“Are we still staying mostly out of DOT in favor of KSM @RJ DeLong? When do we allocate into DOT if at all?”
My basis for answering the question is the KSM/DOT exchange rate and Nick’s valuation vs. relative market caps. He believes Kusama as an app is essentially the same if not the exact same as Polkadot yet the only difference is Kusama is the canary network — the test subject if you will for new implementation of new code changes, auctions, etc. whereas Polkadot is the “2nd pancake”.
Their respective currencies DOT and KSM are ruled differently only by (in Nick’s opinion although I admit I don’t fully know this yet) the perceived difference in security that comes from being on a network that is buffered from potential problems because any kinks have been worked out on Kusama. I haven’t verified myself there aren’t other differences between the two networks.
Companies that will run on Polkadot will be those that will want to run on greater security — probably those companies that can’t risk network downtime — enterprise companies like Walmart etc.
Companies that want to run on Kusama will be ok with the glitches that come along with the “canary” functionality inherent in Kusama. Perhaps these companies will better understand network fixes and changes and how low those risks are — e.g. perhaps those more tech savvy or familiar with blockchain and likely smaller companies with less at stake.
The price to acquire KSM is much less since it’s market cap is lower so the price of bidding on an auction slot would theoretically be lower since it would cost less to acquire the same % of currency supply. However, I suppose it’s possible bidders willingness to pay for a parachain might be based in USD value so it will be interesting to see the price of the parachain not just the price of the token / currency market cap.
However, demand for a parachain slot does depend on auction groupings (crowdloans could be seen like groups in the World Cup?) perhaps. For example, the Kusama auction group with a competitor like a Kilt — it’s like playing Brazil you don’t have as good of a chance receiving a vote so you might not play? You would likely be better off in a different Kusama auction or even a DOT auction? Interesting idea at least. It’s hard for these companies to play this game of auction selection probably because I don’t know how much they know as to the other players before they commit to an auction etc.
I’ll admit, there is a lot I don’t know yet because there are so many protocols vying for the one parachain slot per auction, each with their own reward structure for voters.
My basic model is that DOT tokens are more expensive because Polkadot provides the same product (substrate parachains) as Kusama but on a “2nd pancake” network which means higher security.
However, the cost of this added security is very high since DOT tokens are 11M ETH vs 1M ETH for KSM (market caps).
Should DOT be 10x? No, that’s why we like KSM. We will see when Polkadot auctions come out how much demand they have.
However, once this exchange rate is cut in half (once DOT is only 5x as expensive— rotating our KSM into the larger market cap and perceived safety of DOT tokens was a good move previously.
I first bought DOT at $4 because I understood Polkadot was / could be a better version of ETH. I bought a lot more at $9. When DOT went to $18, I learned more what Kusama was, and I traded it all into KSM when the price of KSM was $180 (when you could buy 10 DOT for 1 KSM).
Anyway, as KSM closed the gap more in the heat of the bull market, that ratio went as high as 20:1 — you could buy 20 DOT for 1 KSM.
That offered me the opportunity to get all of my original DOT back and still keep half of my KSM. I didn’t take it, and I lost all the additional DOT I could have secured from that trade because in the Altcoin bear market from May to July, the exchange rate went back to 10:1.
This chart shows KSM/ETH, but they function roughly the same. DOT is the bearish side of the KSM token of that ecosystem.
Thus, my strategy with our Polkadot Kusama investment is to invest in KSM and wait until it’s again 20:1 then take the free DOT taking advantage of that exchange rate and securing some gains into a less volatile ETH-like token in DOT.
Right now, though you might see DOT outperform KSM because of Polkadot parachain auctions starting. We have almost all of our KSM locked up in crowdloan though, so we are buying more DOT.
Overall, the highest the market cap differential should be in Nick’s view is 2:1. DOT should not even be 2x as expensive as KSM. Right now it’s 10x! Therefore, in our view KSM is a huge undervaluation in the market.
And that’s why over time I think you’ve seen a positive trend line on KSM/ETH which has been very tough to do for Altcoins (outperform ETH through complete bull to bear cycles).
