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The Capital

Polkadot and CBDCs

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Shifting Top 10

With LINK and now Polkadot moving into the top 10 coins, are we seeing a sea change in the major crypto projects that dominate the top 10 by market cap? Although much of the market remains irrational and artificially supported, there is a sense that in some cases, like Polkadot, value is starting to be recognized by investors who are taking a more traditional approach to investing. DeFi aside, this is a welcome move away from 2017’s retail-led ’throw money at whatever is pumping’ mentality which ended in many people getting badly burnt — a story that may well still play out in these DeFi coins when the music stops.

Top 10 coins by Market Cap on CoinGecko

We notice that exchanges, influencers, and OG’s have started to revert to CoinGecko in recent months as their reference point of choice to keep track of projects and their progress. Sentiment towards the once-dominant and ubiquitous CoinMarketCap (CMC) has shifted as the now Binance owned data, charting and news aggregator has suffered from bad PR, controversial adverts, and nepotistic ranking of certain digital assets and exchanges. Overnight it was reported that 5 senior executives of CMC were removed from their posts and will be replaced by Binance employees. CMC, CoinGecko, and other data providers are extremely important tools for the industry as they allow new and old participants a quick and easy reference point to track their favorite coins on the all-important leaderboard. Their significance in the crypto market is reflected by their website traffic — over 30m daily visitors to CMC and CoinGecko recently doubling theirs to 15m. For reference, receives circa 20m daily visitors.


Looking at CoinGecko, with arguably more accurate and fair ranking methodologies, the newest arrival into the top 10 is the much anticipated Polkadot (DOT) from Parity Technologies and the Web3 Foundation. CMC is yet to list this important new digital asset which has skewed the CMC rankings. Interestingly Tether (USDT) is also ranked 3rd on CoinGeko with a $2.5 billion higher market cap than shown in CMC, again skewing the rankings of the leaderboard.

Polkadot has been many years in the making and has a hardcore community of influential followers. The brainchild of Ethereum co-founder and former Chief Technology Officer, Dr Gavin Wood, Polkadot represents his vision of Ethereum 2.0 and addresses many of the concerns that he and many commentators have with single-chain blockchains with multifunctional utility, like Ethereum. With Bitcoin and its basic (but crucial) function as a store of value, medium of exchange, and in the future, possibly a unit of account, a single chain is sufficient to facilitate its function. For projects that aim to host diverse and complex utility, multiple chains may solve some of the problems that single chains suffer from. Polkadot is a platform that secures multiple, faster parallel blockchains with a set of common validators using nominated proof of stake and will provide an ecosystem that developers and projects can plug into collectively. A web of blockchains using shared security and infrastructure.

The Polkadot team takes the view that at a Blockchain infrastructure level, projects need a little variance and can all use the same shared blockchain technology. Therefore Substrate was developed by Parity Technologies to allow access to a library of pre-programmed blockchain ‘’building blocks’’ or modules for projects to build quickly, cost-effectively, and without extensive technical resources. This lowers the barriers to entry for smaller projects and allows businesses and new applications to focus more on the value they propose to bring via their business logic and not get bogged down in Blockchain architecture and design — essentially Substrate fixes this. The result should be a multitude of diverse blockchains (parachains) as well as private and public chains all secured by larger so-called relay chains which provide the shared security given by validators and through greater transaction per second, allowing for greater utility without hindering performance. The ability to scale and provide cross-chain value transfer between parachains all within the Polkadot system could result in massive value accrual for both investors in Polkadot and the application layer builders such as Plasm, Acala, and Robonomics which have recently been deployed on Polkadot as parachains having been tested out on Polkadot’s R&D chain Kasuma.

Polkadot’s approach to providing an ‘’off the shelf’’ system for building new blockchains that can plug into the Polkadot ecosystem is highly appealing to new start-up projects and we will keep an eye on this as a gauge of how well Polkadot is accepted by the market. In summary, Polkadot addresses the key issues surrounding Ethereum and other single chains including governance, scalability, interoperability between chains, security, and its ability to upgrade safely overtime. With the Ethereum network recently suffering from congestion and record-high fees, as a result of the booming DeFi industry, the potential advantages of the timing of Polkadot could not be better and the market has noticed this.

DOTs, the native token within Polkadot, have seen a 100% price increase in a month as secondary markets open across the exchanges and early investors realize profits and new investors take positions in what is arguably one of the most innovative and promising projects within the top 10 digital assets at the moment.

Chart showing DOTs price appreciation since secondary trading was activated


With Jerome Powell’s recent Jackson Hole address detailing a policy shift to how inflation will be now encouraged with flexibility above the 2% target, the significance of the Central Bank to continue to try and shape the economy has never been more acute.

Whereas Powell’s speech was rather obvious and predictable, wind back 12 months and Mark Carney’s Jackson Hole speech shocked many observers as he singled out the hegemonic role of the USD as a risk and problem that needed to be addressed rather than controlled:

‘’The dollar’s dominance of the global financial system increases the risks of a liquidity trap of ultra-low interest rates and weak growth’’

Carney went on to propose some solutions:

“While such concerted efforts can improve the functioning of the current system, ultimately a multi-polar global economy requires a new IMFS (International Monetary and Financial System) to realize its full potential,”

“As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,” — Former BOE Governor, Mark Carney

We suspect that those, like Carney, who sit at the top of the world financial system know that the game is up. Inflating away the world’s economic problems is not sustainable long term but might just be needed until a new system can be transitioned to, as hinted by Carney but largely ignored by Powell.

Much progress has been made with Central Bank Digital Currencies — CBDCs — as countries ramp up R&D into this new frontier of world finance. The technology already exists to potentially solve the unsustainable debt problem and with smartphone ownership rising globally, the solution doesn’t feel that far away. It may indeed be necessary and that is why we see governments and central banks all rushing to launch pilot projects within the digital currency space. There are many different projects and approaches to how CBDCs could be developed from a technical and infrastructure standpoint (a full rundown from the BIS can be found here) but the underlying purpose for CB’s to develop this technology, we anticipate, is largely the same.

As the current financial cycle plays out, the traditional banking sectors continue to be problematic, expensive, risky, and inefficient in getting money into the correct places in the economy that need it in a timely manner. In time, the banks will inevitably require further Government support to secure their businesses and protect their client’s deposits but like Mark Carney, we anticipate that Central Banks will play a larger role here and possibly replace the banking system entirely. We are already seeing this in part with China’s DCEP project, whereby individuals hold a digital wallet/account directly with the People’s Bank of China — PBOC — essentially bypassing the traditional banks. This allows greater control and efficiency of the money that is held in society and gives Governments a whole host of new tools to manage a transition into a new digital financial system. Problematic debt will slowly become centrally monetized and companies and individuals will all move and transact directly with the Central Banks via accounts held with them rather than the retail and commercial banks.

In a system where retail and corporates hold accounts directly with the CBs, Governments will be able to get money to the real economy directly and faster, and be able to tailor interest rates as they wish rather than use the complex and often conflicted banking system. With this possible transition comes a new set of ethical and privacy-based concerns as the world moves away from cash and gets into bed with the Central Banks whether they want to or not.

Crypto weekly performance: 1st September 2020. Source

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Auros is a proprietary crypto trading firm. We produce newsletters and thought pieces on all topics related to crypto.