Polkadot (DOT) and Kusama (KSM) rose together on June 3 as traders assessed a venture capital firm’s major investment in its blockchain ecosystem.
Dubbed as Master Ventures, an Asian blockchain incubator and venture capitalist announced that it has launched a $30 million venture capital fund called Master Ventures Polkadot VC Fund. in a press release published on wednesday, the firm said that its fund will “support and finance parachain bids” of tier-1 blockchain projects that seek to win parachain slots on the Polkadot relay chain.
Master Ventures also noted that its proceeds will aid early-stage projects in launching above the Polkadot and Kusama ecosystems.
Traders made the announcement as a signal to increase their bids on the DOT and KSM pairs. Their sudden interest allowed the DOT/USD exchange rate to rise to $29.21 from Wednesday’s opening rate of 27.91%. Meanwhile, Kusama’s KSM/USD rose 39.35% to $511.91 during the same period.
wild move up Bullish Outlook on Social Media, widely followed analysts have predicted a continuation of the rally in both Polkadot and Kusama spot markets.
— Trading Tank (@TradingTank) 2 June 2021
At the root of the bullish analogies lay a promise that Master Venture’s $30 million investment in the Polkadot ecosystem would boost a Rapid auction of its “parachain slots”. In retrospect, a parachain is equivalent to a blockchain (layer 1) tied to a specific functionality, with its own unique characteristics and governance structure.
For example, one could bid for a Polkadot parachain slot, as in, building a decentralized oracle network on top of it. As a result, the result will be an application-, user-, and liquidity-specific unique blockchain capable of querying data from other Parachains, with Polkadot acting as a Layer 0 solution – a node – that will be able to query data from other Parachains. Enables communication between Blockchain.
Meanwhile, Kusama an . is Polkadot. experimental version of But exists as an independent blockchain network. It serves as a sandbox for developers who want to test pre-release versions of their projects before deploying them on Polkadot’s mainnet.
Possible demand for DoT and KSM
Developers bidding for Parachain slots on Polkadot and Kusama will be required to use the projects’ native assets, DoT and KSM, respectively.
Master Ventures’ $30M fund seeks to support and finance these developers and their Tier-1 projects. This means that the venture capital firm will need to purchase DOT and KSM tokens to support the Parachain auction bids. In return, Polkadot and Kusama will lock the tokens for as long as developers want to run their projects on their ParaChain – from six months to two years.
If the Polkadot ecosystem is successful, it would mean an ever-increasing amount of DOT and KSM tokens locked in for the duration of the Parachain slot. As a result, their total supply in circulation will be exhausted. This may explain in part why traders have suddenly turned Bullish on DoT and KSM.
Meera Cristanto, researcher at crypto data analytics firm Messari, said, wrote in one of his posts Since May, 65 per cent of DoT’s supply is at stake. Meanwhile, 30% of DOT remains in circulation. Therefore, the upcoming ParaChain auction will drive more Polkadot tokens out of circulation. Cristanto added:
“After Parachain launch, 40% of DOT can be bonded to Parachain, so effective circulation reduces supply to just 15%.”
Conversely, low turnout for Polkadot and Kusama’s Parachain auctions could leave DoT and KSM with lower-than-expected demand, risking a spot price correction.