What is Polkadot Parachain Auction and how it will reveal the hidden power of the Polkadot ecosystem.
Polkadot / Kusama Parachain Auction | Parachain Slots Auction | Initial Parachain Offering | Parachain Slots Auction |Parachain Launch Offering
Today we are going to talk about the key feature of Polkadot, which makes this project different from other ones. We will talk about the advantages that you can get from these and the slot auction process to be held in the future. This auction will reveal the hidden diamonds of the Polkadot ecosystem. But to get this advantage you need to understand it first, right?
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So very soon we will have the auction for parachains in the Polkadot ecosystem and it gives the holders of DOT and KSM an opportunity to enter one of the best projects of the Polkadot ecosystem.
So, lets first try to understand what is Polkadot and it’s Parachains
This is Polkadot and its ecosystem, lets see the elements of it. Let’s see our multi-chain future.
Polkadot is the network that connects blockchains, parachains, or parallel chains. It is blockchains that connect to Polkadot and become an ecosystem.
Relay chain — it is Polkadot itself or Kusama , this is the main chain that guarantees security and transmit the messages between the parachains.
Parachains are part of Polkadot’s infrastructure next to the Relay Chain and Bridges to other blockchains. In other words, parachains are self-sovereign native blockchains that rely on Polkadot’s relay chain for security and communication with other relay chains. Parachain slots are limited and will be auctioned off in a permissionless way. Rather than auction many parachain slots together, it’s more likely that they will be auctioned off one-by-one, so that there’s only a single parachain auction occurring at any given time.
Every Network connected to Polkadot as a Parachain will have some specialization, customization, to deliver the best things like scalability, smart-contracts, bridges, services, and things that we even can’t imagine now.
What’s so special about a parachain, what features do they have? Well, a parachain is a native blockchain with:
- Customizable governance, block production, and tokenomics
- They share the security from Polkadot’s Relay Chain
- Ability to exchange messages and assets between other Parachains
- Typically built with Substrate
How does the Substrate project become a Parachain?
Now actually, parachain slots are limited and are distributed by candle auctions or governance. Let’s dig deeper into this process and talk about how it works:
Candle auctions from 17th century England, still done today.
It is estimated that 50–100 parachain slots will be up for bidding in the first auction. The full or maximum duration of a parachain slot is 2 years, broken into four “lease periods” of 6 months, bidders may bid for selected lease periods. The exact date for the first auction is still unknown, this will be decided by governance.
The number of slots available in the first round of auction is not known also. But it will probably be a number under 10.
The winners will be determined by the candle auction mechanism. In brief, in a candle auction, bidders can submit increasingly higher bids during the open phase; The close moment of the auction will be randomly generated and retroactively applied; The bidder with the highest amount at the closing wins. This mechanism prevents “sniping” whereby bidders only put in a winning bid slightly higher than the highest bid right before the closing moment.
How much will it cost to become a Parachain?
This process means that the cost of leasing a parachain slot will purely be a function of market supply and demand. It’s difficult to give an estimate as to what the bond requirement will be. However, we know that DOT will be the asset that needs to be bond in the auction.
It’s important to realize that the actual cost of a parachain slot is not the same as the size of the parachain bond since the bond is returned at the end of the lease period. The actual parachain cost is more accurately characterized as the opportunity cost from not staking those DOTs.
Preliminary modeling by the Web3 Foundation estimates the annual cost of securing major chains (for example. Cosmos, Tezos and EOS) is in the tens of millions of USD per year, with Ethereum and Bitcoin in the billions, while the estimated opportunity cost to lease a parachain is $100–200k for 12 months.
Popular dApps on Ethereum with 30–200k monthly transactions like Chainlink, MakerDAO, and IDEX and spend $18–60k per month on gas, which probably would be free for parachains.
How to raise money for a parachain slot?
In the beginning, we will face some battles for slots and this is an opportunity for participants to get the tokens of the best ecosystem projects. The diamonds of Polkadot.
Polkadot aims to give the power back to its users and has come up with a new model called Polkadot Parachain Auction. If a project decides that they would like to bid for an upcoming parachain slot but believes they do not have the required capital for this, then they can create an Polkadot Parachain Auction using the Substrate crowdfunding module to accept DOT loans from any DOT holder. Funds secured through this module would go into an account on the Polkadot Relay Chain. If the project is able to secure enough contributions to win the auction, then the DOT loans will be returned to the contributor at the end of the parachain lease period. If the project is unable to secure enough contributions and the auction is lost, then the DOT will be returned to contributors immediately. DOT in this account can only be used for parachain bonding and the projects are not able to transfer DOT out of this account. Since this module is on the Polkadot Relay Chain, contributors can trust that their contribution is safe and they will eventually receive it back (either at the conclusion of the lease or if the auction is lost).
Due to the above characteristics, it’s expected that projects will reward contributors in some way should they win the parachain slot in the auction, such as rewarding them with native parachain tokens. In the traditional ICO fundraising, investors can only be rewarded with tokens. In a parachain, the project team also has the option to reward investors with roles in governance or block production too.
Here is the list of the projects that are going to be the first Parachains, and any of them may be hidden diamond. First of them will be most successful and get the boost of Polkadot magic.
What if the project doesn’t win a future parachain auction?
- Convert their Substrate-based chain to a parathread. Though this will not give them the same guarantees of throughput as a parachain, they can still utilize Polkadot’s shared security and interoperability, but in a pay-as-you-go model.
- Deploy the parachain to Kusama. This will require some planning since there will need to be a parachain slot available on Kusama as well. However, parachain bond requirements are likely to be lower on Kusama than they are on Polkadot.
- Deploy their application or service on an existing parachain via smart contracts in Solidity or Ink!. This has a higher development cost but is an option for projects who want to utilize the parachains that support these methods.
- Run their Substrate-based chain as a solo-chain and connect to Polkadot via a bridge. This requires gathering security resources as validators on the bridge and chain itself.
So , what is in conclusion:
Everyone has a great opportunity to join the best crypto community with participation in parachain auctions.
You can get tokens of Substrate-based projects by locking your DOT or KSM, and after the lease period you will have your DOT or KSM back as well as a projects’ tokens.
This Polkadot feature will make the Polkadot ecosystem the blockchain leader.
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This article based on this video, you can use it when you need to explain what is Polkadot / Kusama and what is Polkadot Parachain Auction:
- https://medium.com/@longhashSG/preparing-for-your-first-parachain-auction-d965bfe2ac6e Preparing for Your First Parachain Auction by LongHash Ventures https://wiki.polkadot.network/docs/en/learn-auction
- Polkadot Wiki https://polkadot.network/obtaining-a-parachain-slot-on-polkadot/ Obtaining a Parachain Slot on Polkadot
What is Polkadot Ecosystem PromoTeam
PromoTeam is a diverse team of specialists and blockchain activists with various skills that actively promotes the Polkadot ecosystem in the English-speaking and Russian communities.
Our main activity is content production, offline and online event organization, community management and creation, product marketing, development of ambassador programs.
We also run validator nodes for Polkadot and Cosmos blockchains and participate in the Polkadot ecosystem projects as investors, advisors and contributors.
Here is more about our contributions — https://medium.com/polkadot-ecosystem-promoteam/promoteam-catches-its-breath-the-first-set-of-crowdloans-is-over-more-to-come-9fc1813c2e5d