The recent recovery of 256% Polkadot (DOT) in the last 56 days is nothing short of spectacular. Although the price is down 23% from its all-time high of $49.80 four months ago, the altcoin’s market capitalization of $39 billion has outperformed Ether (ETH) by 66% over the past thirty days.
Polkadot is a blockchain network designed to support various interconnected, application-specific parallel chains known as parachains. This scalability-focused project splits transactions into multiple pieces and processes them in parallel, as ETH 2.0 aims to achieve.
Polkadot refers to the entire ecosystem of parachains that plug into a single base platform known as a relay chain. It provides security to the baselayer network and handles consensus, finality and voting logic.
To support Parachain launch, users vote for projects by locking DOT tokens. Currently, only Kusama – Polkadot’s “Canary” network and an early, unrefined release of Polkadot – is holding its own auction for these slots. Polkadot is expected to start the same process in the next few months.
Polkadot’s integration into DeFi increases
Polkadot’s ecosystem continues to grow and on September 8, SubQuery, a decentralized data aggregator, raised $9 million to build Polkadot’s first data aggregation layer.
As an example of this integration, Moonbeam Parachain has tokens built on Polkadot’s development tool (substrate). These tokens can be sent natively to Ethereum wallet and smart contract addresses. On September 9, Moonbeam announced a partnership with Lido, a decentralized liquid staking derivatives protocol currently deployed in Ethereum and Terra.
The latest update comes from dTrade, a decentralized exchange. After successfully raising $6.4 million in a seed funding round in May of 2021, the DEX raised another $22.8 million market-making fund designed to provide “deep liquidity” backed by some of crypto’s biggest market makers .
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Derivatives data shows potential for a new all-time high
Technical analysts are quick to forecast prices but investors should analyze Polkadot’s derivatives data. For example, a non-existent futures contract premium means that investors are not comfortable creating bullish positions using leverage.
DOT’s total futures open interest increased from $360 million to $685 million in 30 days and is a positive indicator as it reflects the willingness of traders to keep their long positions open despite the rally from leverage traders.
In futures contracts trading, both long (buyer) and short (seller) are matched all the time, but their leverage is different. The final imbalance is reflected in the funding rate and derivatives exchanges will charge whichever side is using more leverage to balance their risk.
Stable Protocol Development Will Be The Last Driven Of DOT Value
In the first week of September, a healthy dose of optimism was reflected as the 8-hour funding rate reached 0.10%, which equates to 2.1% per week. Nevertheless, the position returned after a 35% price crash on the morning of 7 September.
This $22.70 intraday low from a week ago may seem irrelevant as DOT price rises above $36, but traders’ appetite for leveraged long positions is yet to be overcome.
The most likely case is a “glass half full” scenario where investors will gain confidence as the project continues.
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