Polkadot

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Project overview

Polkadot is proof-of-stake Layer 1 blockchain with smart contract execution capabilities. It is known for being an interoperability network that connects different blockchains together. Users can build their own custom chains known as “parachains” or create their own decentralised applications and solutions that operate under a broader network.

Polkadot first emerged with the release of its whitepaper in 2016. Parity Technologies, the developer company behind Polkadot, launched the project in various stages, starting with a V1 launch in May 2020 and officially completing its full release in December 2021.

Technology

Polkadot’s interoperability framework includes a primary chain, known as the “relay chain”, and parachains which are essentially separate chains that run in parallel to the main network. Each parachain is highly customisable and serves a specific use case within the Polkadot ecosystem, while the relay chain handles the consensus, communication, and shared security.

Polkadot uses a nominated Proof-of-Stake (NPOS) consensus mechanism where tokenholders nominate validators to secure the relay chain.

Token supply model

Polkadot has an inflationary token supply model with a 10 percent fixed annual inflation rate and no capped supply. However, adjustments to the inflation rate can be made through governance referendums. Eight percent of the newly issued DOT tokens are distributed to validators and tokenholders as rewards for securing the network, while the remaining 2 percent are sent to the treasury.

Serving as a financial reserve for the network, the Polkadot treasury funds are used on activities to generate value for the ecosystem. Polkadot has implemented a burning mechanism within the treasury, where if token funds are not spent after a 24-day spend period, 1 percent are burned.

Key value drivers

The growing demand for blockchain interoperability may complement ecosystems like Polkadot, especially given that its infrastructure allows users to transfer assets between blockchains without any additional fees – this makes it unique to Ethereum and Ethereum-based Layer 2 transactions. The challenge for Polkadot will be how well it is able to connect with blockchains outside of its own parachain ecosystem.

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The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorization or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

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