"Any power structure — regardless of initial purpose — will ultimately view retention of power as its primary goal. It's no surprise that those endowed with power find it difficult to hand over to a structure they don't control." Gavin Wood - Co-Founder Polkadot
Polkadot is a multi-chain architecture that enables external networks and the customized layer on "parachains" to communicate and create an internet of Blockchains. Polkadot is based on a nominated Proof-of-Stake protocol Consensus Protocol.
💡Nominated Proof-of-Stake is the process of selecting validators to be allowed to participate in the consensus protocol.
Polkadot is the network that connects blockchains, parachains, or parallel blockchains.
The Relay chain is the heart of Polkadot; it is responsible for the network's shared security, consensus, and cross-chain interoperability. The Relay chain is also responsible for the exchange of messages between the Parachains.
Parachains are autonomous blockchains optimized for specific use cases. Each parachain is "leased" for some time (max. for two years). The two years are broken down into four "lease periods" of 6 months. After two years, there will be an auction for the parachain slot again.
This mechanism should help parachain projects stay competitive and prove that they are still worth being part of the Polkadot Ecosystem. Parachain Slots are limited and auctioned in a permissionless way. The slots are offered via permissionless candle auctions, and for now, there will be 100 para slots available for different projects. The first auction started on the 11 of November 2021. The best projects will compete for those slots.
💡Auctions are called candle auctions, way back from the 1600 century. Sailors were bidding on a ship to buy it while a candle was lit. When the candle blew out, the person with the highest bid won the ship. This prevents auction "snipping," which is bidding in the last seconds.
What are Polkadot Parachains Auctions, and how do they work?
Projects that want to join the Parachain auctions need to bond their DOT tokens or get in by using the crowd loan functionality. As an investor, there are many reasons to contribute to a project. Maybe you just want to support a particular project or go for the capital gains and future growth.
There are a few benefits and rewards for contributing to a project:
- You'll be directly contributing to that Project's chances of securing a spot.
- Projects may offer an incentive in the form of native tokens or DOT for your Investment.
- After the lease period is over, you will get back your initial Investment of DOT.
What are Crowdloans?
In a crowd loan (loan from a group of people), the Project asks community investors to send the company DOT tokens to strengthen their bid. The winner of the candle auction format will be able to lease the Parachain for up to two years. The auction mechanism creates a very competitive environment and is initiated by the Project to finance, for example, launching the mainnet, running their nodes, or continuing research and development of their Project.
Basically, the project community helps raise the needed tokens to win a parachain slot auction.
The whole process works like this.
1. Temporarily lock of tokens.
Community members temporarily lock their (Polkadot (DOT)) Tokens to support a project. The tokens are kept on the Polkadot Replay Chain, and the Project has no access to them. This mechanism should prevent "rug pulls."
2. The Crowdloan module bids on behalf of the parachain
After the auction is open, each parachain has a campaign ID. The crowd loan module bids its DOT locked in on behalf of the parachain till a parachain slot is won. The bidding continues as long the crowd loan is open.
3. The parachain lease begins.
After winning the slot, the lease begins on Polkadot, with the first five parachains connecting to the network on the 17 of December 2021. If the Project that you support cannot win the slot, your invested Tokens are returned to you.
4. Tokens are locked for the winning projects.
The Native Token will be returned to the investors after the lease of the parachain ends. Maximum slot duration two years in most Parachain Crowdloan projects. The contributors are rewarded with the native project token. Those tokens are not tied to the parachain auction, and can the distribution can start after the lease has begun. Most projects did not publish the full details reward scheme yet. Stay turned here.
💡 "Rugpulls" is the theft of investor money. Usually, the owners of a cryptocurrency project abandon it after they take the money out.
For example, if you want to support Acala, you can help them bid a parachain slot. You can contribute your Polkadot (DOT) to the Acala network and be an investor. Acala can use those tokens to bid for a slot on the Auctions and lease the Parachain if they win. Acala does not have access to your DOT Token; they can just use them for the lease of the Parachain. After the lease is over, you get your DOT back.
As a reward, you can, for example, get five ACA Tokens for each DOT you locked up. The distribution of the rewards can start after the lease has begun.
The crowd loan serves the following purposes:
- makes it possible to bootstrap projects
- separate the Project from the distribution of the tokens.
- Raised Tokens can only be used to lease the parachain; if the goals are not reached, the Investment is returned.
- you need an enthusiastic community
Difference between Parachain Slot Auctions and ICOs
There are certain disadvantages of the old way of funding a blockchain project with an ICO. The slot auctions is a new model that should help to prevent some of the risks.
Initial Coin Offering (ICO): (Old Model)
- no accountability (anyone can create a whitepaper and raise funds)
- Team has power over the funds
- at any moment team can stop delivering
- Crypto is invested, and you will not see it back
Parachain Slot Auctions: (new Model)
- Team accountability
- Get DOT / KSM back after releasing period
- Team can not touch the funds
- Team can not run away with the funds
Polkadot Crowdloans versus Individual Parachain Bids
There are two different ways to secure a slot for your Polkadot Project. You can do a crowd loan or make a private bid. You can also put money into your crowd loan.
In the private bid, the Project can directly bid. The bid will be bonded till the end of the auction and returned if the auction is not successful. This method is for projects that do not need to raise money through crowd loans and have enough funds to do it themselves.
The contribution is updated throughout the auctions in the crowd loan as more and more bids are coming in. Crowd loans will always bid the full balance available. As a private bidder, you can bid as long as the auction is open, but remember, you are incentivized to make your best and final bet earlier in the auction through the candle auction mechanism.
The Polkadot Auction duration and different phases
The whole Polkadot Parachain Auction for one slow lasts seven days.
Day One and Two - The "Open" Period
Any bid made during this day will be counted as an official bid for sure.
Day three to Seven - The "Random" End of the Auction.
If you decide to bid too late in the remaining five days, your bid may not be counted in for the bid. Your bid is still locked in anyhow, and you qualify for the incentives if the Project is winning the slot. Do not forget a random end date will be chosen respectively. Unlike in the eBay auctions system we all know, you do not know when the auction ends. The last-second bidding wars should be avoided through this mechanism. If your Project did not win a slot, it continues to bid on the next auction automatically.
Polkadot Parachain Auction Schedule
The auction of the first slot will start on the 11 of November 2021. See here the full schedule of the first auctions scheduled.
- Auction 1: 11. - 18. Nov 2021 (started)
Winner announcement on the 18 of November.
- Auction 2: 18. - 25. Nov 2021
Winner announcement on the 25 of November.
- Auction 3: 25. - 2. Dec 2021
Winner announcement on the 2 of December.
- Auction 4: 2. - 9. Dec 2021
Winner announcement on the 9 of December.
- Auction 5: 9. - 16. Dec 2021
Winner announcement on the 16 of December.
The winning Project will be onboard on the 17 of December 2021, and the lease begins to run. The maximum duration for the first lease is till the 20 of October 2023.
How to participate in a Parachain Auction?
If you have a project that you want to run on a Parachain, you have to provide some basic information, and also, as a potential Investor, you need to follow specific steps.
Registering for an Auction as a Project
For joining a parachain auction, your project needs must provide some basic information.
- Which Crowdloan/Parachain do you will support (ID)
- Is it bidding for a partial or the entire lease period
- End date of the crowd loan campaign. If no slot was won, the funds would be returned to the contributor after that date.
Once the parachain slots begin to open up, they'll have the opportunity to unstake their DOT tokens and bond them to the Project that is doing a crowd loan.
The good news is that if the Project they're backing doesn't win the first auction, the team can enter another auction and will not have to keep giving the investors back their DOT investment continually.
How to Participate in Parachain and win the Auctions?
There are a couple of steps to how you can contribute to a crowd loan.
- First, you need to do your research (DYOR) and check if the Project is legit. Do not get scammed. At Parachain Live you find a list of projects.
- Choose your Project(s) you want to support
- Create a Polkadot Account. You need at least 5 DOT to contribute and create an account on the Polkadot JS Extention. Here you find a video tutorial on how to set up your Polkadot JS Account.
- Contribute to your favorite Project. Watch this tutorial to see how.
How to participate in Parachain Auction with Kraken?
If the direct contribution is too complicated, there is also a more beginner-friendly version of contributing to crowd loans. You can directly contribute via your exchange, for example, via Kraken.com. It is probably the easiest way to contribute, but you can miss out on some rewards that are not supported by the exchange.
- Sign up for a Kraken account.
- Deposit or buy Polkadot (DOT)
- Navigate to Earn > Parachains.
- Choose a project to support. Not all available projects will be available on centralized exchanges.
- Enter the amount of DOT you want to contribute
- Press contribute and confirm.
There are fewer projects there.
What are the first top Polkadot projects?
Here are some of the top projects that will compete in the first Parachain slot auctions.
Acala Network (Twitter)
Category: DeFi, Dex
- founded Oct 2019
- received 5 Web3 Foundation Grants
- Backed by Coinbase Ventures, Pantera Capital, Polychain Capital, Hypersphere, and others
- the worldwide distributed project team from New Zealand, China, Europe, Brazil, and United States
- Sister project on Kusama: Karura raised $216.727.005 and won the first slot.
A decentralized finance hub and stablecoin platform powering cross-blockchain liquidity and applications in the Polkadot Ecosystem. It offers a bunch of financial applications based and is also compatible with the Ethereum Network.
Ticker: ACA
Total Supply: 1.000.000.000
Crowdloan Reward Pool: 170.000.000 (17% of Total Supply)
Inflation: 0%
Reward pool Details:
- 20% of ACA will be available to claim immediately
- 80% of ACA will vest/unlock linearly (every block) over a 96 week period
- 5% referral bonus
- full balance can be used for governance and other things other than transfer
Token Distribution:
20.25% - Team
5.00% - Ecosystem
11.62% - Treasury
18.33% - Seed
10.80% - Venture
34.00% - Reward (half of it used now)
Ecosystem Partnerships: 24
Acala Crowdloan Information (11. Nov 2021)
Funds raised: 15.743.306 DOT ($753.000.000)
Reward Pool: 170m of 1b (17%)
Contributions: 20.814
Min Reward: 1 DOT : 3+ ACA
Est Reward: 10 ACA
Moonbeam (Twitter)
Category: Smart Contract Chain, EVM
Moonbeam is an Ethereum-compatible smart contract parachain on Polkadot. The focus lies on interoperability, which means your DApps can integrate with other blockchains like Bitcoin and Ethereum.
Ethereum compatibility:
- Minimal Changes: existing smart contracts work right away
- Familiar Dev Languages: anything that compiles to Solidity
- Existing Tools: use MetaMask, Remix, Truffle or Web3.Js/Ethers.Js
- Unified Accounts: existing Ethereum accounts and signatures
Sister project on Kusama: Moonriver raised $89.213.106 and won the second slot.
Ticker: GLMR
PCL Token Allocation:
Total Supply: 1.000.000.000
Auction Reward: 10% (100.000.000)
Inflation: 5%
Token Distribution:
16% Public Sale (1,600,000 GLMR)
14% Seed Funding (1,400,000 GLMR)
10% Strategic Sale (1,000,000 GLMR)
19% Long-Term Protocol & Ecosystem Development (1,900,000 GLMR)
15% Parachain Bond Funding (1,500,000 GLMR)
4.5% Developer Adoption Program (450,000 GLMR)
0.5% Parachain Bond Reserve (50,000 GLMR)
0.5% Treasury (50,000 GLMR)
10% Founders and Early Employees (1,000,000 GLMR)
4.5% Key Partners & Advisors (450,000 GLMR)
4.6% Future Employee Incentives (460,000 GLMR)
1.4% PureStake Early Backers (140,000 GLMR)
Ecosystem Partnerships: 47
Moonbeam Crowdloan Information (11. Nov 2021)
Reward Pool: 100m of 1b (10%)
Funds raised: 17.772.630 DOT ($852.375.312)
FDV: $3.552.000.000
Contributions: 34.717
Min Reward: 1 DOT: 1+ GLMR
Est Reward: 6 GLMR
Reward pool Details:
- 30% of rewards will be available to claim immediately (after EVM and transfers are enabled)
- The remaining 70% vesting throughout the lease (96 weeks) linearly
Join the Crowdloan here through Parallel Finance and get an additional Reward. (Affiliate Link)
Astar (Twitter)
Category: Smart Contracts
Leading DApps hub on Polkadot that supports Ethereum, ZK Rollups, and Optimistic Rollups
- Sister project on Kusama: Shiden raised $60.112.866 and won the third slot
Ticker: ASTR
Total Supply: 7.000.000.000 ASTR
Crowdloan Reward Pool: 1.400.000.000 (20% of Total Supply)
Inflation: 10%
Reward pool Details:
- 10% of ASTR will be available to claim immediately
- 90% of ASTR will vest/unlock linearly (every block) over 96 weeks
- 1% referral bonus
- 20% bonus if you join before the first end of Auction #1
- 10 % bonus if you participated in Plasm Lockdrop/Shiden Crowdloan
Investors: 23
Ecosystem Partnerships: 13
Astar Crowdloan Information (11. Nov 2021)
Funds raised: 4.600.000 DOT ($223.300.000)
Hardcap: 35.000.000 DOT
Reward Pool: 1.4b of 7b (20%)
Contributions: 19.927
Min Reward: 1 DOT : 40+ ASTR
Est Reward: 226 ASTR
Summary
With Polkadot, a very solid Smart Contract Platform opening the gates for projects to compete for a place on their parachain. The winners of the parachain slot auction can lease this spot for up to two years. This new concept of the auction process in the Blockchain space naturally increases the quality of projects launching on the Polkadot network.
If you do not believe in the Polkadot Project itself, I would not consider investing in the Crowdloans since your DOT will be locked up for a long time. Depending on how many people join the crowd loans, the risk of losing money should be very low since you get Native Token rewarded over two years, but there is nothing without risk. You can sell the rewarded Tokens as you receive them.
What to consider when you invest?
Like with everything in life, for every opportunity, there is also an opportunity cost. If you put $DOT Token in one of the projects and back one of the parachain teams, you can not sell or stake your $DOT for up to two years. According to stakingrewards.com you are missing out on 13,75% of APY for staking your Tokens.
If you invest in Acala, you get lcDOT (Liquid Crowdloan DOT), which can be used for swapping or as collateral to mint aUSD. Whoever is holding lcDOT at the end of the lease period gets the DOT back.
The native Token rewards of the Project are distributed over the lease time. Some projects like Moonbeam are releasing 30 % of the reward initially; others are distributed equally over the two years. Both options have advantages and disadvantages depending on what you are looking for. If you want to secure your Investment quickly, the 30% initial reward is probably better for you. If you do not care, you can probably go for bigger gains with a consistent reward release schedule.
In the next few days, we will try to estimate what kind of reward you can expect in the different projects. Do not forget, we do not know, but we try to assess as well as possible. In the end, we want to pick the projects with the most significant potential reward and upside.
We need to stay patient and see how the total contribution will be, so it's better to wait with your Investment until it's clear who will win the slot and see how many DOT was distributed to estimate the reward.
We will decide in the next few days on which projects we are going to invest in. Do not forget, the auction for the first slot for the first Project started; there are many more to come. For now, Moonbeam and Acala have the best cards to win the first auction, but be patient and do not FOMO. Many great opportunities will come.
Stay weird!
Disclaimer
This website includes information about cryptocurrencies and other financial instruments. All these areas are complex instruments and come with a high risk of losing money. We are NOT giving financial or investment advice; this page is for educational and informational purposes only. Please be careful and make sure that you understand how these instruments work. Also, think about whether you can afford to take the risk of losing your money.
Weirdo.Rocks encourage you to do your own research before you make any investment decision.
Resources
Polkadot Website https://polkadot.network/
Polkadot Wiki https://wiki.polkadot.network/
Parachain Info https://parachains.info/
Polka Project https://polkaproject.com/#/
Dot MarketCap https://dotmarketcap.com/auction/polkadot
Kusama Slot Auction Analysis https://polkadot.network/blog/making-history-an-overview-of-the-first-five-parachain-slot-auctions-on-kusama/
