Summary of the thesis
Cardano (ADA-USD) has significantly outperformed the crypto market over the past week. This can be attributed to some recent developments, which increase the usefulness of ADA and prove to the crypto world that ADA is a force to be reckoned with.
2022 will be a busy year for Cardano, and I think it could be the year investors see ADA as a real threat to Ethereum (ETH-USD).
Right now, the risk/reward ratio is attractive, as ADA is catching up with Ethereum and trading well below its ATH.
Recent Price Action
Over the past week, we’ve seen major cryptocurrencies like Bitcoin (BTC-USD) and Ether take a big hit. Bitcoin is down more than 7% since hitting $44,000 last Thursday, and Ethereum is in a similar position. However, the same cannot be said for Cardano.
As we can see from the price chart above, ADA saw a dramatic rally from $1.15 to over $1.6 in the 18th. But the cryptocurrency has pulled back over the past few hours along with stocks and the broader crypto market.
In any case, the fact that ADA’s journey is so different from that of Bitcoin and Ethereum raises some interesting questions. What’s going on with ADA? Or rather, why is ADA in place? Cryptocurrencies are susceptible to price spikes and volatility, but these are not always random. Sometimes there is indeed something “real” that determines the prices.
Why is ADA in place?
Cardano’s rise could be attributed to the fact that it will soon launch its decentralized exchange (“DEX”) “SundaeSwap”. The exchange will officially launch in beta mode on Thursday, January 20. On the 20th, the ISO (Initial Stake Offer) will also open on this date.
SundaeSwap will work like other decentralized exchanges, using a native token called Sundae. This token can be obtained in three ways:
Participate in ISO (available during Cardano eras 316-320).
Earn yield farming rewards (available from January to June).
Swap other tokens for SUNDAE on SundaeSwap and other participating DEXs.
Initially, transactions are expected to be slow, and there are also other “concessions” Cardano developers have made to launch the exchange on schedule.
For starters, an exciting advertised feature was the taste test. Instead of selling the Sundae token at a set price, the idea was to let the market decide, by allowing users to contribute to an ADA/Sundae pool, which would eventually establish a price relationship between these tokens. However, it looks like the Sundae token will instead be launched traditionally, at a predefined price.
Another issue is that the beta launch taking place will not be fully decentralized, as the developers conceded in a recent blog post:
implementing fully decentralized governance will not be immediately possible due to existing transaction size limits on the Cardano blockchain. We will post more information about our roadmap to a fully community-controlled DEX shortly.
Still, SundaeSwap brings ADA closer to Ethereum, and it will be a true test of the network’s smart contract capability, which was only recently implemented in Alonzo’s hard-fork.
2022 will be a defining year for Cardano
In 2022, Cardano will also aim to become fully decentralized. Cardano founder Charles Hoskinson talked about this in a recent interview.
My goal for the second half of 2022 is to figure out how to put all the pieces together to get an end-to-end microfinance transaction on Cardano,
Source: Hoskinson, YouTube interview
To achieve full decentralization, Cardano is rolling out a peer-to-peer testnet. Currently, Cardano’s staking protocol relies heavily on IOG (Input Output Global) nodes. The idea is to eventually be able to operate the network in a completely decentralized way through P2P staking. In addition to this, the developers of Cardano also offer several CIPs (Cardano Improvement Proposals), which include a native web wallet for decentralized finance.
Finally, I’ll mention that Cardano’s metaverse initiative, Pavia, has also been gaining momentum in recent days, with 60% of the 100,000 lots already sold.
With Cardano now hosting smart contracts, it will be interesting to see what new projects will crop up in 2022.
Could ADA outperform Ether in 2022?
Ultimately, Cardano is preparing for exponential growth in 2022. As Cardano expands its usefulness, Ethereum is still struggling with the transition to Ethereum 2.0 and PoS. This is something I already covered in my last article on ADA and ETH.
Cardano has many advantages over Ether at this point. Since it is already using PoS, it can process many more transactions at a lower cost. With Alonzo and the recent launch of SundaeSwap, we see smart contracts starting to be used on Cardano.
On top of that, Cardano has a strong focus on becoming as decentralized as possible, which I find incredibly appealing. Meanwhile, Ethereum is moving in the opposite direction, as there are many factors in Ethereum 2.0 that make cryptocurrency more centralized.
ADA is showing promising signs in 2022, but by the time it becomes obvious to all, it will be too late to reap the rewards. As it stands, I think ADA offers a compelling payoff, given its strong fundamentals and growing utility. Cardano has a good chance against Ethereum, and although I own both, my money is on ADA (more or less).