Polimec Protocol - Decentralized Community-Driven Funding Protocol For Web3
Introduction to Polimec Protocol
Polimec (Polkadot Liquidity Mechanism) is a decentralized community-driven funding protocol developed on Polkadot to accelerate the Web3 ecosystem. The open-source and module-based blockchain system facilitates fundraising in a regulatory compliant and sustainable manner using on-chain credentials.
Started in late 2020 as a project conceptualized by the team behind KILT Protocol (sub0 - Polkadot Developer Conference by Ingo Rübe), and became an independent project to realize the vision of the first decentralized, community-driven funding protocol for Web3.
Since then, a dedicated team with extensive experience in crypto and financial services has taken on the protocol’s further development and the network’s future launch. In June 2022, the Polimec Foundation was established in Zug (Switzerland), a non-profit organization dedicated to developing, growing, and promoting Polimec.
“Polimec has evolved from our original concept of a decentralized tokenization platform to an accelerator for the entire Polkadot ecosystem. We are thrilled that a team with this financial and industry expertise will take Polimec to the next level, and look forward to collaborating on regulatory compliant systems that advance the blockchain industry.” -Ingo Rübe (Founder of KILT Protocol).
One of the main unresolved obstacles to innovation and growth in fundraising is the efficient allocation of capital. To achieve capital efficiency during fundraising, all stakeholders incentives must be aligned. Fundraising possibilities as of today are still highly trust-based, centralized, dominated by opaque and inefficient procedures, and limited to the network of projects and/or intermediaries:
- Centralized Processes with Inherent Counterparty Risk: Given the decisive role centralized funding platforms and other intermediaries currently play in project funding, they effectively act as gatekeepers by imposing non-transparent terms and processes on issuers and participants in their self-interest. Relying on intermediaries in the funding process leads to counterparty risks and exposes issuers and participants to the intermediaries’ inefficient, error-prone, and arbitrary practices.
- Misalignment of Stakeholder Interests and Information Asymmetries: Centralized funding providers leave participation opportunities up to an individual’s arbitrary judgment and preferences. Intransparency in token allocations, prices, and vesting periods for different types of participants only adds to the information asymmetry between the various stakeholders. This can lead to dire consequences for disadvantaged participant categories, the community, and issuers, and carries a significant reputational damage risk.
- Limited Accessibility: Early-stage funding opportunities today are only accessible to corporations and individuals rooted in narrow and, in most cases, exclusive circles. Similarly, centralized funding platforms limit the optimal allocation of capital and access to funding rounds to their client base - which usually is limited to a specific target group. The exclusion of certain participant categories, jurisdictions, and high entry barriers restrict the establishment of a diversified participant/future token holder base.
- High Costs and Lengthy Lead Times: Today, projects allocate substantial time and effort to fundraising. Performing funding rounds is time-consuming, stressful, and can negatively impact the project’s development plans. Turning to intermediaries or centralized funding platforms, on the other hand, almost always involves upfront payments and high fees. Instead, projects should be able to focus on creating valuable business models.
“With this business model around KILT credentials and DIDs, we are creating a significant addition to the KILT ecosystem. Polimec has evolved into an independent project that will disrupt current fundraising models and enable a fully decentralized regulatory compliant fundraising protocol for Web3”. -Kasper Mai Jørgensen (Co-Founder of Polimec Foundation).
Considering that only centralized, inefficient, and inaccessible fundraising options exist today, the introduction of a decentralized, community-driven funding protocol is essential for a growing and maturing Web3 ecosystem.
Polimec maximizes value creation for Web3 projects, allows different stakeholders to participate in funding rounds, and minimizes information asymmetry between participants and issuers to grow their community. The underlying reward mechanism ensures that the interests of the various participants and projects are aligned for sustainable fundraising.
Polimec builds on the Polkadot ecosystem infrastructure due to its crucial differentiation from other decentralized protocols. A key pillar is that Polkadot enables true interoperability and cross-chain transfers of any type of data or asset. The ability to interoperate with various blockchains is critical for a thriving fundraising ecosystem and leveraging network effects. Furthermore, on Polkadot every parachain derives its security from the Polkadot Relay Chain and its validators. This ensures that each transaction on Polimec is secure and trustless. Low transaction fees allow the protocol to scale and runtime upgrades enable Polimec to improve consistently and swiftly without requiring time-consuming forks.
Polimec solves these issues and provides an automated framework for optimal economic incentivization and sustainable value creation by being committed to the following values:
- Trustless: Polimec enables regulatory compliant fundraising without intermediaries or counterparty risk in a permissionless system.
- Collaborative: Polimec empowers participants to assess projects in a decentralized due diligence mechanism as their backing is decisive for funding.
- Accessible: Polimec facilitates global access to funding on a level playing field, allowing retail and professionals to participate alongside institutionals.
- Inclusive: Polimec provides access to a broad and diverse community, coupling community building with a solid participant base for the benefit of all.
- Transparent: Polimec reduces information asymmetry in funding through transparency in entry prices, vesting periods, and token allocations.
- Efficient: Polimec provides a trustless and automated funding process from fundraising to token distribution to the conversion at the project’s mainnet launch.
Polimec provides an automated framework for projects to raise funds within a broad and diverse community with transparent and fair access for all. The protocol provides access to fundraising and governs the issuance, distribution, and conversion of tokens to mainnet.
The Polimec funding process is divided into five distinct phases:
- On-Chain Credentials: Network participants claim KYC credentials, which are required to gain access to the functionalities on Polimec.
- Funding Application: Issuer applies for funding, providing all required information and funding round specifications.
- Evaluation: Minimum backing is required for a project to progress to the funding round.
- Funding Round: Participants gain access to the funding rounds based on their credential category.
- Issuance & Migration: Contribution tokens are automatically issued and distributed to the participants, and eventually converted to the project’s mainnet token at launch.
Polimec brings together all stakeholders required for sustainable project funding and aligns their multifaceted interests. The following network participants are involved in funding rounds on Polimec:
- Issuers on Polimec are projects raising funds on Polimec. After providing the necessary documentation and structuring their funding process, issuers are subject to approval from evaluators to enter the funding round and depend on participants to achieve a successful fundraise.
- Evaluators on Polimec are incentivized to assess projects accurately, as they earn rewards for successful evaluations or get slashed for unsuccessful ones. The evaluation process is intended to be transparent, with evaluations recorded on the blockchain and evaluator DIDs linkable to social media profiles.
- Participants on Polimec are actors categorized as retail, professional, or institutional. They can browse projects and participate in those for which they are eligible based on their credentials. Unsuccessful funding rounds will result in an automatic refund of the participants’ contributions. Contribution tokens are automatically converted to mainnet tokens once a project’s mainnet goes live.
- Stakers on Polimec earn staking rewards by nominating collators who help stabilize the network. Stakers get paid daily, and the amount they make with staking is proportional to the number of staking participants and the weighted average amount of PLMC bonded (pro rata).
Furthermore, the native PLMC token enables access to fundraises and a variety of additional functionalities such as evaluations, staking, liquidity provisioning, governance, and more. At genesis, the fully diluted supply will be 100 million PLMC.
To access all functionalities on Polimec, network participants must complete a KYC/AML check performed by a trusted third-party provider to claim their on-chain credentials.
Using on-chain credentials from KILT Protocol enables user verification for Know Your Customer (KYC) and Anti-Money Laundering (AML), and other regulatory purposes while staying pseudonymous. This allows network participants to comply with relevant regulations in a decentralized and efficient process - while preserving data privacy. The KYC/AML process flow to get credentials:
During Polkadot Decoded 2023, Polimec and Deloitte Switzerland announced that they are joining forces to issue reusable KYC credentials enabling access to global fundraising of digital assets.
Banking grade standard KYC credentials, issued by Deloitte, streamline the process of participating in early-stage fundraising on Polimec Protocol. The credentials are anchored on the KILT Blockchain, providing an additional level of regulatory compliance, security, and data privacy.
Users share their KYC documentation exclusively with Deloitte. Deloitte Managed Services then provides KYC credentials in Web3. These Deloitte KYC credentials present a more efficient and secure alternative to traditional KYC methods, which typically involve significant time and resources to confirm the identities of customers.
“We are proud to share the result of the last nine months that we’ve been working together with Deloitte. This enables us to take a step closer to a vision of Web3, where everyone controls their own data, identity, and destiny - and with Polimec they can own parts of the most exciting Web3 projects from the very earliest fundraises. This collaboration will bring additional funding possibilities to the Polkadot ecosystem and lead the way to a more decentralized community-focused Web3, while also satisfying regulatory criteria” -Kasper Mai Jørgensen (Co-Founder of Polimec Foundation)
Polimec includes an on-chain treasury. The protocol governs the management of treasury funds and how the on-chain treasury processes information and executes actions. In addition to the primary usages described below, network participants can propose funding requests and tips that PLMC holders vote on.
The primary purposes of the Polimec on-chain treasury are to ensure sustainable growth of the network and to continuously secure a parachain slot. For this purpose, Polimec differentiates between the Contribution and the Parachain Treasury.
The Contribution Treasury consists of issuer fees denominated in their contribution tokens on Polimec. The on-chain contribution treasury incentivizes evaluators, long-term token holders, and liquidity providers.
The Parachain Treasury consists of PLMC and/or DOT allocated for the continuous funding of the Polkadot parachain slot. It is funded by 3 percent p.a. inflation on the network as well as slashes of evaluators. The treasury governance mechanism converts PLMC for DOT, which are held in adequate supply to self-fund the parachain slot. Excess funds not needed for the continuous funding of a parachain slot are allocated for additional incentivization of network participants to the contribution treasury.
To find out more about Polimec Protocol, check out the Whitepaper, Lightpaper, Polimec Knowledge Hub or in the website: polimec.org.
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