In this cryptocurrency bull market, Polkadot and Cardano have emerged, and their market capitalizations have both entered the top 5 in the market capitalization of cryptocurrency. Obviously, the market is optimistic about public chain projects again. But I think that the current valuation of these two public chain projects does not have a solid business foundation. According to the current progress of these public chain projects, the market's valuation of them is obviously too high. Such a high valuation price is difficult to sustain.
Whether it is Polkadot or Cardano, both projects are still in a very early stage. The Goguen phase of Cardano supporting smart contracts is not live yet. In the Polkadot ecosystem, there is no parachain yet. So in the two ecology, none of the applications started. Not to mention how popular these applications will be in the market, let alone what kind of benefits these applications will generate. Therefore, in the future development of these two projects, any internal factors of the projects and changes in the general environment will hardly guarantee the current market valuation of these projects.
The most basic factor that determines whether a public chain project is valuable is the market popularity of various applications running on it. At this stage, Ethereum is the basic public chain adopted by various applications. Various blockchain applications are developed on Ethereum. Among these applications, there are some applications that are popular in the market, such as the previous Kitty cat and the current DeFi application. If we look at the development of the market value of Ethereum, we can see that although Ethereum is a public chain that has been widely used so far, the ups and downs of its ecological development have directly affected the market value of Ethereum. The market value of Ethereum has risen from a peak at the end of 2017 to a peak after a long period of trough due to the popularity of DeFi applications in the market. The market capitalization of Ethereum is directly related to the popularity of applications on it. But whether it is Polkadot or Cardano, there are still no popular applications running on it. Even if a certain type of application (such as DeFi) is popular, such applications will develop on different public chains. At present, it is impossible for any public chain to enjoy the basically monopoly status before Ethereum, so the funds in the market must be scattered on several public chains.
In terms of expectations for the ecological development of Polkadot and Cardano, one of the main expectations is to migrate the popular applications on Ethereum to these two ecosystems. One of the most important types is DeFi. Cardano already provides tools for the migration of Ethereum assets to the Cardano ecosystem. In the Polkadot ecosystem, there are already parachain plans to provide DeFi applications. If DeFi applications that are popular with the market can be established in the short term in these two ecosystems, then this will indeed help maintain the market value of these two public chain projects. But this migration is a process. But most importantly, how long DeFi itself can maintain the market enthusiasm is a big question.
The popularity of DeFi in the market is due to the recent boom in the stock market and currency market. Speculators need funds and better trading methods, thus promoting the rise of various DeFi applications. Correspondingly, if encrypted digital currency transactions enter the bear market stage, the transaction volume of various DeFi applications will definitely decrease significantly. DeFi applications therefore cannot attract market support for the public chains they use. Judging from the current state of overall economic development and the situation of the stock market, a major adjustment in the stock market and the currency market is a high probability event this year. Therefore, this will definitely affect the market's interest in DeFi, which will further affect the market's valuation of the corresponding public chain projects.
I think that for public chain projects, the real application that can promote the prosperity of the public chain ecology is the introduction of stable coins. Stable currency is the simplest and easiest financial product to introduce, but the market demand for it is very strong. The use of stablecoins in the public chain ecology will be in two specific application areas of payment and transfer. Such applications can quickly form network effects. On the one hand, it is continuously expanding the number of users of the public chain. On the other hand, due to the frequent transactions between existing users, it can further enhance the cohesion of the public chain. Moreover, such needs are activities that people must engage in in their daily economic life, so these activities can promote the long-term development of the public chain ecology.
In terms of applying stablecoins to promote ecological development, I think Diem ecology will be the best application case. After the launch of the Diem stablecoin, members of the Diem Association will provide applications based on stablecoin payments in their respective fields, so they will promote the application of stablecoins in many subdivisions (such as taxi-hailing applications like Uber and Lyft), and also It is to promote the development of ecology. Therefore, the ecology established on the Diem blockchain will develop very rapidly. This will create great competition for existing public chain projects. If the related demand based on stablecoins in the market can already be met through the Diem ecosystem, then in this regard, the market demand for Polkadot or Cardano will naturally decrease. The development of Polkadot and Cardano ecology therefore lacks an important support.
In terms of support for stablecoins, both Polkadot and Cardano are insufficiently prepared. In the two ecosystems, there will be stable coins generated and circulated, but such stable coins are generated based on encrypted digital currency mortgages. If the total assets of encrypted digital currencies decline, this will definitely affect the total number of stable coins in the ecosystem. And more importantly, the number of stablecoins generated in this way is far less than the number of digital stablecoins directly generated based on legal tender. So in general, whether it is the Polkadot ecosystem or the Cardano ecosystem, the number of stablecoins will be much smaller. And this will directly limit the development of ecology. Of course, in the early stages of the ecology, it is unlikely to directly provide stablecoins based on fiat currencies. Even influential institutions like Facebook and the Diem Association have encountered a lot of resistance in launching fiat-based stablecoins, so let alone blockchain technology development companies like Polkadot and Cardano. Therefore, in the early stage of the ecology, it is also a feasible strategy to have stablecoins based on encrypted digital currency mortgages. But I still hope that these two projects will start the stable currency based on fiat currency as soon as possible, so as to provide a solid foundation for the development of the ecology.
