How overvalued is Polkadot (DOT)?

So this is a little late to the Skepticism Sunday party, but in my continuing quest to be the least popular member of the community, I’m going to continue to press on issues that others can’t, won’t or would rather ignore due to short term financial incentives.

The point of independent analysis is not to be liked, but to reveal useful insights.

Pricing the future

Polkadot (DOT) is one of top five largest institutionally held crypto-assets alongside Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Cardano (ADA) - a member of a ‘blue chip’ fraternity.

As everyone is constantly reminded, there is a vast distance between the valuations of crypto-currencies and the adoption of (network) public infrastructure.

Valuation frameworks allow investors to model the ‘fair value’ of assets - analysis that at its simplest aims to price the future.

For those who have been around crypto for a few cycles will recognise, many attempts have been made to value Bitcoin, using a variety of financial models per Exploring Bitcoin Valuation Methodologies:

There’s no universally accepted way of modeling bitcoin’s future value. 
Methods for forecasting prices largely depend on analogies. Is bitcoin like the internet? Then consider network effects. Is it gold 2.0? Then there’s a stock-to-flow model. 
Each methodology has its drawbacks, but no model is ever perfect.

As institutional interest increases and ecosystems mature, these frameworks will do too.

Memes will continue to drive speculation in dog tokens, but over the long term, infrastructural adoption will concentrate around protocols that demonstrate meaningful use and sustainable and scaleable revenue models that are able to be valued in more predictable ways.

In simple terms, at some point reality bites.

Valuation frameworks for Public Blockchains

As one of the largest institutionally held assets, DOT gains both a badge of honour and more critical assessment of its relative value.

Funds holding assets, especially those with more conservative compliance and reporting requirements (say a pension fund) have a legal duty to conduct regular due dilligence on their investments.

Even venture capitalists with long time horizons will re-balance their portfolio over time as they receive new information and insights.

Despite people wishing otherwise, the average DOT investor does not engage in deep critical analysis of the asset, but follows trends, marketing and #bullish announcements.

At best holders will engage with technical analysis, attempt to buy and sell into market movements or if they prefer not to day trade attempt to ride out market cycles.

Each market cycle is different

Yes the overall market expands over time, but each time it does, there is an evolving narrative and reason for new capital to enter the space.

Historically that growth has been driven by speculation around unregulated fundraising - ICOs, DeFi and NFTs that sucked in billions in new capital - driven by rapid returns rather than sustained impact.

Just listen to a VC call it like it is:

With regulations now constraining the core drivers of prior cycles, growth moving forward will be dependent on new narratives.

Polkadot the meme token

Polkadot’s launch was driven by a meme - Gavin vs Vitalik at a point when there was huge doubt as to whether Ethereum could shift from PoW to PoS.

The huge demand seen for Edgeware’s lockdrop was testament to this, with ETH holders able to ‘hedge’ the future, placing a bet on both founders.

Like the rest of crypto, its meme value has far exceeded its objective value.

The coretime narrative

Version 1.0 of Polkadot’s technology is complete and now the product is shifting away from an auction model of coretime leases to coretime sales ensuring the Polkadot project will face new headwinds.

If you focus the narrative on a singular ‘metric’ aka coretime, you more accurately value the technology (this is a very good thing long term), but you also open the door to a radical repricing of the network (this is not such a good thing short term).

Remember any price changes directly impact the spending power of the treasuries.

Per Kusama historical analysis - spending, coretime demand and treasury ROI this is the (simulated) value of Kusama’s first coretime:


This is the current (simulated) value of the latest auction:


Since coretime lease is an opportunity cost and coretime sales are direct costs expect coretime to be even cheaper than this.

Now lets look at the latest Messari Report Q2 2023 (funded by the DOT treasury)

Total revenue is the only line that matters.

Once coretime is concretely the metric that orients the value accrual of the network, this line will be all that investors really care about.

When you take the marketcap - total value of all tokens in circulation and divide it by the income, you can calculate a valuation multiple and compare this across other networks.

Valuation frameworks for public Blockchains.

Coinshares are one of the oldest and most experienced institutional investors in the space.

This report is critical reading for anyone interested in where Polkadot is headed. Valuation Frameworks for Public Blockchains - Coinshares

Blockchains quite simply, sell blockspace. Each blockchain has a methodology for pricing transactions that are included in blocks that range from auctions to a target number of transactions per block. However, not all blockspace is valued equally as different chains offer different security guarantees, transaction throughput, dApp ecosystems, and other capabilities as trade-offs.

If we use network fees and coretime interchangably, you can begin to see the problem…

Sadly the nature of token tribalism means critical analysis is impossible, it is disregarded as FUD.

In previous cycles, this strategy worked just fine, since rational pricing was impossible it was all meme.

Tokens ensure the collective delusion is strong - nobody wants to accept reality as it is and actually face the existential issues head on, for pure meme tokens, this means its about continually pushing new partnerships, announcements and pumping the narrative.

For more boring (or useful) technologies such as Polkadot, this won’t work.

Memes are fun, playful and weird.

Enterprise adoption is the opposite.

So what should we do?

It’s very simple really - accept that right now, Polkadot (DOT) and Kusama (KSM) are massively overvalued when we consider their respective incomes to marketcaps.

This is not just a Polkadot problem, this is the whole of crypto.

Consider the difference between the market cap and the income as a ‘hope premium’.

Without closing the gap between hope and reality (income) there will eventually be a repricing… slowly, then suddenly.

Treasuries as common good resources

As treasury funds continue to be spent on projects that do not directly impact coretime income, they will continue to bleed out.

People will continue to argue over subjective value adds and culture will steadily degrade - you can see this happening already as media spending battles to demonstrate its usefulness and ROI.

As prices begin to fall, these issues will compound - it is inevitable.

At some point casting blame will give way to an acceptance that the only metric that matters is coretime income - not adding thousands of new developers, or getting a bunch of active addresses.

Sadly, things will get a lot worse, before they get better.

The faster people face reality headon, the faster change will happen.


For those who’ve made it this far, the recommendation is simple - focus your attention on the business proposition of Kusama and Polkadot.

Understand the product offering and the value drivers.

For DOT/ KSM holders

If you are a DOT or KSM voter, Nay anything that doesn’t consider coretime demand up front. This does not mean ‘killing’ media spending, or tooling, or experimentation, it means nudging talent and technology to collaborate more concretely in service of a common good outcome.

For DOT/ KSM proposers

Figure out how to consolidate your offerings into a ‘full-stack’ proposition with the power to shift the metrics that matter - if you can do this, you will be handsomely rewarded, rather than enduring ever more work, every greater token holder anger and ultimately a short time horizon for your varying endeavours.


Relevant to thread @jonas’ RFC Burn Revenue from Coretime Sales

The Polkadot UC will generate revenue from the sale of available Coretime. The question then arises: how should we handle these revenues? Broadly, there are three potential paths – burning the revenue and thereby removing it from total issuance or divert it to the Treasury. This Request for Comment (RFC) presents arguments favoring burning as the preferred mechanism for handling revenues from Coretime sales.

(Would be great if you posted the RFC here as well?)

You have made a great case for why these things are speculative rather than investment grade. “Total revenue is the only line that matters” for a business, but these aren’t businesses. You are trying to examine a moose pasture as if it were a cola bottling factory. These guys are more similar to mineral prospectors drilling cores in the earth (ie. a speculation) than they are similar to guys running a cola bottling factory (ie. a business). Parachain auctions, OpenGov, Agile delegation etc. are all experimental ideas of what might work, like holes drilled in the earth where there might be a deposit. We ought to approach our analysis with our speculators cap on.

Most important factor when speculating is the people. People that have found mineral deposits in the past are more likely to find additional mineral deposits. That doesn’t mean every hole they ever drill is going to intersect high grade gold though. It’s a probability game. The Paretto principle informs us that most of the value will be created by only a few people. Speculators should try identify and support those people .

Who has delivered the most consistently over time? Who has had repeated success? Who has kept their word? Who has delivered the things they said they would deliver? Who are the exceptional professionals?

Who has lied? Who has cheated? Who has stolen? Who has copied others work without recognition? Who acts like a bunch of clowns (lack of adult supervision)?

Most speculators will do better asking these kinds of uestions rather than pretending to be an expert geologist and using the wrong tools to analyze the revenue model of a moose pasture.


Thanks for the response, nice analogy.

Sticking with your frame, consider me a narrative prospector.

The truth is we don’t know what these things are - we all see things differently, we each bring our own perspectives and project our own experience. Crypto is a mirror.

The more we probe and trigger and debate our varying perspectives, the more likely it is we will stumble steadily into some narrative coherence as a collective.

I am deeply skeptical of top down brand building such as Polkadot Summit - Brand Refresh Workshop when it comes to coordinating these emerging organisations (organisms?) - the most useful thing is they generally demonstrate how little people do actually agree on, and in that you often get interesting signal at a more abstract level.

I agree - but in part. Often it is not the ‘experts’ who stumble on a rich seam of some new resource, since they are actively looking for something specific and may well miss or discount other ‘discoveries’ that later prove to be of fundamental importance.

For what it’s worth, I see things roughly as you do - despite the business critique.

I don’t particularly buy the ‘app’ story, I think it’s a lazy fit following ‘Web2 analogies’ - rather I see blockchain computation as a much lower level and more abstract concept:

Thanks for your comment, I totally agree. Rich’s argument about “overvaluation” doesn’t really hold up. Also, I can’t quite figure out the main point of Rich’s post about Polkadot’s overvaluation. When it comes to how we value tokens, I reckon a mixed approach might be the way to go, maybe something that combines fixed income/option, like a convertible bond approach or similar. So to say any of the tokens are overvalued right now doesn’t seem right to me. Could their price drop a bit? Sure, but only for a while, or until 0, so the downside is limited. On the flip side, could the price skyrocket? Absolutely, there is no limit! I don’t think that valuation/price discussion brings anything to Polkadot.


lets agree to not agree.

Valuations in tech companies are a mystery, and a gamble. Those who have the biggest bags will do the biggest pump, Bank and under-writers do just that! they also short their own stocks, when they can’t lose to lose. loops are everywhere.

Jumping here and airing your “concerns” about polkadot pricing is hypocritical (because it seems it is what you care about) even though most on the forum don’t care about it to certain extent, if you think it will drop like that you should sell what you got, agree a vast majority of traders sure do what you say they do, they make money doing it, but not everyone is a trader, and sure not most of the people in the ecosystem. The benefits of the overbuild of tech infrastructure of the 2000 (tech bubble) did started to ripple through the tech sector since the 2013, data-centers galore, the valuation on the 2000 where also very different, than the valuations of today, people are just getting smarter this time around, seems we are getting to the blockchain infrastructure overbuild point in the ecosystem.

Agree that the only solution to the coin appreciating is traffic, Web3 can create 10x the traffic needed per new user, for the parachains being used in the x solution. It took wordpress 20 years to have authored 40% of the internet, and I believe that will take a fraction of that time to get a piece of the internet running on independent Web3 solutions.

This technologies can have a profound change on the way we do things, and someone, somehow, maybe me, or you, will develop it and bring the mainstream into it, without much of a sweat.

I did enjoy your thoughtful post! we all have views and define success differently, and to say the least i just don’t believe BTC has any value, but people is buying it…

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To date Polkadot has been a meme token.
(Gavin vs Vitalik)

Now ETH is PoS and is more or less adopting the relay / parachain structure (using different lexicon)

Polkadot is steadily losing meme strength.

New narrative is “coretime” + paper tissue roadmap.

This (proto) meme doesn’t rely on divine intervention but on actual income - which brings some much needed realism to proceedings.

Polkadot needs to leverage all resources to drive direct coretime demand.

This is the conclusion to the post.

Beyond this, the only alternative left is a new narrative that entirely differentiates from ETH etc.

This will not come from the status quo given the traditional approach to branding / marketing we’ve seen to date and it seems going forward Polkadot Summit - Brand Refresh Workshop

Two choices (that can also work together):

  • use treasuries to drive direct coretime demand and reward those who can make impact handsomely (ROI)

  • throw out the existing narrative and carve out an entirely new proposition that is defensible - ie it is not as easy to co-opt as coretime / blockspace narratives are


I think the treasury funds shouldn’t be used to be converted to USD, but should be rather offered as a collateral in an algorithmic stable coin on polkadot. Teams will be able to get stable coin of the polkadot ecosystem and will be liquidated if Polkadot price goes down, and will be able to get more DOT if price goes up.

Any chain with treasury being spent to USD will see its price continuously fall. It’s a no brainer. I don’t see how people don’t see this. Or maybe people do.

Also, all the burnt DOT should be used in that fashion - Provide stable coin that can be used for stuff on chain etc… Create connections.

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I don’t think there is anyway to address current problems until you begin to think about core relational dynamics within the architecture of the protocol which is in effect a ‘tri-chameral’ political system per The evolution of Polkadot’s political economy.

Most people here will be familiar with the scalability trilemma - aka you can’t have your blockchain cake and eat it.


The same is also true within the emerging tri-chameral political economy of polkadot:

The same is also true when we consider the role of value-accrual and spending as part of this tri-party incentives balancing act.

If we stick with just DOT and USDT for example, then I agree that binary creates tension that can only result in either stasis as people fear spending down the treasury and brutal zero sum games around receiving grants since theres no objective ways to establish ROI or an unsustainable approach to ecosystem development since there is no direct value accrual and thus its just money printing until inflation/reality catches up with everyone.

However if we add a third party to this mix - parachains backed by uncorrelated assets, whose assets are assigned to a reserve by a proposing team that the treasury funds, in return for diversifying reserves, we can add a third element to balance the system.

  • DOT security
  • USDT spending
  • X backed assets diversification

We use USDT to bootstrap the core incentive design, funding parachain teams that drive coretime demand through industries backed by appreciating reserves, giving some stability and price floor to the treasury, and then develop a native stablecoin based on a diverse basket of treasury held assets.

We end up with something like IMF’s Special Drawing Right.

The kabocha roadmap outlines the very simple approach to aligning on-chain collectives, with NFT based treasuries.

Kabocha splits the difference between for-profit parachains (let’s call them gen1) and system chains, taking the best of both but within a more explicitly cooperative structure that aligns incentives between between relay (security), parachain (utility) and collectives (rights assigners).

we’re focused on introducing a design template to Kabocha (and chains we incubate beyond that) where the funding of projects via our decentralised currency, also accrues value to the chain’s treasury.

Rather than inflating a supply and directing it into a treasury – as has been done by all Substrate chains so far, we will only be minting new KAB when a proposal is approved by the community.

Therefore, we can say that every KAB minted after launch is to fund a specific job.

In addition, those requesting funds will assign NFTs to Kabocha’s ‘reserve’ that are representative of their ideas / concept or project.

We call this ‘cultural collateral’.

These NFTs will also confer access rights, permissions and future utility to those holding KAB and can be upgraded as the funded projects develop over time utilsing

The narrative idea is a rework of the well known ‘Store of Value’ concept which has been the major hook for Bitcoin.

Except rather than being backed by machines / sunk electricity costs of miners, Kabocha is backed by the time, effort and insight of its contributors. Those investing in Kabocha are essentially betting on the future collective cultural value and access afforded by the assigned assets.


Your scalability trilemma is bullshit…

Polkadot and OmniLedger are both scalable and decentralized.

We believe Polkadot to be provably secure under moderate byzantine assumptions, plus maybe synchronous networking for assignment VRF messages. We’ll work on the formal proof more seriously next year, but really we designed it to be all three.

OmniLedger by Bryan Ford et al is secure under byzantine assumptions, but with an 80% honesty threshold (and randomness via DKG). It needs 1000 verifiers vs Polkadot’s 30-40, so alone it costs more, but it’s assumptions merge nicely so it’d permit multiple relay chains, which then gives Polkadot seemingly unlimited scalability.

“Nationalized Cosmos” would be a bridge ecosystem like Cosmos in which all zones have exactly the same validator operator set. It’s not scalable under a capitalist token model, but you could’ve every EU member state run one node on each zone, which makes it scalable. This is secure under regular byzantine assumptions. It’s fairly decentralized too, well capitalism creates a major centralization risk, so kinda apples & oranges there.

Also, zk roll ups are secure under even cryptographic assumptions, but they have a very high base costs, like 10^6 to 10^8 times the CPU load during block production. Arguably this makes them not decentralized, but they’ll argue this point ferociously.

It’s true optimistic roll ups appear insecure under byzantine assumptions or similar. Yet, Rob, Al, and I discovered polkadot’s scheme by thinking about the original optimistic roll up proposed by Gav. It’s possible another optimistic roll up team finds some security model that’s less bad than what I heard they’re all doing now.

In fact, the professor coins right now do silly things like DAGs, but we could face real competitors after we publish a security proof for polkadot, perhaps with much better execution models than Frame, or even new ideas from optimistic roll up land.

Afaik all short-term projections sound ethically problematic, but one could discuss if a particular project looks socially useful long-term. Afaik all blockchain projects have yet to demonstrate enough real social utility, which suggests we’ll never see anything really useful from the ossified ones like Bitcoin. At least Polkadot still has some window in which to build actually socially useful parachains, not easy but possible. If it succeeds then it might survive the eventual death of Bitcoin. lol

Also, you should follow my twitter if you want real doomer news. :wink:


Thanks for the colorful words Jeff!

I’m excited you’ve decided to pitch for entry to Red Flag Collective but disappointed on your behalf that the flag army haven’t descended since this may well contravene the forum code of conduct.

Anyways - to be clear, it’s not “my” trilemma, it’s like (literally) Binance Academy 101.

I was just using it as an example framework when speaking to both Polkadot’s political org structure (not well discussed) - security (relay), utility (parachain), agency (collective) - and then a further triparty structure which relatest to using DOT (or KSM) to fulfil too many roles (payment token, value accrual etc).

You then go on to write about something else - I commend your attempts to go off-topic and perhaps tempt a flag, but sadly it’s not been (as yet) rewarded.

FWIW I genuinely think it would be great if you broke our your response into a new post “How Polkadot solves the blockchain trilemma… and other bullshit” since this is an amazing achievement that should be more widely circulated and discussed.

I’d personally love someone smart like you and the other W3F researchers involved to outline this sort of stuff as educational material - there’s clearly a lot to share.

Best of luck with getting into RFC :slight_smile:

This entire analysis is very relevant.

From my perspective the purpose of Polkadot has been to offer security to parachains for a price. That is a business model by definition, and the analysis is spot on.

The other aspects of the mechanism (OpenGov, Auctions, Bounties etc…) are peripheral to that business model. In the case of Polkadot of course these features enable a DAO-like existence but even without those the business model would still need to exist to give DOT value.

Every business model is about sustainability - “how long can we keep this thing going, and how do we continue generate demand indefinitely?”. In Polkadot terms I would say “how can we encourage builders to build the type of parachains that will consume core time at a price and keep them here?”.

As a parachain founder I have to say that this whole experience is eye-opening: building on an idea is one thing, finding the funds to run a parachain network, quality & dev environments, and front-end applications, grow the team, marketing and the rest is basically the road to insolvency.

It doesn’t matter how good your product market fit is, unless there is obvious and visible funding support for parachain teams, selling core time won’t matter in a couple of years because everyone will be running their own solo chains.



We just acquired 12 months of Kusama ‘coretime’ for $0.19

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Is this realistic for Polkadot though?

Of course it’s realistic.

Kusama is the same incentive design as Polkadot.

It is the self proclaimed canary net.

It’s a time capsule for Polkadot’s future.

You raise some good and valid points. However, part of your argumentation is flawed.

Eth and Polkadot do not follow the same architecture at all. Polkadot offers shared security and interoperability between chains. Eth mainnet does not offer either of these.

This is why you missed that Polkadot can easily demand a minimal fee for their service:
Being a solo chain is more costly than running a parachain. A parachain needs much less validators because security is provided by Polkadot. The difference in costs to run a solo chain vs parachain is what Polkadot can charge at least.

To give you an example: A solo chain should probably have at least 50 validators each costing ~$400 a month, or $240’000 per year. A parachain can get away with much less, say 20 validators (=$96’000). In this example Polkadot can charge at least around $140k / year for each Parachain.

A canary test net is a test net btw. and not a time capsule.

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Sure, there are big differences, but in general, we end up in Betamax vs VHS territory here, since philosophically the general high level structure is the same.

You can always point to specific differences, but in general, Ethereum is a base security layer for a range of chains and each will be somewhat interoperable.

It may be hacky and filled with issues and not as elegant as the first principles design ethos of substrate, but in the end, does this matter, if no one uses ‘the better tech’?

This is a good way of asssessing break even pricing, however in the absence of demand for the security as a service a relay offers, these costs are passed onto infrastructure providers who must eat losses until the market catches up - that is if the market catches up, or moves on…

This $140k is also not a ‘static figure’, the costs of running a solo chain have been falling precipitously over the last decade and will continue to do so as the tech is commoditised.

Crypto valuations is all sentiment and narrative, with tech a long long long way behind.

The primary point of this provocative post is to really focus attention on different approaches to bootstrapping the demand for a currently largely undifferentiated product as far as the market is concerned.

The treasuries have no role other than to deliver this, you can write down pretty much all spending to date as ‘experience’ but moving forward, its explicit role will move towards directly bootstrapping coretime demand with focused, strategic and differentiated initiatives.

An example from my own background.

Google bought YouTube in 2005 at a point when people really didn’t think online video would be ‘a thing’.

They ate vast infrastructure losses for a decade (because they had another money printing business that meant they could afford to).

The pivotal moment was around 2011 when they launched something called YouTube Originals - where they ‘invested’ $100m in a range of creators / brands and partners as a way of bootstrapping the underlying infrastructure.

They basically calculated these deals as a loss-leader to bootstrap awareness and ad revenue - repositioning YouTube as a place where big brands could spend big money. Despite the failure of most channels, the initiative was overall a huge success.

YouTube Original Channels Initiative was a $100 million program funded by Google in an early effort to compete with satellite and cable TV providers. 2011 was the time when YouTube realized that their video platform is much more worth than cat videos and skater dogs.

To kick-start their program, YouTube collaborated with celebrities like Madonna, Sofia Vergara, WWE, Rainn Wilson, comedian Kenny Hotz, pro skateboarder Tony Hawk, Amy Poehler, CSI creator Anthony Zuiker among many others. They also invited independent content creators on YouTube like Frederator Networks, Philip DeFranco, Green brothers to create something that resembles an evolution of their own YouTube channels.

They backed my company Bigballs/Copa90 in year 1 and year 2.

This is the sort of initiative we are aiming to kickstart in this ecosystem, beginning in Kusama.

A canary test net is a test net btw. and not a time capsule.

It is an independent economy, with $KSM a leading indicator of the fate of $DOT.

Parachain teams fled Kusama to join Polkadot because it feels ‘bigger’, ‘safer’ and more ‘secure’.

This is an illusion.

The simple truth is, the systems / structures are the same, albeit with some parameter variations.

If you can’t make something work at a small scale, there is zero chance of making it work at a bigger scale.


Imho Polkadot should offer the student, the hobby blockchain developer or a startup to run a parachain at a low, attractive price while at the same time being attractive for companies running blockchains with tens or hundred thousands of daily transactions.

A core time token that can be requested on demand could be ideal for startup or hobbyist parachains.

I think increasing the awareness that one can run a secured blockchain for a reasonable price would already be a good start in order to increase demand.

Kusama / Polkadot must not be perceived as a “prison” (I think some Cosmos fans regard it as such).
Rather, Polkadot should be perceived as service to secure a chain for a reasonable price with the benefit of having access to USDT and to the services offered by other parachains.

Parachains moved to Kusama because there are more users and more liquidity. The security aspect is secondary at best.

why don’t you try it?

request 50 KSM from the treasury for a 40 KSM paraID deposit (a loan) and 10 KSM to bid on some of the remaining slots?

for 10 KSM you might get 10 slots, you might get 1.

if you were entrepreneurially minded, you might get a bunch of blockspace for next to nothing and then package it up as a space to innovate.

you could approach a bunch of students, or a whole university, or the innovation department of a brand…

you never know, you might accidentally refine that raw coretime into something useful.

you might end up creating yourself a job, and maybe a company, and perhaps even figure out how to create a successful parachain where massively well qualified and capitalised teams have failed.

perhaps you might do so well turning that cheap resource into a more valuable one that you end up returning a 1000x multiple of that first 10 KSM to the treasury in stablecoins…

and then that return you make, funds the next 10 of your university projects…

now there’s a thought, sustainable treasury funding that actually generates growth…

maybe that kind of beginner’s mind is what this ecosystem needs.

there are no experts here, just people fumbling in the dark for what’s next.

we are the users we seek - all else is a prayer.

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You make it sound funny, but selling “1-click secured blockchains” actually might be a valid business model.

I am already working on another unprofitable project in the Polkadot space.