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A Year in Parachains, Part 1: DeFi

January 24, 2023 in Parachains, Polkadot
Avatarby Polkadot

It’s been just over a year since parachains first launched on Polkadot, and already the network boasts the largest ecosystem of use-case specific blockchains in the world. Since the first slot auctions took place in November 2021 and the first parachains began onboarding to the network the following month, 37 parachains have joined Polkadot, with an additional 42 parachains on Polkadot’s canary network, Kusama, for a total of 79 across the Polkadot ecosystem.

Over the past year, Polkadot’s first parachains have been busy rolling out and upgrading their technologies, demonstrating the power and flexibility that Polkadot provides with the parachain model, which gives teams a competitive advantage by enabling them to fully customize their own layer-1 blockchain in the optimal way for their use case, with industry-leading upgradeability and interoperability capabilities.

Showing the potential of Web3 to fuel innovation across a wide range of use cases, Polkadot’s ecosystem of parachains is now buzzing with activity across DeFi, smart contracts, social media, decentralized identity, IoT, gaming, the metaverse, sustainability, and more.

In this series of posts, we’ll provide a brief overview of Polkadot’s parachain landscape in its first year since launch, starting in Part 1 with a look at Polkadot’s DeFi (Decentralized Finance) parachains, featured in the order that they won a parachain slot auction.

Polkadot’s DeFi parachains

The Web3 economy is evolving at a rapid pace, and DeFi represents a bright opportunity for democratizing the future of finance, improving the accessibility of services to more people than ever before. But despite all the potential on offer, the technologies on which DeFi is primarily built struggle to perform as well as they should.

Poor user experiences stem from slow speeds, high fees, complex processes, and limited functionality.  A lack of interoperability leaves the market fragmented, with cross-network transactions being highly unintuitive and often insecure due to the limitations in early-generation bridging technologies.

Polkadot’s technology stack enables DeFi builders to address these limitations. Secure cross-chain communication, low, predictable fees, and fast, dependable processing open up new possibilities for DeFi and an effortless experience for end-users. With parachain specialization, DeFi builders get better customization, security, and power than building on a general smart contract platform, and can even mitigate some of the common problems with DeFi on other protocols like gas fees, MEV and front-running.

ACALA

Auction 1: Onboarded December 17th, 2021

Acala is an all-in-one DeFi hub boasting a suite of applications for end-users, as well as a stablecoin (aUSD) and a smart contract platform for DeFi developers to build their projects on.

Acala is inherently interoperable and Ethereum-compatible, and is fine-tuned to offer optimized DeFi and hybrid finance (HyFi) applications. Blending the performance, flexibility, and interoperability of Substrate with Ethereum compatibility, Acala is designed to unleash the vast potential of DeFi, enabling applications to scale and tap into the flexibility and multichain integrations that Polkadot unlocks.

The Acala team rolled out their suite of products in 2022 and emerged as one of the top performing DeFi parachains on Polkadot with over $200 million in TVL and a total of 70,000+ cross-chain transfers completed with other networks.

PARALLEL

Auction 4:  Onboarded December 17th 2021

Parallel is an institutional-grade DeFi protocol with multiple applications and functions. Self-described as a “super dapp”, Parallel is a one-stop-shop for DeFi solutions. It currently comprises a multichain wallet, borrowing & lending, swaps, staking, cross-chain functionality, and newer Web3 innovations such as DAO Fi, infrastructure for decentralized organizations to manage finances.

The platform has a multichain super wallet to make DeFi accessibility woes a thing of the past, allowing users to freely utilize any dapp they want, vastly improving on the limitations of wallets that are unable to interact with other platforms. With the aim of bringing DeFi to the masses, Parallel provides connectivity beyond the Polkadot ecosystem while retaining the flexibility and user experience benefits enabled by Polkadot’s technology. Parallel Finance is currently one of the most widely adopted DeFi chains on Polkadot, with over $200 million in TVL across 300,000+ users.


CLOVER (CLV)

Auction 5:  Onboarded December 17th, 2021

CLV is a cross-chain interoperable suite of DeFi applications, including a multichain non-custodial wallet, as well as an Ethereum-compatible smart contract platform granting seamless access to DeFi, GameFi, dapps, NFTs, the Metaverse, and more.

CLV offers a wide selection of Substrate-native tools for developers, as well as support for EVM-based applications and two-way peg (2WP), which allows cross-chain transfer of assets, helping close the gap between the Ethereum and Polkadot ecosystems. This hybrid approach positions CLV as a powerful ETH-DOT bridge protocol, introducing new value propositions to DeFi on Polkadot.

The CLV wallet currently has 70k+ users and is one of the fastest-growing DeFi wallets on the market.

COMPOSABLE FINANCE

Auction 7: Onboarded March 11th, 2022

Composable Finance is a cross-chain and cross-layer DeFi platform designed to accelerate DeFi into the mainstream by designing a LEGO-like, interoperable suite of products and services that connect the Polkadot ecosystem with external DeFi ecosystems.

Composable Finance tackles the challenges of cross-chain DeFi with a complete DeFi tech stack, including a suite of user-facing applications and the Cross-Chain Virtual Machine (XCVM), which enables programing cross-chain smart contracts between Polkadot and external ecosystems with a single, developer-friendly interface. Composable’s Mosaic SDK is an asset transferral system that connects and unifies all major DeFi ecosystems.

At the end of 2022 Composable Finance officially launched Picasso, their Kusama-based parachain. This infrastructure enables interoperable DeFi for developers to create cross-chain smart contracts for asset transfers and function calls between connected ecosystems.

CENTRIFUGE

Auction 8: Onboarded March 11th, 2022

Connecting real-world assets (RWAs) to on-chain ecosystems effectively has been a DeFi innovation-in-waiting as different solutions have gradually come to market but largely failed to achieve widespread adoption.

Due to the constraints of previous-generation blockchain technologies, RWAs failed to meet a standard where they were accessible and efficient for users. Centrifuge is unleashing the potential of RWAs by making them available in a high-speed, interoperable, low-cost environment via Polkadot.

Centrifuge's flagship dapp, Tinlake, offers an open marketplace catering to a myriad of risk-reward profiles. Tokenized RWAs have a number of use cases, particularly in business operations and physical asset management.

At the end of 2022, Centrifuge received the largest on-chain investment into RWA in the history of blockchain. Major institutional partners have provided a total of $220 million to fund the deployment of four RWA vaults, bringing productive assets to DeFi users and granting exposure to markets outside the blockchain space.

HydraDX

Auction 9:  Onboarded March 11th, 2022

Decentralized exchanges (DEXs) are a trustless alternative to centralized exchanges (CEXs), meaning users don’t need to trust any third parties to carry out transactions or properly manage their funds. But the limitations of previous generation blockchains have made it difficult for DEXs to offer the same level of convenience and user-experience as a CEX.

HydraDX addresses many of the shortcomings of previous generation DEXs, including lack of liquidity, impermanent loss due to arbitrage traders, slippage on orders, and front-running. HydraDX also offers automated dollar cost averaging and multi-asset transaction fee payments, with many more advanced features in the pipeline.

The HydraDX omnipool, just launched in January 2023, concentrates all liquidity into a single pool, holding an equal amount of value between the protocol and liquidity provider. This is an answer to poor tokenomics and liquidity issues that result in users tediously hopping between DEXs and crypto platforms to make use of their tokens, which often results in them over-paying for transactions and losing value due to price slippage.

INTERLAY

Auction 10: Onboarded March 11th, 2022

To this day, Bitcoin remains the most popularly-held crypto asset in the world. But despite having billions worth of Bitcoin derivatives locked into Ethereum DeFi platforms, the premier crypto token is falling behind the times in terms of its relevance to the DeFi space.

Interlay is working to help Bitcoin reach its DeFi potential, unlocking its ability to securely communicate and interact in a decentralized way across blockchain networks and with greater functionality. By emphasizing decentralization over the mediated bridge designs of previous networks, Interlay helps avoid the staggering level of bridge hacks seen in recent years

Interlay’s decentralized Bitcoin-backed asset, iBTC, turns BTC into a secure multichain asset. Interlay began as a bridge for Bitcoin and the Polkadot ecosystem and has now evolved into being a fully-fledged Bitcoin DeFi hub, offering an easily accessible suite of DeFi tools where users borrow & lend, swap, mint iBTC, and much more, including fiat on/off-ramps.

EQUILIBRIUM

Auction 12: Onboarded March 11th, 2022

Equilibrium is a highly customizable cross-chain solution for asset use cases both within and outside of the Polkadot ecosystem, featuring a full range of DeFi services.

Equilibrium leverages the benefits of Polkadot to deliver an all-in-one DeFi solution that can communicate with the world of Web3, unlocking an era of cross-chain DeFi products and services that would not be able to exist otherwise.

During a closed beta of the platform’s Kusama parachain, Genshiro, the platform boasted over 10,000 users with $85m TVL during a 2-week period.

BIFROST

Auction 18: Onboarded June 4th, 2022

Staking gives token holders a way to support the security of their favorite blockchains while earning rewards in return for their service. However, on many blockchains, users are unable to access their tokens while they’re staked to use them for other activities or participate in DeFi platforms.

Bifrost has developed a cross-chain Staking Liquidity Pool (SLP) that allows users to stake tokens and in turn receive a vToken 1:1 so they can earn rewards without being subject to lock-in periods. Users have the freedom to then freely swap between their vToken and crypto at any point, and are allowed to use vTokens to optimize transactions across DeFi, dapps, and so on. To date, 83,000+ total participants have minted $48 million of tokens value on Bifrost.

POLKADEX

Auction 16: Onboarded June 4th, 2022

Centralized exchanges (CEXs) have proven themselves to be a security risk to users in recent years, while their decentralized counterparts (DEXs), have been held back by slow speeds and high fees.

Polkadex is a DEX that combines a non-custodial peer-to-peer orderbook designed to provide the user-friendliness of a CEX with the security of a decentralized platform, as well as a token swap platform with minimal transaction fees.

Polkadot’s high throughput enables Polkadex to offer high-frequency trading with up to 500,000 trades per second, and the flexibility it offers over fees enables Polkadex avoid high gas and customize the fees they charge to their users.

COINVERSATION

Auction 19: Onboarded June 4th, 2022

Coinversation is a DeFi and cross-chain crowdfunding platform that began as a synthetic asset protocol and has grown to offer a broader range of DeFi and NFT services. Coinversation enables crowdfunding of projects and activities like humanitarian aid campaigns.

With its own DEX and NFT components, Coinversation is able to synthesize any asset and convert it into others without any counterparty, with the added benefit of cross-chain interoperability, so users can interact with Coinversation from other parachains like Moonbeam or Acala.

TOTEM KAPEX

Auction 20: Onboarded June 4th, 2022

The KAPEX parachain by Totem is the world's first peer-to-peer accounting consensus protocol. It uses blockchain to ensure that all parties involved in a transaction have their accounting records updated simultaneously, acting as a decentralized bookkeeping system.

Accounting is seen by many as time-consuming and complex, with too many middlemen and the need to coordinate across different legacy systems. The shortcoming of traditional accounting processes, coupled with a lack of standardization for the collection and exchange of accounting data, leave the process vulnerable to human error and fraud.

Totem’s establishment of a universal standard for the exchange of accounting data, coupled with its UX-rich user-facing application that can be connected to third parties, ensures all accounting records are captured with no additional effort.

OAK NETWORK

Auction 28: Onboarded November 21st, 2022

OAK Network brings sophisticated transaction automation to Web3 for a significant improvement in DeFi user experience. Through OAK, blockchains, dapps, and decentralized platforms can build robust automation processes for transactions and smart contract functions for not just DeFi but a wide range of other Web3 use cases.

Typical on-chain transactions are often tedious and complicated for users, and are often incapable of handling advanced tasks such as future recurring transactions. OAK simplifies and automates these processes for users, improving transaction functionality which can be used across multiple platforms and Polkadot parachains.

Users are able to set simple “if this” / “then that” instructions to their transactions with zero coding required. These instances are triggered by events defined by the user; which include smart contract state, date, time, price, and other factors.

Polkadot’s native interoperability allows OAK users and application builders to operate their bespoke automation processes with all connected networks, including compatibility with Ethereum-based platforms.

OmniBTC

Auction 34: Onboarded November 21, 2022

DeFi liquidity today is spread out across multiple siloed blockchain networks. The result is an incredibly poor experience where users must constantly seek out different DEXs and platforms to find new tokens and use bridges to swap across chains. It’s typically a long and expensive process that ultimately stifles DeFi adoption.

OmniBTC is a decentralized multichain liquidity aggregation protocol, and aims to provide a better user experience than a typical CEX. Its core offering is the DOLA Protocol, which connects and integrates DEXs and bridges, enabling users and dapps to leverage composable cross-chain DeFi transactions.

Kusama Parachains

Beyond the parachains currently on Polkadot, an additional 42 have joined Kusama, Polkadot’s canary network. Kusama is where brilliant builders come to innovate, providing a live, value-bearing environment for teams to battle-test their technologies and mitigate risk, build a community, and develop partnerships before a production deployment to Polkadot, or to build and iterate more experimental use cases.

Current use cases on Kusama generally mirror those on Polkadot, with an added focus on DAOs (Decentralized Autonomous Organizations) and Artificial Intelligence:

At the time of writing there are several more parachains on Kusama than Polkadot, with parachains having begun their launch there about 6-months before Polkadot. Many teams maintain a parachain on both Polkadot and Kusama, using Kusama to battle-test new technologies before rolling out upgrades to their Polkadot mainnet.

What’s Next?

Despite the difficult year for blockchain in 2022, the Polkadot community and ecosystem delivered several key innovations over the past year, and now boasts the largest ecosystem of layer-1 chains, with over 300 decentralized applications already built on top of them, as well as the largest community of full-time developers outside of Ethereum.

With a ton of new projects in the pipeline, new parachains will continue rolling out over the next year and beyond, and existing parachains will continue building on their recent successes, rolling out new technologies and onboarding a new wave of Web3 end-users.

Several key technologies are also in development for Polkadot, which will push the capabilities of parachains and dapps even further, including trustless interoperability with external networks with the rollout of XCM v3 and the Bridge Hub parachain. With everything that’s happening in the Polkadot ecosystem, 2023 is shaping up to be the biggest year yet for Web3 innovation.

Read Part 2: System Chains, Smart Contracts, & Social Media

Read Part 3: Data, ID, Privacy, Storage, & Infrastructure

Read Part 4: Part 4: Sustainability, IoT, NFTs, Gaming, & Metaverse


Interested in developing for or building on Polkadot? Get in touch for hands-on support.

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