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Why Crypto Polkadot Fell 1.2% Today

By Nicholas Rossolillo – Dec 2, 2021 at 1:05PM

Key Points

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The digital currency is now down over 50% from its all-time high.

What happened

In what was a generally positive day for cryptocurrencies overall, Polkadot (DOT -5.55%) fell 1.2% over the last 24 hours as of this writing. In the last five days, the crypto is down 5.5% as the coronavirus omicron variant has markets in risk-off mode (at least temporarily).

Someone using a smartphone to check crypto prices.

Image source: Getty Images.

So what

Polkadot was designed to tackle some pretty big problems with web 3.0, the next phase of web evolution (like further decentralization and more high-quality use cases for the internet, which as of late are tied to the buzzword "metaverse"). Polkadot uses a "heterogeneous multichain framework," basically meaning it was designed to connect different blockchain technologies and make them interoperable.

Given there are thousands of different cryptos out there, this is an impressive value proposition for Polkadot. It can also process transactions very quickly, which is going to give it a potential edge over Ethereum (ETH -2.81%), at least before Ethereum 2.0 is fully rolled out next summer.

Back in October, the final phase of Polkadot's multiphase launch known as "parachains" were released, adding support for specialized blockchains and use cases to be built atop the Polkadot platform. Paired with Meta Platform's (META 1.12%) clear signal that it will be betting big on the metaverse, Polkadot went on a tear in October through early November. Though now down some 50% from its peak, the crypto is still up an incredible 560% in the last year.

Now what

It's still early days for Polkadot, the broader cryptocurrency space, and web 3.0 in general. All assets with big potential like Polkadot represent potentially big payoffs if they pan out, but ample risk comes with that potential. This crypto has big ambitions, but there's competition, most notably the second-largest digital currency around Ethereum.

Nevertheless, interest in Polkadot is still on the rise. Even as the value has declined in the last month, the number of Polkadot stakers (those using their ownership to validate transactions on the blockchain and earn rewards) has continued to climb. Currently, about 53% of available tokens are being staked. Polkadot's ideal staking rate is 50%, and anything above that reduces the rewards (currently estimated at a nearly 14% annualized return before commissions and other costs) paid to owners who are staking.

Even so, bear in mind this young crypto will offer a very wild ride. Invest accordingly, if you choose to do so at all.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Nicholas Rossolillo owns shares of Ethereum, Meta Platforms, Inc., and Polkadot. The Motley Fool owns shares of and recommends Ethereum and Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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