Will Polkadot (DOT) Price Reverse Now That Cross-Chain Messaging Is Live?

Fry Electronics TeamMay 8, 2022
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Will Polkadot (DOT) Price Reverse Now That Cross-Chain Messaging Is Live?

Development within the Polkadot (DOT) ecosystem has been slowly evolving over the past year and a half, and the work done by the developers is finally starting to bear fruit as the parachain auctions conclude and the first chains are launched on the mainnet.

The next phase of interoperability within the ecosystem is set to begin now, as cross-chain functionality is about to go live. This next step will allow Polkadot-based parachains to talk to each other and transfer assets between chains.

Here’s a look at what the introduction of the XCM messaging system means for DOT’s price, what options are now available to DOT holders, and how this development increases its functionality within the Polkadot ecosystem.

Polkadot is unleashed

Up to this point, DOT had limited uses and was basically isolated on its own network without much functionality. Its primary functions included staking, governance, and contributions to parachain crowdloans, which helped reduce circulating supply but otherwise did little to truly boost demand.

The introduction of cross-chain communication enabled DOT transfers to various parachain networks and the number of use cases for the DOT token on parachains like Moonbeam and Astar Network.

Data from Cointelegraph Markets Pro and TradingView shows that the price of DOT has been hit hard by the six-month downtrend in the crypto market, as its price has fallen 73% from its all-time high of $55 on Nov. 4.

DOT/USDT 1-day chart. Source: TradingView

With the token now trading at notable support/resistance levels, it remains to be seen if the ability to transfer DOT across different parachains will lead to increased demand for DOT.

Related: Polkadot introduces a cross-chain messaging system to solve the blockchain’s bridge problem

New use cases

A notable use for DOT that has grown in popularity in recent months is liquid staking and stablecoin minting using crypto assets as collateral.

DOT can now be transferred to the DeFi-focused Acala parachain and escrowed in their liquid staking contract in exchange for LDOT, which can then be used as collateral to mint aUSD, Polkadot and Kusama’s native decentralized stablecoin.

DOT can also be used in various DeFi applications including yield farming, lending and borrowing. As the adoption of cross-chain communications spreads throughout the Polkadot ecosystem, additional applications for DOT will likely emerge, especially as parachains introduce advanced features.

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