DeFi Project Spotlight: Polkastarter, Polkadot's Uniswap
Polkastarter joins the wave of projects hoping to attract both investors and users away from an Ethereum-base DeFi.
- Polkastarter is a decentralized exchange akin to Uniswap, but built on Polkadot.
- The team hopes to capitalize on Uniswap's popularity and improve on the Initial DEX Offering model.
- The Ethereum-based beta version is expected to launch this winter, followed by a full launch on Polkadot next year.
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Polkastarter is a decentralized exchange (DEX) akin to Ethereum’s Uniswap. But as popularity for current DEXes has risen, many platforms have become cumbersome to use. Long wait times for trade execution, high slippage, and exorbitant fees were common this summer.
These issues are primarily a function of Ethereum’s technical capabilities.
And while Polkastarter looks to merely bring a popular DeFi product to a more scalable blockchain, real innovation on the platform is occurring in the way of decentralized fundraising.
DEX Rise Congests Ethereum
Decentralized exchanges are finally getting the attention they deserve.
In 2017, when these platforms began slowly emerging one by one, they were promised as hack-proof alternatives to their centralized counterparts.
Marketing materials indicated that though transaction speeds could be slower, and the number of assets listed would be lower, users could take comfort in the platform’s security. The DeFi boom has now revealed that DEXes have a lot more to offer than safer trading.
In September, Uniswap became the fourth largest cryptocurrency exchange, outpacing even Coinbase for volume.
No other DEX has achieved the same success, however. It should also be said that its token launch, UNI, helped along Uniswap’s volume. Liquidity providers (LPs) can still stake assets in four different pools and earn the UNI token as an incentive.
Uniswap is the current leader in this niche, with Curve Finance and 0x Protocol following behind, according to CoinGecko. The entire DEX space pushed $834,057,797 in volume in the last 24 hours.
The launch of UNI’s token and the rise of so-called “yield farms” throughout the ecosystem again tested the limits of the Ethereum network. What began as a bullish signal for growing adoption, exorbitant gas fees soon priced out smaller traders. In its worse form, whole businesses had to shut down.
In a comment on why his company would close, Alex Van de Sande, founder of UniLogin, said:
“[At] the moment Ethereum has been going through a process of gentrification, where big DeFi users are pricing out all other usage of the network. Games, NFTs, DAOs, and many other exciting use cases are simply inaccessible at the cost of multiple dollars per transaction.”
Uniswap users, in particular, have spent a total of $12.7 million on gas fees in the last 30 days, taking first place as the most expensive platform in terms of this metric.
Runners up are Tether’s stablecoin USDT and a well-known Ponzi scheme called Forsage.
Meanwhile, 2020 also saw the launch of Ethereum competitor Polkadot. Led by the co-founder of Ethereum, Gavin Wood, the network’s claim to fame is its ability to scale and interact with many other blockchains, including Ethereum.
Projects building on Polkadot have thus attracted many investors due to Ethereum’s current bottlenecks.
Acala, a MakerDAO-like project, raked in $7 million from notable investors this summer. Other projects have also gained considerable user attention. Stafi, a liquid staking project, has already locked in more than $205 million in the protocol.
A congested Ethereum and a newly-launched alternative have created a unique dynamic for incoming DeFi projects. And as investors and users take notice, building and using Polkadot appears to be more attractive by the day.
Like Stafi, Acala, and Snowfork, Polkastarter is looking to capitalize on this precise dynamic.
Unpacking Polkadot’s Uniswap: Polkastarter
The team behind Polkastarter has referenced time and again its similarities to Uniswap. In this comparison, they hope to highlight the advantages of building a similar product outside of Ethereum. These advantages are primarily scalability and interoperability.
In August, Gavin Wood confirmed that the Polkadot network could sustain 1,000 transactions per second (TPS), far outpacing Ethereum’s performance. The network also allows any blockchain to tap these scalability features by becoming a parachain.
Parachains refer to a design term within the Polkadot ecosystem where an elected network of validators secures distinct blockchains. Instead of attracting validators to secure a chain, projects can leverage Polkadot’s community of validators.
These parachains would also be able to interact with one another with little effort.
For the uninitiated, Ethereum-based DEXes can only support ERC-20 tokens. Any project building outside of this standard is not able to use Uniswap. Polkastarter is hoping to bring multi-chain token swaps to the broader crypto world.
However, this design is not as battle-tested as Ethereum, and the TPS metrics are only the result of internal tests.
These theoretical advantages have also hosted a series of direct competitors to Polkastarter. At the time of press, four other DEXes are being built on Polkadot. They are Rai.Finance, Polkaswap, Polkadex, and Zenlink.
One of the key ways that Polkastarter is attempting to distinguish itself is by improving the current “Initial DEX Offering” (IDO) model.
Reimagining the IDO With Polkastarter
The IDO was initially pitched as a fundraising tool meant to place a higher priority on the community.
For the original Initial Coin Offering (ICO), VC firms and hedge funds would enjoy outsized returns but only due to their status. The next iteration, the Initial Exchange Offering (IEO), meant that large centralized exchanges were the sole gatekeepers of which projects could raise funds on their platform.
Again, a project’s community, no matter its desires, were left out of these arrangements.
This year, Compound, bZx, and Universal Market Access (UMA) Protocol all launched an IDO on Uniswap. Unfortunately, these launches were far from fool-proof.
Each team created Uniswap pools with both ETH and their respective token proportionate to the target token price. Anyone with a Web 3 wallet could then go to Uniswap and purchase the token. This mechanism was eventually manipulated by bots to front-run the rest of the market, as seen in the bZx sale.
How someone made a million dollar in 30 min?
1. Wait for BZRX news for uniswap listing.
2. Write a smart contract that buys token on Uniswap
3. Spam eth network to others can't get in with failed txs
— Roman S (@rstormsf) July 13, 2020
It has ultimately become clear that though the Uniswap fundraising method is unique, it may be too permissionless. Crypto enthusiasts are renowned for their ability to game any opportunity possible, especially if there is money at stake.
It's more that Uniswap is a poor place to do a popular token sale. Leaving out the front running bots, volatility combined with high gas fees is just killer. Buying the token for double its current worth is my fault. I just wanted to get in on the fun for once and it backfired.
— skynet.eth 🦇🔊 (@cryptokeeper8) July 14, 2020
Polkastarter is thus hoping to improve this particular mechanism by offering teams slightly more control over a sale.
In a Telegram AMA on Oct. 8, the CEO of Polkastarter, Daniel Stockhaus, said:
“Our MVP will start with Fixed Price Swaps, so any Pool will be able to set the exact price of their token and know exactly, if the token pool is sold in full, how much they will get in return. They will be able to set parameters, like maximum amount of investment per user, make it private via password or whitelisting and a few other features.”
None of these features are currently available at press time, however. According to the team’s roadmap, an Ethereum-based beta version will go live this winter.
The platform will then be ported to Polkadot in 2021. At that time, Polkastarter will also allow teams to add KYC capabilities to their pools.
The POLS Token and Community
Polkastarter’s native POLS token doubles as a governance token and is used to pay for network fees. To use Polkastarter, users will also need to hold POLS.
So far, the token has only been used as a means of raising funds for the project. Once launched, the team has announced staking and liquidity mining opportunities for POLS.
The team is led by CEO Daniel Stockhaus and CTO Tiago Martins. They are joined by advisors John Patrick Mullin of MD Labs and Matthew Dibb, the COO of Stack Funds.
A large community of funds also backs Polkastarter.
Beyond the founding team, investors, and formal investors, Polkastarter has also landed several partnerships throughout the crypto ecosystem. So far, these partners include Mantra DAO and DIA.
John Patrick Mullin is also a co-founder of Mantra DAO and an advisor to Rio DeFi.
Final Thoughts on Polkastarter
At first glance, Polkastarter appears to be answering the crypto community’s concerns around Ethereum. Though this has changed as of late, expensive and slow transactions plagued the number two network throughout the summer.
As such, many have begun searching for alternatives.
Polkadot and various Layer 2 solutions are leading this charge. And projects like Polkastarter have made a bet that users will follow them away from Ethereum.
It remains to be seen whether this will actually happen.
Disclosure: One or more members of the Crypto Briefing Management team are investors in Polkastarter and Stafi. The company (Decentral Media Inc.) owns POLS and FIS.