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Hold Off on Cardano Until Its Smart Contracts Take Off

InvestorPlace - Stock Market News, Stock Advice & Trading Tips Smart contracts are off to a slow start on Cardano. It may linger until it has major DeFi apps, an...

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InvestorPlace - Stock Market News, Stock Advice & Trading Tips

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Cardano (CCC:ADA-USD) has been floating down in the past two months. As of Nov. 17, ADA is about 37.7% off its peak of $2.97 per token in early September. Its price was $1.85 per token yesterday.

The Cardano (ADA) token with other gold and silver tokens in the background.
Source: Shutterstock

So far, its recent upgrade to allow smart contracts has given Cardano a slow start in the decentralized finance (DeFi) apps race. It may be some time before we see evidence that the platform is a major player in this arena.

As of Nov. 17, ADA was ranked number six by CoinMarketCap with a $61.7 billion market value. It was trading at $2.07 per token. This put it just above XRP (CCC:XRP-USD), which used to be called Ripple, at a $51.5 billion market cap. Polkadot (CCC:DOT-USD) followed both with a valuation of $41.4 billion.

Where Things Stand for Cardano

Cardano had a major software and blockchain upgrade in September called the Alonzo hard fork. It was developed by the platform’s promotion organization, IOHK (which stands for Input Output Hong Kong).

The Alonzo fork enables smart contracts for Cardano using a software language called Plutus scripts. It is “a purpose-built smart contract development language,” according to the team that built the hard fork.

In short, this means people can use Cardano blockchain for decentralized exchanges (DEXs), non-fungible tokens (NFTs) and external data (oracles) to power smart contracts apps.

Implementing Smart Contracts Is Slow So Far

And that is the rub. Cardano still needs acceptance from developers to use the language in new smart contracts as well as decentralized apps (dApps), NFTs or DEXs. How quickly that happens is anyone’s guess now.

As one analyst put it, “Cardano promises a lot but whether it can actually deliver remains to be seen,” according to Business Insider.

And that is what is going to determine Cardano’s ultimate value. For example, Cardano is not currently ranked as a protocol with any total value locked (TVL) on DefiLlama, indicating there is very little  TVL in the crypto.

By comparison, Ethereum (CCC:ETH-USD) has $171.9 billion in TVL, Binance Coin (CCC:BNB-USD) has $19.56 billion and Solana (CCC:SOL-USD) has $13.35 billion.

This implies Cardano is off to a slow start. Developers are taking their time to adopt its services. However, they will eventually use it in smart contracts and other DeFi apps with ADA deposits.

On a positive note, investment funds are slowly helping developers make Cardano-related apps. For example, in Oct. 2021, a group of institutional investors put up $10 million to fund Cardano-related projects.

The group was led by Three Arrows Capital, Cardano’s cFund and Ascensive Assets. Morningstar Ventures and Mechanism Capital also participated in the efforts.

The investors are focused on DeFi apps for a Cardano-related blockchain protocol called Ardana (CCC:DANA-USD).The new crypto recently had an initial coin offering, but is not yet trading.

Where This Leaves Investors

So despite Cardano’s huge market cap and a good deal of hype surrounding its digital asset, its practical utility has been limited.

However, once developers use Cardano in smart contract apps and NFTs, the appeal of ADA should start to rise.

Until then, the conservative investor in cryptos (if there really is such a thing) will stay away from ADA. The point is to wait until there is more evidence that developers truly find it useful.

For example, so far there is no major Cardano NFT marketplace exchange as there is with Ethereum, Binance and Solana. In addition, there is no large amount of TVL with Cardano-related apps in the DeFi arena. Most investors will be better off waiting for evidence of these things happening.

On the date of publication, Mark R. Hake did not hold any security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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