Built by Singapore-based developer IOHK under the guidance of chief executive officer Brad Hoskinson, Cardano is a proof-of-stake (PoS) blockchain platform powered by the ADA cryptocurrency.
At over US$12.7bn, ADA is one of the largest on the market – the eighth largest to be precise – and as such is the biggest among the so-called “Ethereum killer” set of network tokens.
But ADA holders have had a bumpy ride recently- this past week alone has seen the coin fall over 10% in value, extended to 71% year to date.
While heavy losses are unsurprising given the terrible state of the cryptocurrency market, can ADA’s falling value be entirely attributed to macro conditions, or is there more going on under the hood?
Why is Cardano (ADA) underperforming?
Speculation over substance
One view is that as a blockchain, Cardano is struggling to find relevance in a busy marketplace.
Prior to the big Ethereum Merge, Cardano was the biggest proof-of-stake (PoS) blockchain by market capitalisation, yet it still lagged behind the competition in terms of scalability.
While yes, it’s provably secure and as relatively cheap to transact on, Cardano’s maximum throughput is 250 transactions per second (tps).
That was still a strong selling point compared to Ethereum’s roughly 15tps, but now that Ethereum also operates as a PoS blockchain, it’s kind of irrelevant. Especially considering other competitors like Solana, Polygon and Algorand boast throughputs in the thousands, sometimes tens of thousands.
True, Ethereum is yet to scale up in this regard, but it’s only a matter of months before its transaction count eclipses 250.
To increase its competitiveness in this regard, Cardano’s developer IOHK has been working on the Hydra upgrade, in order to substantially increase scalability.
That could help, but for now, the fact of the matter is that barely any of the money flowing into ADA is down to genuine engagement with the platform.
Fun fact: ADA token is named for Ada Lovelace, the English mathemetician and daughter of Lord and Lady Byron, who is widely regarded as one of the world’s first computer programmers for her work on the Analytical Engine.
With only US$87.3mln in total value locked across all decentralised applications (dApps), Cardano is less active than obscure networks such as Canto, Heco and even Aurora, whose AURORA token’s market cap is a mere 0.5% of ADA (Source: CoinMarketCap).
One could deduce that almost the entire worth of ADA is built on speculation rather than utility; not uncommon in the world of cryptocurrency, but debatably not sustainable either.
Speaking another language
There’s another thing holding Cardano’s developer uptake back: While most large-scale blockchains use a coding language called Solidity, Cardano uses a rather niche one called Haskell.
This is significant, because it means that dApps built on Ethereum – the blockchain ecosystem larger than all others put together – are not automatically compatible with Cardano (a problem not shared with Solana et al).
According to the Cardano Foundation, Haskell “allows programmers to have a larger degree of certainty that the code they have implemented is correct”. That’s all well and good, but it also means that ADA is missing out on a huge amount of buying potential.
“Businesses using Hydra could generate non-speculative demand for ADA, which will drive up the price and bring thus users swarming to get in cheaper”, he added.
Can we expect a turnaround?
One benefit of the widely unpredictable crypto markets is that price rallies aren’t necessarily contingent on fundamental factors. OK, that’s more of a double-edged sword than a benefit.
In ADA’s case, this could work out, when a buying floor is found and bulls snap up discounted ADA tokens to drive the exchange price up.
It might already be happening.
ADA bounced off US$0.35 this morning; can it continue to recover? – Source: currency.com
Currency changing hands at US$0.37, we have seen some support at US$0.35 price line throughout Monday.
A break above the US$0.39 resistance could be an indication that the bulls are managing to wrest control of ADA to recover the significant amount of ground lost in recent weeks.
Regardless of your strategy, be sure to invest wisely is this most speculative of asset classes.
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