Parallel Finance
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Parallel Finance

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The Security of Polkadot: How it Works and How Parallel Makes It Stronger

As part of Polkadot’s extended preparation for launch, they have prepared archival descriptions of the different components of Polkadot in their Polkadot Wiki. While this information is very helpful for users who already know what they’re looking for, some of users don’t know where to start. Many users, like this one, have heard that Polkadot is very secure, but they have not found evidence as to why. This article is intended to be a high level overview of the content of Polkadot’s security, what it means for digital assets that reside on Polkadot, and how you can use it to your advantage by staking your DOT and KSM on Parallel.

Staking and Slashing

Parallel is the only noncustodial platform where you can stake your DOT and KSM without the risk of slashing, and stay liquid while you do. As you may already know, staking is an economic defense against the collusion of validators. In theory, the only way an incorrect transaction could be logged is if a group of validators collude to attack the network. However, attempting an attack on a system-wide level would be so costly, and the likelihood would be so low (like winning the lottery) that it would never be feasible to even attempt. On a smaller scale, bad behavior is disincentivized with slashing, and good behavior is incentivized with rewards for every block validated. When you stake your assets, you can earn ~15% APY, but you also run the risk of slashing, if you nominate a validator that performs poorly. Staking on Parallel implements an algorithmic nominating schema to predict bad behavior and prevent slashing. This enables us to insure against 100% of slashing events if you stake on Parallel. In addition, while staking on Parallel you can borrow against your stake, and lend it to the money market. This allows you to earn even more yield and stay liquid at the same time. This behavior actually increases the security of the Polkadot network, because it encourages people to stake, instead of lending.

Shared Security

Parallel will have its own blockchain once it wins a parachain auction on Polkadot. Specialized parachains called bridges link independent blockchains like Ethereum to Polkadot. Until Polkadot, sending messages between independent blockchains (via bridges) was doubly unsecure, because the blockchain would have to mutually trust each other. With the advent of Polkadot, chains can connect or bridge to Polkadot’s parachains via collators, which use zero knowledge proofs to pass unsealed blocks to the relay chain, where the blocks are validated and guaranteed to be valid. In practice, this is called “shared security,” shared being a reference to the process of how collators deliver data to validators and the network at large. This delivery process which is called XCMP (Cross Chain Message Passing) enables Polkadot’s interoperability, and it gives Polkadot the ability to bridge other blockchains “trustlessly” via the parachains that bridge to them, unlike other interoperable chains like Atom, which are required to trust the network it’s connected to [1]. Shared security is more secure than independently verified blockchains communicating independently because every chain shares the security of every network.

Governance and the Canary Network

The governance of Polkadot is one of its security features. DOT and KSM holders will have the ability to vote for members of a council. Users vote for these members by weighting their votes across the members they select when they vote. A detailed explanation of the voting process can be found here. Council members are tasked with “controlling the treasury, … proposing sensible referenda, cancelling uncontroversially dangerous or malicious referenda, and electing the technical committee” [2]. These members are tied to live Polkadot accounts, and when new referenda come up, it is the responsibility of these members to vote on them. This method of governance is not quite on chain, like the voting system of Compound, but it is closer to being on chain than other blockchains, like Ethereum, which do not rely on the blockchain to make governance decisions.

The above governance process gives Polkadot the ability to adapt more efficiently, because it allows governance to develop the protocol, which can protect against, and respond to unforeseen systemic problems. To further guarantee that the system is never compromised, Polkadot pioneered the notion of a “canary network,” which essentially beta tests all of Polkadot’s features in a live environment. This ensures that Polkadot’s governance a priori always has time to react to problems, because problems will always happen on Kusama first. As distinct from a test network, Kusama will be exposed to all the economic pressures that cannot be simulated in testing environments. It will also be allowed to make changes and experiment much faster than Polkadot, which is itself an incentive for certain types of decentralized apps, making it a very attractive environment for projects that like to move fast and stay lean. In fact, many projects like Parallel that intend to launch on Polkadot are also launching on Kusama.

References

  1. https://arxiv.org/pdf/2005.14282.pdf
  2. https://wiki.polkadot.network/docs/learn-treasury

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Disclaimer:

This article contains forecasts, projections, goals, plans, and other forward-looking statements regarding Parallel’s financial results and other data. Such forward-looking statements are based on Parallel’s assumptions, estimates, outlook, and other judgments made in light of information available at the time of preparation of such statements and involve both known and unknown risks and uncertainties. Accordingly, plans, goals, and other statements may not be realized as described, and actual financial results, success/failure or progress of development, and other projections may differ materially from those presented herein. Even when subsequent changes in conditions or other circumstances make it preferable to update or revise forecasts, plans, or other forward-looking statements, Parallel disclaims any obligation to update or revise this article. Information concerning risk or returns (including features under development) contained herein is not intended as advertising or as financial advice.

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Parallel Finance

Parallel Finance

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Decentralized lending, staking, and borrowing built on the Polkadot Ecosystem.