue ocean.
- Weaknesses: No proven demand for such products.
3. DeFi/ERC20 tokens (UNI, LINK, etc.).
- Strengths: Potential to add markets that do not exist in many places. Likely the most interest from Ethereum ecosystem participants.
- Weaknesses: Less traded than top non-ERC20 alternatives. To really get the long-tail benefit — i.e. not listed on centralized exchanges — the listing has to be either fast or take a risk on a token with possibly low interest.
Key metrics
First, it’s worth noting that on centralized exchanges BTC and ETH are dominant.
Second, if you take out BTC and ETH you can see the second group in terms of trade volumes is LTC, XRP, BCH, DOT, and LINK. Roughly an order of magnitude difference from BTC/ETH → L1s → DeFi.
Compared to the pre-2017 list of “zombie” L1 blockchains, Polkadot is growing in interest right now. As examples from the ecosystem, via Centrifuge users can borrow DAI, and Kusama by itself has a $600 million market capitalization. This is one of the top candidates for a non-Ethereum ecosystem (even if you think the odds are low) and it has more trading interest than e.g. ATOMs.
Key points
- Given that interest in Polkadot is on the upswing, compared to blockchains like Bitcoin Cash and Litecoin, from the group of non-ERC20 tokens it is the most interesting. DOT is somewhat more a “skate to where the pick will be” approach.
- In terms of spot trade volume and interest on perpetual markets, DOT is firmly in the second group behind BTC/ETH.
- Listing DOT would showcase how Perpetual Protocol is capable of providing trading venues for non-Ethereum assets — this is a first step to start talking about S&P500 indices, etc.
Additional notes
- Chainlink has support for DOT/USD pair.
- If a non-ERC20 asset like DOT is not wanted, based on the trade volume on centralized and decentralized exchanges, the next interesting tokens would be (in order): LINK, UNI, AAVE, SUSHI.
- To compete on a long-tail of assets that do not have perpetual swap markets would be SNX, GRT, 1INCH, NXM — but there’s no guarantee of interest from traders.
