KSM and DOT research report

13 min readAug 21, 2021

Background

In 1983 the internet was invented, companies were then built on top of the internet. In 2021 today this has totally been flipped on its head.

With the sudden explosion of blockchain capabilities, a wave of innovation has formed. This fast moving space has created huge technological advancements this way but it has come at a cost.

The whole Cryptocurrency ecosystem is so far from interoperability it’s scary. This minor but yet huge problem if not solved will either create a dictator like power or completely destroy the space.

What is Polkadot

Polkadot is a blockchain infrastructure which enables external networks as well as customized layer one “parachains” to communicate, creating an interconnected internet of blockchains.

A report from Electric Capital showed that Polkadot almost doubled its development community from 197 people in 2019 to 388 in 2020. This is still a fraction of the number of developers working on Ethereum, but it is still an indication of Polkadot’s growth and popularity.

A thousand transactions per second for single application parachains on Kusama and Polkadot means developers can expect the networks to scale incredibly well. It also means transaction costs will be much lower, making applications cheaper to use.

Polkadot can process up to 1000 transactions per second, this is 10 times the speed on Ethereum.

Polkadot is on 650,392 coinmarket cap watchlists.

59.6% of Polkadot is staked, Polkadots yearly inflation is 10%

What is Kusama

Kusama is a blockchain infrastructure with nearly the same codebase as its sister network Polkadot. Kusama is an experimental codebase intended for teams who want to move fast and innovate.

While Polkadot will be intended for established projects e.g. ETH, BTC, ADA, etc. Kusama will serve as a place where less established projects can thrive.

The first key technical difference between Polkadot and Kusama is that Kusama has modified governance parameters that allow for faster upgrades. Kusama is up to four times faster than Polkadot, with seven days for token holders to vote on referendums followed by an enactment period of eight days, after which the referendum will be enacted on the chain. This means stakeholders need to stay active and vigilant if they want to keep up with all the proposals, referenda, and upgrades, and validators on Kusama often need to update on short notice.

As we know teams wishing to run a parachain need to bond tokens as security. The bonding requirement on Kusama is a lot lower than on Polkadot than it is on Kusama. Providing new teams and a cheap alternative to test new technologies.

Kusama overall provides a cheaper and faster ecosystem compared to Polkadot with almost the exact same codebase.

Both Polkadot and kusama support over 100 parachain slots and up to thousands of parathreads. Kusama offers 100 more parachain slots for when polkadot gets filled up.

Kusama is on 147,278 coinmarket cap watchlists.

47.4% of Kusama is staked, Kusama’s yearly inflation is 10%

10% of Kusama is locked in previous parachain auctions.

Currently Kusama has 6 parachains on the relay chain, these include Bitforst, Khala, Shiden, Moon River and Karura which raised over 1m KSM to be bonded and then locked.

Dr Gavin Wood

Dr Gavin Wood, Ethereums co-founder and former CTO created Polkadot and Kusama to solve the interoperability problem.

Dr Wood took Vitalik Buterins Ethereum whitepaper and turned it into a fully functional blockchain. He later left Ethereum as he identified that long term Cryptocurrencies would have the issue of scalability and interoperability. He set out to build Polkadot and Kusama in 2016.

Web3 Foundation

The Web3 Foundation Nurtures technologies and applications in the fields of decentralized web software protocols. They fund research and development teams who are building the foundation of the decentralized web. They also are using their whole developer power to develop Polkadot and Kusama, meaning Polkadot and Kusama are being built out for Web3.

The DOT token

DOT is Polkadots native token, the intended use case of the DOT token is to allow token holders to participate in parachain auctions, bonding, staking and governance. The chart above depicts DOT token price movements.

As of August 14, 2021:

Market cap : $28.1B

Price : $28.58

Circulating supply : 987,579,314.96

Max supply : ∞

Total supply : 1,103,303,471

Crypto market cap rank : 8

DOT had a year to date gain of : 206%

The KSM token

KSM is Kusama’s native tokens, The intended use case of the KSM token is to allow token holders to participate in parachain auctions, bonding, staking and governance. The chart above depicts KSM token price movements.

As of August 21, 2021:

Market cap : $2.8B

Price : $333

Circulating supply : 8,470,098.06

Max supply : ∞

Total supply : 10,000,000

Crypto market cap rank : 49

KSM had a year to date gain of : 375%

Scalability

ETH tps — 10–20

BTC tps — 3–7

KSM tps — 1,000

DOT tps — 1,000

Proof of work (POW) — BTC, LTC

Proof of stake (POS) — ETH2.0, ADA

Nominated proof of stake (NPOS) — DOT, KSM

Flexible interaction: Polkadot helps to inter-chain a variety of data, assets or tokens. Polkadot supports transaction processing on parallel blockchains, helping to solve the scaling problem that currently exists on Ethereum.
Framework Substrate: Substrate will help users easily create new blockchain chains within minutes.
Upgrading without a fork: When integrating new features or implementing bug fixes, Polkadot does not need to hard fork like many traditional networks.
Security: Networks will be independent in terms of governance, but security is always comprehensive. The weakness of Pow and PoS is the need for a large enough community to ensure security. But this is quite challenging for small and new projects. Polkadot will stand as the point of connection, so that the small chains can operate safely from the very beginning.
Decentralized administration: Each individual participating in the network has a voice, can participate in the system.

Polkadot will appeal to developers at the anticipated transaction speed. Ethereum — arguably the most used blockchain in the world — only supports approximately fifteen transactions per second, a limit that is frequently reached. On Polkadot, because interactions on parachains are processed in parallel, the network as a whole is highly scalable. An individual application will be able to process approximately one thousand transactions per second. The overall network of parachains on Kusama and Polkadot will function at a hundred times that speed.

Nominated Proof-of-Stake is the process of selecting validators to be allowed to participate in the consensus protocol. POW is well-tested and used in many cryptocurrency projects. As polkadot and Kusama’s aim is to complement the ecosystem and not be the Ethereum killer. As the PoS algorithm provides for a more scalable blockchain with higher transaction throughput it means Polkadot and Kusama can facilitate far more chains.

Polkadot helps to alleviate high gas costs on Ethereum by executing the transactions on a faster, lower cost chain. Rather than have huge amounts of transactions go through one chain which cause high gas fees and slow speeds. This spreads the work over the whole space rather than one specific area.

Polkadot can provide strong finality and availability guarantees with much fewer validators. Polkadot uses Nominated Proof of Stake (NPoS) to select validators from a smaller set, letting smaller holders nominate validators to run infrastructure while still claiming the rewards of the system, without running a node of their own. Unlike ethereum, making users stake 32 ETH. Which at the current price of $3.3k per ETH would be $105,600.

BTC dominates 45% of the crypto market cap, only 1% of them are wrapped. Meaning 44.55 percent of the space is left doing absolutely nothing. Dot and Ksm would form the bridge allowing Btc to be used in DEFI protocols. At Bitcoins market cap of 800B, this would add more than ¾ of a trillion into DEFI overnight.

Polkadot would enable a two-way bridge between Polkadot and Bitcoin. It would allow holders of BTC to “teleport” their assets to Polkadot as PolkaBTC, and holders of PolkaBTC to burn their assets for BTC on the Bitcoin chain.

This is just in the space as it is now, the crypto market cap is 2T and experts in the space like Micheal Saylor think the space will reach a 10T market cap. When this happens the wealth here could be leveraged and would transform the space.

Keep in mind this is just 1 bridge, other coins e.g. LTC, USDT, DAI would have the ability to be leveraged as well. The project that forms the internet of blockchains will be one of the biggest opportunities in this lifetime. Polkadot and Kusama are the only real contenders, due to their backing, experience and foundation.

Interoperability

The only way crypto would be adopted is by enabling the space to work together. At the moment it’s like having a website that you can’t put your credit card on, you can only use the website’s gift card. This is one of the reasons that it is so heavily controlled by BTC, only serious investors want to invest in BTC.

So you miss the security of retail utilitarian monetary value and instead see a very volatile heavily manipulated market. The tech is here, we just need something to unite it.

Defi projects have the slices of the pie and we need to put them together. Projects have created technology, ideas and concepts. We now need to make them a reality by making them widely accessible .

Defi is limited to the ecosystem that it was created in. For example Curve cannot interact with aave and vice versa. Combining these two would allow a huge platform of yields to break through. But now imagine the whole DEFI ecosystem was connected, that would be an unstoppable force.

According to defi pulse currently there is $82.62B locked in DEFI, in the entire Crypto ecosystem of 2T that makes up less than 5 percent of the entire space. Defi is extremely undervalued; we need to somehow use the space’s dorment liquidity.

Polkadot and Kusama can make the space interoperable, but what actually can come of this. Decentralised exchanges, wallets, market places and lending protocols all have the same problem. They can’t have more than one network on their platform. We see this issue with uniswap, metamask, opensea, curve, aave and pretty much every big player in the space. The list goes on and on for what we can not do. This results in a huge amount of gas fees and a complicated exchange.

This infrastructure would pave the way for grand ideas and make them a reality. The space is still so young and is so inefficient, we need Polkadot and Kusama to solve these problems.

Sustainability

Sustainability of the space is imperative and should be at the top of every project’s agenda, but most focus on being the best in their specific area. For example Ethereum focused so much on being the leader of DEFI they forgot about so many issues to do with scalability that their network actually cant handle all of it.

This forced ETH 2.0, simply changing the entire protocol is not a sustainable solution when the going gets tough. But Polkadot and Kusama will not have this problem due to forkless upgrades. Rather than leaving the chain they once cherished dormant and abandoned killing the entire ETH mining systems. Polkadot and Kusama support forkless upgrades meaning when an upgrade is proposed and voted upon: If the outcome is positive then the meta-protocol will change the Polkadot protocol based on the positive outcome. If the outcome is negative then nothing will happen.

Polkadot and Kusama allow projects to not have to think about issues like this due to their cross chain compatibility. Projects can focus more on innovating and less about the smaller details.

The Tech

Relay chain

The relay chain is at the heart of this cross chain infrastructure technology. The relay chain allows chains to sink up to it and then use it as an intermediary between other chains.

Parachain

Parachains are blockchains that sink up to the relay chain but use Polkadot or Kusama’s blockchain.

Bridges

Bridges are established blockchains that sink up to the relay chain eg Bitcoin, Ethereum etc

These 3 main components are what make up the internet of blockchains, in simple terms Polkadot and Kusama are intermediaries that provide infrastructure.

Parachain auctions

A parachain auction allows projects to compete for slots on Kusama’s Relay Chain, enabling projects to launch on their own individual layer-1 blockchain but with their security rooted into Kusama’s ecosystem.

A DOT/KSM holder will “bond” DOT/KSM to the project they wish to join the relay chain. This will typically involve a 48 week look up. In exchange at the discretion of the project that wins the parachain auction. The project will then reward the DOT/KSM contributors with their own native currency.

Ecosystem graphic

Although the Polkadot network is live, parachains are not. The biggest use case of Polkadot has not even launched. Meaning the majority of money currently invested in Polkadot right now is speculative, Polkadot isn’t actually utility yet. We haven’t seen anything yet in the field of a high market cap for Polkadot.

Kusama recently just launched its parachain capability and serves as a test to see if this idea will work, so far it is working. We see the first DEX in the Kusama ecosystem successfully launch without any problems.

Unlike most projects, Polkadot and Kusama have a utility so they will be linear. Rather than the tokens price be controlled by mass movements like ethereum is whenever there is a NFT drop. Polkadot and Kusama’s token DOT and KSM will start moving dramatically when projects actually start using the parachain. Currently only 5 parachains are actually living in the whole 15B ecosystem, this is huge.

The type of projects that are currently live are infrastructure e.g. DEX, API and Bridges. There are no outside projects yet launched on Polkadot or Kusama meaning growth potential here is huge.

Case Studies :

Acala (ACA)

Acala is the all-in-one DeFi hub of Polkadot. Acala is an Ethereum-compatible platform for financial applications to use smart contracts or built-in protocols with out-of-the-box cross-chain capabilities and robust security. The platform also offers a suite of financial applications including: a trustless staking derivative (liquid DOT), a multi-collateralized stablecoin backed by cross-chain assets (aUSD), and DEX — all with micro gas fees that can be paid in any token.

Karura (KAR)

Karura is an all-in-one DeFi hub and stablecoin platform built on Kusama (KSM) and integrated into Polkadot (DOT). Karura was created by the Acala Network, which has won four Web3 Foundation grants and founded the Substrate Developer Academy.

Moonbeam (GLMR)

Moonbeam is a smart-contract blockchain on Polkadot that strives to provide compatibility with the existing Ethereum developer toolchain and network.

Moon river (MOVR)

Moonriver is a smart-contract blockchain on Kusama with the same features. They both do this by providing a full EVM implementation, a Web3-compatible API, and bridges that connect them both to existing Ethereum networks.

Centrifuge (CFG)

Centrifuge is a decentralized asset financing protocol. The Centrifuge blockchain is built on Polkadot (DOT) for speed and low fees.

Altair (AIR)

Altair is built on Kusama and combines the industry-leading infrastructure built by Centrifuge to finance real-world assets (RWA) on Centrifuge Chain, with the newest experimental features before they go live on Centrifuge Chain.

Remark (RMRK)

RMRK is a way to add “graffiti” to transactions on the KSM blockchain without the use of a smart contract, which allows NFT’s.

The NFT’s that RMRK produce are “supercharged” because of their lego capability. The lego capability allows NFT’s to attach to other NFT’s creating one single transferable NFT. This would pave the way for gaming companies to implement this into games. RMRK also allows people to add emojis on NFT’s with their platform.

For example a simple use case would be to get a NFT of a bird and then a NFT of a hat. You could combine these NFT’s to make the bird wear the hat.

The case for Kusama

Some may say why focus on Kusama when we can invest in Polkadot ?

As Polkadot hasn’t fully launched yet due to the parachains not being live it is very undervalued. Until Polkadot parachains go live we won’t see huge price movements. But with Kusama the parachains have just launched, this will provide a good example of how it will go with Polkadot. But will provide us with a very good investment opportunity.

Currently the blockchains that have won a parachain auction are Bitforst, Khala, Shiden, Moon River and Karura. Only Karura is actually live. So for Kusama to have under a 2B market cap is an incredible opportunity.

Short term gains and information from Kusama now will put us in a prime position for when Polkadot launches its Parachains.

Conclusion

Both Polkadot and Kusama have extreme potential to be the blockchain infrastructure for Crypto. As these coins are both so young it is hard to tell how they will do in the next 5 years. But there is one thing we know, the space needs them.

Lorimer Jenkins
y.at/⌛🚀💎🙌