If you have been in the crypto market long enough, chances are that you understand the importance of market cap and circulating supply in determining the price of a cryptocurrency. A digital currency with a low circulating supply and a healthy market cap has a lot of growth potential especially if it has utility. Kusama is one of the digital coins that fall into this category.
Kusama is currently trading at $207.79 after tanking by 42.89% in the last 7 days although it has recovered by 11.97% in the last 24 hours. Interestingly, Kusama has a circulating supply of 8,470,098 KSM which is less than Bitcoin’s supply and its current market cap is also low at just over $1.8 billion. The circulating supply makes it one of the scarcest cryptocurrencies, which means that increased demand might yield a significant boost to its price.
Kusama’s latest price action found support at $161 before bouncing back above $200. The current price is down to February 2021 levels after dropping from its peak price of $625 which it achieved in May at the height of this year’s bull run. This means that it is currently heavily discounted and another bullish breakout may provide an opportunity for more gains. However, it is important to understand how the Kusama network operates and what drives demand for the KSM coin.
Kusama was founded in 2019 by the Web3 Foundation as a pre-run for Polkadot which was also made by the same foundation. Kusama and Polkadot are very similar with a few differences. For example, no audits are conducted on Kusama and it is four times faster than Polkadot. Both use relay chains to facilitate communications with parachains which ensure interoperability and security.
Parachains are vital for hosting smart contracts on Polkadot and Kusama. However, each can only support a maximum of 100 parachains. They run parachain auctions to determine which projects will be onboarded. The Kusama or KSM token is used to bid for the parachain slots and the winners are picked out through a random snapshot at the end of the auction. Individuals or entities that used the highest amount of KSM at the time of the snapshot have a higher chance of winning the slot.
Projects can secure a large amount of KSM through a Parachain loan offering which is a similar approach to ICOs. However, the difference is that the KSM is not transferred to the project but is instead locked in the smart contracts that link the project’s parachain to the relay chains. KSM holders are rewarded with the project’s tokens and they also get back their KSM as soon as the parachain lease period is over.
It is worth noting that lending your KSM to a parachain means they will be locked and cannot be sold until the parachain expires and the tokens are returned. Parachains are converted into Parathreads once the lease period is over. Parathreads can be used by multiple projects and can be paid for on the go. They are paid for through DOT or KSM when they produce blocks.
The parachain auctions influence the supply and demand for KSM. The more Kusama tokens locked in the blockchain, the lower the supply in the market, and a low supply when demand is high leads to a price increase. The good thing is that KSM holders can easily participate in Parachain Loan offerings if they want to hold on to their tokens in the long run and earn project tokens. This means the KSM could potentially be gaining more value during the lock-up period. This kind of utility is why some might find Kusama attractive and the limited amount of tokens in supply highlights the potential for more growth in the future.
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