Parachain Auctions and Crowdloans on Polkadot & Kusama: A Quick Overview
This overview guide will walk you through how DOTSAMA parachain auctions and crowdloans work
Pendulum aims to become a Kusama parachain and a Polkadot parachain in the future, and to achieve that we will need to win crowdloans. We’d like to give an overview of how parachain auctions and crowdloans work to show how you can support Pendulum’s development by staking tokens.
What are Parachain Slot Auctions and Crowdloans?
Parachain slot auctions are a way for new projects to get their parachain on Polkadot or Kusama. To become a parachain, a project must first bid through an auction for a parachain slot.
Crowdloans allow individuals to participate by committing to locking away their DOT (KSM) for the duration of the lease. Participants are only staking their DOT/KSM; they get it back when the lease ends. Teams have complete control over how they reward their contributors, and they may structure crowdloans in any way they choose. Usually the rewards are in the form of native tokens from the project. But other incentives like NFTs could be used.
The system utilizes a clever incentive structure. Auction participants benefit from the rewards, the project benefits from getting the parachain slot and Polkadot & Kusama benefit from having this DOT and KSM supply locked (improving price stability) for the lease period.
How do Auctions Work?
Polkadot’s parachain auction model is designed to be a fair, decentralized and secure way to allocate parachains on the network. The process can begin with a crowdloan, in which DOT/KSM holders can lock up their tokens for the duration of the parachain lease. These tokens are kept separately on the Relay Chain and not controlled by the project. This greatly reduces the risk of malicious teams executing a ‘rugpull’.
Polkadot and Kusama auctions have a set time period during which you can stake crowdloan tokens. The precise moment to close the auction is determined at the end of this period by a verifiable random function (VRF). The highest bid at the time of the auction is accepted by the VRF. This structure deliberately ensures randomness in action, which reduces the risk of last minute sniper bids considerably. Polkadot refers to this type of auction as a candle auction.
How to Participate in a Crowdloan on Polkadot or Kusama
To participate in a crowdloan, you will first need DOT or KSM tokens in your wallet. Once you stake your DOTs, they are locked up for the lease period. The length of this lease period will depend on the specific crowdloan you are participating in..
Once you have DOT/KSM tokens, go to the auctions website and click the green JOIN NOW button of the project you want to participate in. You will be led to polkadot.js.org or to the parachain project website where you could get additional bonuses from the project team for your crowdloan contribution. Regardless, your DOT/KSM will be sent back to you automatically by Polkadot’s native crowdloan mechanism. Either you receive your DOT/KSM tokens back if the parachain bid fails or when the successful parachain lease ends. Remember, participants never actually lose or spend their tokens.
For a video tutorial check out:
There are numerous other ways that a project can raise DOT/KSM to bid in the parachain auction including private and public sales, ICOs, IDOs and more. And projects themselves can contribute their own DOT/KSM in addition to the crowdloan’s tokens.
Overall, crowdloans are a great opportunity for people to support projects they are passionate about early on in the project’s development, and earn tokens in return. The Pendulum roadmap includes auctions and crowdloans on both Kusama and Polkadot. So if you’re interested in participating, watch this space and keep in touch with Pendulum socials!
Do you have any additional questions about parachain auctions or crowdloans? Feel free to ask them in any of our socials.
Building the missing link between fiat and DeFi through a fiat-optimized smart contract blockchain based on Polkadot’s Substrate. Allowing traditional finance fiat services to integrate with DeFi applications such as specialized forex AMMs, lending protocols or yield farming opportunities. Developed by SatoshiPay.
Keep your eyes on the Pendulum!
Telegram Announcements: https://t.me/pendulum_chain
Telegram Community: https://t.me/pendulum_community