Hello everyone, we are the Polkadot Ecology Research Institute. The year 2023 was a turning point for the cryptocurrency sector, and this was also true for Polkadot. We bid farewell to Polkadot 1.0 and welcomed Polkadot 2.0. However, to ensure the better development of Polkadot, we should not limit our focus to the internal development of the Polkadot ecosystem alone, but also pay attention to the development of the entire crypto industry and changes in the macro environment.
For this purpose, our institute has focused on “important matters for Polkadot, significant events at the chain level, and important perspectives for the industry” from a higher dimensional perspective. We have summarized the ecosystem environment of Polkadot for the year 2023, and made predictions for 2024.
We hope to share more viewpoints with friends who are interested in the development of Polkadot, and hope to be of help to you. If you have any thoughts or insights, we welcome more communication.
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In October 2023, a crucial turning point emerged for the next one to two years. The Federal Reserve, shifting from a hawkish to a dovish stance, hinted at a pause in interest rate hikes. This triggered a rapid and remarkable surge in the BTC market — a scenario akin to a “swift upward trend”. This development also laid the groundwork for the ongoing bullish market trend that continues to this day.
According to Coingecko, the global market capitalization of the crypto market has surged from over $830 billion at the beginning of 2023 to the current $1.7 trillion, marking a growth of over 100%. There is a high likelihood that the market will ascend to a new level with the approval of spot BTC ETF, which is expected to be a significant event kicking off the year 2024.
In comparison to the tumultuous ups and downs of the crypto market in 2022, the overall trend in 2023 leaned towards more stability. Nevertheless, the past year witnessed several noteworthy events, from the bankruptcy of Silicon Valley Bank to the conviction of SBF, CZ’s temporary departure from Binance, and a myriad of regulatory issues throughout the year. It seems like the market is bidding farewell with a different tone, but the future still holds promises.
Polkadot reentered the public eye about half a month ago due to a well-received upward trend. However, this was merely a market reaction. In reality, the Polkadot ecosystem has shown commendable progress over the past year. Despite the market’s lack of significant attention amid its calm stability, recent improvements have begun to rectify this oversight.
As a research institution focusing on Polkadot and its ecosystem over the years, we (Polkadot Ecology Research Institute) have consistently released annual development reports for the past three years. While 2023 may not have been marked by significant upheavals, new concepts emerged, and fresh narratives are still unfolding. Therefore, it is both intriguing and hopeful to observe the development of the Polkadot ecosystem through these narratives and share trends. Given that the Parity team has already published detailed data reports on various events, we will present a comprehensive overview and outlook on Polkadot’s 2023 and the ongoing developments in 2024. Enjoy the journey!
The past year has been a period of reflection, transformation, and innovation. As dedicated observers of the Polkadot ecosystem, our focus extends beyond the development of Polkadot itself to encompass the broader landscape of the crypto industry. And it also includes macroeconomic policies that cast a significant influence on the sector. In this report, we aim to outline several trends from the past year, highlighting significant events within the Polkadot ecosystem, their impact on the industry, and notable developments related to blockchain technology. This report serves as a thorough and reflective summary of the impactful events that defined the landscape in 2023.
Ethereum, a heavyweight in the blockchain industry, plays an indispensable role.
In the past year, Ethereum’s Layer2s have become a focal point in the market. In March, the Arbitrum successfully launched its native governance token, ARB, accompanied by one of the most extensive airdrops in history. Competing continuously with another major Ethereum Layer2 solution, Optimism, Arbitrum garnered substantial attention through rigorous airdrop rules and anti-whale strategies.
Meanwhile, on April 12th, Ethereum officially completed the Shanghai upgrade, causing a market stir. In previous consensus mechanism upgrades, Ethereum transitioned from the Proof-of-Work (PoW) mechanism to the Proof-of-Stake (PoS) mechanism, requiring validators to stake 32 ETH to participate in block validation. This also implies that staked ETH and rewards would be locked up for two years until the implementation of the Shanghai upgrade.
The Shanghai upgrade allowed users to withdraw staked ETH, unlocking over 16 million ETH. Contrary to some expectations, the market did not see a wave of sell-offs, but rather a price increase and a surge in market attention. The significance of the Shanghai upgrade lies not only in unlocking staked ETH, more importantly, in advancing the decentralization of the Ethereum network. This heralds the beginning of the DeFi 2.0 era, marking a new milestone for “finance as a service.”
With the progress of the Cancun upgrade plan, Ethereum will further enhance transaction responsiveness and reduce transaction fees.
This will create favorable conditions for the development of new capabilities in data storage and retrieval in a new phase. This series of upgrades undoubtedly brings positive news to the Ethereum Layer2 network and may once again drive market innovation.
Reviewing the Polkadot ecosystem, in July of last year, Polkadot officially announced the delivery of Polkadot version 1.0, which successfully realized all the functionalities outlined in the whitepaper since 2016. This version breaks the silo effect between different blockchains by introducing innovative technologies such as parachains and relay chains, making Polkadot an open and interoperable platform.
With features like cross-chain message passing, token staking, on-chain governance, non-forking upgrades, and more, Polkadot 1.0 provided robust infrastructure for the development of a multi-chain ecosystem and the construction of Web3. To enhance Polkadot’s network governance and security sharing, additional features such as dispute slashing and Polkadot OpenGov were introduced in the latter half of the year as complementary upgrades to Polkadot 1.0.
Of course, against the backdrop of the industry’s rapid development and change, Polkadot also recognized the need for more innovation and adaptability. Therefore, at the Polkadot Decoded 2023 in June, Dr. Gavin proposed the 2.0 version of Polkadot — “Polkadot as a multi-core computer.”
This proposal signifies Polkadot’s pursuit of higher performance and a more flexible ecosystem. Introducing the concept of Coretime, Polkadot 2.0 will bring about a new way of resource allocation, addressing some issues in version 1.0, such as the high threshold for slot auctions and the lack of consumption scenarios for DOT.
The block space of Polkadot, specifically the block space of the relay chain, will become a valuable resource, with Coretime providing a means for its fair allocation. This flexibility opens up more possibilities for the future ecosystem of Polkadot, enabling developers and users to utilize Polkadot’s cores more freely.
With continuous advancements in the underlying architecture of blockchain, 2023 witnessed a fervent wave of chain deployment tool releases.
As early as October 2022, Optimism pioneered the concept of OP Stack, becoming the first to introduce Layer2 Stacks products in the Layer2 network. In March of the past year, Arbitrum introduced Arbitrum Orbit; in June, zkSync launched ZK Stack for constructing ZK Rollup chains.
This was followed by Starknet announced the introduction of dedicated tools for custom Appchains called Starknet Stack at the Ethereum Community Conference (EthCC) in Paris in July. In August, Polygon also launched the Polygon CDK, a cross-chain development kit for developers to build zkEVM L2 networks. This series adopted standardized, modular technical architecture stacks, providing developers with the capability to rapidly build blockchain networks.
Currently, mainstream L2 Stack solutions in the market mainly fall into the categories of Optimistic Rollup (OP Stack) and ZK Rollup (ZK Stack). The OP Stack aims to build a Superchain Eco with a standardized underlying architecture and shared security, while the ZK Stack employs zero-knowledge proof algorithms. The primary distinction between different Stack solutions lies in their openness and scalability strategies.
Unlike the OP Stack, which focuses on constructing a standardized Superchain, the multi-chain architecture of Polkadot introduces a more flexible concept. For instance, each chain in the Polkadot ecosystem incorporates new consensus algorithms, and each chain can have its own set of validators. Cross-chain information relies on the relay chain or IBC protocol for transmission. Although this approach adds some complexity, it also enhances the overall diversity of the Polkadot ecosystem.
The explosive rise of blockchain development tools signifies that Layer2 networks are no longer confined to the growth of individual chains. The market is shifting from the initial competition in the quantity, variety, and prosperity of on-chain ecosystem applications to a more open and multi-chain platform-oriented competition.
The future will emphasize the construction of a multi-chain ecosystem, focusing on interoperability and parallel development across multiple chains. This undoubtedly presents an opportunity for Polkadot to further expand a more open and flexible multi-chain ecosystem.
In 2023, the modular blockchain concept garnered significant industry attention, particularly following Celestia’s large-scale Genesis airdrop in late September. Celestia stands out as the first public blockchain emphasizing the modular blockchain, with the airdrop covering 7,579 developers and over 570,000 on-chain addresses, once again sparking fervent interest in the market regarding modular blockchain technology.
Previously, Celestia had achieved a valuation of $1 billion in October 2022, securing $55 million in funding. Initiatives such as the Celestia Modular Fellows research program were established to incentivize innovative developments across various projects in this field. Additionally, according to the latest data from the crypto platform RootData, there are now over 30 projects exploring modular blockchain, including EigenLayer, Saga, Fuel, among others. Notably, nearly 10 of these projects have received investments from reputable institutions.
The concept of modular blockchain emerged from reflections on traditional monolithic blockchain architectures, particularly addressing the blockchain trilemma. The concept, was first mentioned in a whitepaper co-authored by Mustafa Albasan and Vitalik in 2018, aiming to tackle issues related to scalability, flexibility, maintenance, and updates.
From the perspective of underlying applications, modular blockchain, by enhancing system scalability, maintenance, and financial efficiency, adapts more effectively to the ever-changing market demands.
Furthermore, the adoption and development of the modular concept are particularly crucial within the Polkadot ecosystem.
Polkadot’s design philosophy inherently incorporates modular features, facilitating multi-chain collaboration through diverse parachains. In this context, the rise of modular blockchain aligns well with the ecological development of Polkadot.
In 2023, the digital asset space witnessed the emergence of a noteworthy concept — “Inscription,” becoming the focal point of the industry and sparking intense debates on whether it represents technological speculation or valuable innovation. The rise of Inscription is primarily attributed to protocols within the BTC ecosystem, with ORDINAL, represented by the ORDI, standing out as the leader of in the Inscription track.
Specifically, the surge in popularity of the Inscription concept can be traced back to early 2023. ORDI completed its minting on March 9th, initially drawing limited market attention. However, with the rise of the BRC20 ecosystem, ORDI gained gradual recognition in the market.
It wasn’t until November 7, 2023, when Binance announced the listing of the ORDI trading pair, that the comeback of BTC Inscription truly began. ORDI experienced a soaring rise, surpassing $90 at its peak, achieving an extraordinary growth of over ten thousand times from its initial minting cost of less than $0.01, all within less than 300 days. At the same time, SATS, as the leading protocol in the BTC Inscription, debuted on Binance on December 12, with a market capitalization soaring to an impressive $1.137 billion, even momentarily surpassing the market cap of ORDI.
This remarkable development highlights the transformative influence of Inscription protocols within the BTC ecosystem and their substantial impact on the digital asset landscape in 2023.
The performance of ORDI and SATS has ignited the concept of Inscription, prompting other chains to emulate by introducing their own Inscription protocols. Ethereum introduced eths, Solana introduced sols, Avalanche introduced AVAV, and even the Polkadot community launched Polkadot’s Inscription, known as DOTA.
The success of Inscription is not merely a novel form of assets, considering that smart contract chains inherently possess the ability to issue assets. Behind the rise of Inscription, a more crucial aspect is the concept of fairlaunch. Taking ORDI as an example, its issuance model avoids pre-mining and private sales, distributing tokens equally among community members, fostering widespread community participation. To a certain extent, this fairlaunch mode has fueled the widespread popularity of the Inscription.
Although debates about the value of Inscription persist, innovators will continue to progress, and Inscription is poised to bring forth even more possibilities.
In late 2023, the BTC ecosystem witnessed a nearly two-month frenzy. This wave propelled several projects within the BTC ecosystem into the spotlight, especially those focused on building applications around BTC.
The story begins with the Bounce platform — a decentralized DeFi auction protocol. Bounce had already made its mark on Binance long before the rise of the Ordinals. Leveraging its team’s background and industry resources, Bounce successfully launched multiple projects that garnered significant market attention.
As the Inscription concept, represented by BRC20, gained popularity, Bounce swiftly adjusted its strategy and actively embraced the BTC ecosystem. One of the projects it launched in this direction is BitStable, a decentralized asset protocol for the BTC network. BitStable employs a mechanism similar to MakerDAO, allowing anyone to build stablecoins using BTC-related assets. Additionally, the cross-chain bridge MultiBit, based on both BTC and Ethereum, was later introduced on the Bounce platform. With the surge of Inscription, these BTC ecosystem applications experienced substantial growth, further establishing Bounce’s reputation.
It is worth noting that MultiBit was actually launched on the TurtSat. TurtSat is a community-driven open platform within the Ordinals ecosystem, supporting individuals to build and contribute to Ordinals ecological protocols through TurtSat, actively participating in the ecosystem development, and reaping the benefits.
Since its launch, the TurtSat platform has successfully launched a number of projects, including the BRC 20 asset protocol CHAX, the Ordinals aggregation platform NHUB, the Ordinals lending platform DOVA, and the BTC ecological gaming platform RAIT. These projects represent early-stage BRC20 infrastructure development platforms and have all performed well after launch.
The innovative concepts introduced by Inscription attracted significant capital and user influx into the BTC space, catalyzing rapid development in BTC ecosystem applications and addressing the previous void in BTC’s ecosystem. The BTC ecology, much like an awakening lion, is gradually embarking on its road to the king.
In 2023, another hot topic in the crypto narrative is undeniably DePIN, which stands for Decentralized Physical Infrastructure Network.
The term DePIN was initially introduced by Messari at the beginning of the year and formally defined through the research report “The DePIN Sector Map,” outlining the fundamental landscape of this concept. The core objective of DePIN is to deploy physical infrastructure and hardware networks in the real world through cryptographic economic protocols, leveraging the incentive mechanisms of blockchain to drive collaborative construction by participants in this network.
In 2023, with the advancement of AI technology, DePIN has further gained momentum, currently encompassing several categories, including computing markets, wireless WiFi, wholesale data, service markets, vertical advertising, and energy.
DePIN fever intensified around October last year, with representative DePIN concept tokens such as decentralized hotspot Helium Mobile and automotive data network DIMO experiencing significant surges, propelling them into the forefront of attention. At the same time, innovative infrastructure solutions like Render, harnessing the computing power of GPU, made their debut in the scene.
The popularity of the DePIN concept has not only attracted widespread attention within the industry, but we have also seen many actively building DePIN projects within the Polkadot ecosystem. For example, amid the surge of AI in 2023, decentralized AI has gradually entered the public eye, and the Bittensor within the Polkadot ecosystem is dedicated to building a decentralized machine learning network, showcasing remarkable achievements in 2023.
Another example is the peaq network, focusing on decentralized energy supply chains. Although the energy supply chain is considered one of the tough challenges in DePIN, peaq peaq is trying to solve the regulatory overhead of the energy energy industry and promoting the development of decentralized energy through blockchain technology and token incentive models.
The DePIN market is expected to reach a size of $3.5 trillion by 2028, according to Messari’s forecast in the 2023 DePIN market report. Additionally, in 2024, we anticipate witnessing the convergence of DePIN with other crypto sectors, including deep experiments with new crypto infrastructural components such as AI, Memecoin, Zero-Knowledge Proof (ZK) technology, and on-chain gaming. This further highlights DePIN’s promise as an innovative direction covering multiple domains.
In 2023, projects within the Polkadot ecosystem actively explored the development of a multi-chain approach.
Phala Network is bringing off-chain computation to the Lens Protocol in the Polygon ecosystem, offering next-generation computing services to builders in the Web3 social space. Leveraging Phala Network’s efficient computation and cross-chain capabilities, Lens Protocol enhances the speed of social data processing, broadens data sources, and extends coverage, creating faster and more diverse social experiences for users.
Astar announced collaboration with Polygon to jointly launch Astar zkEVM, an Ethereum Layer2 network, aiming to become a gateway connecting the Ethereum and Polkadot ecosystems.
Manta Network, a ZK privacy parachain based on Substrate, introduced the first EVM-compatible ZK (Zero-Knowledge Proof) application platform, Manta Pacific, utilizing the Polygon CDK. This platform facilitates efficient, secure, and scalable deployment and operation of ZK applications through the data availability of Celestia and the zkEVM technology of Polygon.
In partnership with the Ethereum Layer2 solution Arbitrum, Parallel Finance achieved collaboration to run its lending services on Arbitrum Rollup. This collaboration enables assets on Ethereum Layer2 to benefit from Parallel’s efficiency and low cost.
These collaborations represent practical implementations of cross-chain communication and interoperability, enhancing the compatibility and openness of the Polkadot ecosystem. They attract more partners and users to the Polkadot network. Additionally, the value and innovation derived from these collaborations contribute to the revenue growth of the Polkadot ecosystem, encouraging more investors and developers to support and engage with Polkadot.
Amidst the continuous development and innovation in the crypto industry, regulatory authorities worldwide have intensified their oversight over the past year to mitigate potential risks and adverse impacts. Some centralized exchanges (CEX) faced stringent regulatory requirements, exemplified by the U.S. Securities and Exchange Commission (SEC) charging Kraken, the second-largest U.S. crypto exchange, with providing unregistered securities.
Regulatory bodies have taken various actions, such as requiring user identity verification, adherence to anti-money laundering rules, and tax compliance. These regulatory measures posed threats to the circulation of certain crypto assets, resulting in sharp declines in their prices and market values.
However, not all crypto assets experienced the same impact, with DOT, the native token of Polkadot, demonstrating notable resilience during the regulatory storm.
The Web3 Foundation, the organization behind Polkadot, publicly stated that through three years of communication and cooperation with the SEC, DOT was ultimately recognized as software rather than a security or currency. This designation means that DOT is not subject to regulatory restrictions and does not require additional tax payments, thereby maintaining its liquidity and value.
From its inception, Polkadot has actively implemented measures to enhance network decentralization, proving its adaptability to different regulatory environments and providing robust support for the development of the crypto industry.
Polkadot’s initial vision is to achieve Web3, necessitating the project’s resilience through sufficient decentralization. The key to this lies in Polkadot’s ongoing efforts to decentralize its governance and market operations, ensuring network security, stability, and innovation. Two significant initiatives, OpenGov and the Decentralized Future Program, represent Polkadot’s decentralized thinking and practices in governance and market operations, respectively.
OpenGov is Polkadot’s open decentralized governance platform designed to streamline and optimize its governance model. Abolishing centralized governance bodies such as the board of directors and technical committees, OpenGov decentralizes decision-making authority to token holders through governance referendums.
The Decentralized Future Plan, introduced by the Web3 Foundation, is a funding initiative aimed at supporting and developing innovative projects within the Polkadot ecosystem. The plan allocates $20 million and 5 million DOT, covering nine key areas in technology, ecosystem development, and community support. The goal is to foster a thriving, self-sufficient Polkadot network, enabling both for-profit businesses and non-profit organizations to receive financial support to bring their ideas to life and contribute to the decentralized future.
With its open, inclusive, and innovative approach, Polkadot is leading the development of cross-chain platforms, contributing to the construction of a more liberated, fair, and sustainable decentralized future.
Over the past year, Polkadot’s influence in traditional enterprises has seen significant growth. The following are some highlights from Polkadot’s official annual report regarding enterprises adopting Polkadot technology:
- Zodia Custody announced the provision of institutional custody and staking services on Polkadot.
- Import/export provider Banxa is assisting users in accessing the Astar parachain through various payment methods, committed to comprehensive ecosystem integration with Polkadot.
- Energy Web revealed plans to join Polkadot, aiding major companies like Shell, Vodafone, and Volkswagen in their carbon reduction initiatives.
- Polkadot parachain Frequency introduced blockchain-based identity verification for its social media platform MeWe, benefiting 20 million users.
- KILT collaborated with accounting giant Deloitte to issue reusable digital credentials for KYC identity verification.
- KILT and Deloitte are working with the new ecosystem team Polimec to issue reusable KYC credentials, enabling global fundraising for digital assets.
- The Sovereign Nature Initiative partnered with Moonsama to bring data on Kenyan lions into the virtual realm, supporting real-world conservation efforts.
- Substrate-based peaq announced its introduction of Tesla into the Polkadot ecosystem through a collaboration with the car-sharing startup ELOOP.
Of course, Polkadot’s application in traditional sectors extends beyond the mentioned areas, with many other possibilities awaiting exploration.
The year 2023 served as a period of reflection, transformation, and innovation, akin to the onset of spring after winter’s end. Anticipating a renewed industry landscape in 2024, we present our predictions and insights based on the potential changes within Polkadot and the broader blockchain sector. These viewpoints are subjective, and we welcome any different views or additional insights for discussion.