How To Invest In Polkadot Parachain Auctions: Parachain Projects 101

Polkadot is building a blockchain ecosystem and is a far cry from the 2017 ICO craze.

Polkadot enables an Internet in which Independent blockchains can communicate with each other in a secure, trust-free environment. Speckle is itthe idea of ​​Ethereum co-founder Dr. Gavin Wood; It aims to achieve the scalability of the blockchain through parachains or parallel chains. These parachains are limited in number and can be “rented” for a limited time. Parachains run in sync with the main relay chain and are not associated with network slowdowns and high fees such as Bitcoin or ether have experienced in the past few months.

The Polkadot network in brief

Each parachain acts as its own blockchain “slot” in which a project can be built into the Polkadot network. Since paracets are limited in quantity, decentralized applications (dApps) have to compete and offer at each slot. In addition, each Slow can only be rented for two years until it is auctioned again. This parachain lease expiration date forces any dApp to remain competitive by proving its worth against the Polkadot framework.

If a project wins a slot, it can take advantage of Polkadot’s security, validation and cross-chain interoperability features.

We’re going to break this guide into three parts to get into how the parachain leasing system works, the potential number of polkadot parachain businesses, and how investors can get involved:

  • How parachains work
  • The parachain auction system
  • How to invest in the auction

How parachains work

Paracets are the coveted slots that decentralized applications need to achieve scalability on the Polkadot framework. They run in parallel with the relay chains, which allows them to share messages with other parachains on the network and to use the Polkadot security / validation network. This structure facilitates scalability through transaction processing alongside the relay chains.

Polkadot Parachains (Courtesy Polkadot Wiki)

Another way to think about the role of parachains in the Polkadot network is to: compare them to applications on an iPhone. Apple provides the development language and infrastructure so companies can grow their application and take advantage of the network. This benefits Apple in terms of adoption and monetization of their ecosystem, and it benefits businesses by gaining access to the ecosystem.

However, the main difference between Polkadot and Apple is that Polkadot will most likely only release 100 Parachain slots. This scarcity also increases the importance of the role of each project in the overall network. This is in stark contrast to Apple, where any application with a developer and enough capital can gain access to the network.

How does the system work to secure one of these 100 slots? The following section examines the importance of the Polkadot Parachain auction system.

The parachain auction system

There is limited space on the Polkadot network for businesses to secure Parachain slots. Let’s dive into how the auction system works to secure one of these slots.

Polkadot opted for an auction system called called Candles auction which is expected to take place at the end of 2021 / beginning of 2022. The candle auctions originate from ship auctions of the 17th century and choose a random point in time during a certain period of time to end the auction and Select the highest bid at that particular time. This type of auction was chosen because it restricts people’s ability to “snipe” at the very end of the auction and encourages them to see the real value of the bid early on.

Polkadot rents places in this auction for each Parachain slot in increments of three months and companies can bid for up to two years (up to 8 individual slots per auction).

Parachain contenders must bind their own DOT tokens or with the Crowdloan functionality, in which The company can encourage investors to send the company DOT tokens to bolster their offering.

Once companies have their DOT bond ready, they can bid for any of the 3 month tiers or all 8 tiers if they are aiming for a full 2 ​​year lease term. This creates an incredibly competitive environment and gives DOT holders the opportunity to support projects that strengthen the ecosystem.

In addition, the length of the lease plays a major role in successful projects that secure future rental space and continuously enhance the entire Polkadot network. Acala Network is one such example of a project trying to secure a parachain slot. They are focused on becoming Polkadot’s DeFi hub and already have strong community support.

Now that we understand how parachains and the auction system work, let’s dive into how to participate as an investor.

How to invest in parachain auctions

As we discussed above, companies interested in securing a Parachain slot can either submit the DOT tokens themselves or use the crowdloan functionality. Private investors can leave their mark here.

Once the Parachain slots open, they have the option to remove their DOT tokens and tie them to the project that is doing a crowdloan.

The good news is that if the project they sponsor doesn’t win the first auction, the team can compete in another auction and not have to continually return their DOT investments to investors.

Contributing to a project has a number of advantages:

  1. You will be contribute directly to the chances of this project to secure a place.
  2. Projects can provide an incentive in the form of native tokens or DOT for your investment.
  3. At the end of the rental period, DOT will give you back your initial investment.

Yes, technically you are not “spending” your DOT to invest in a project. You will get your original DOT commitment back at the end of the project’s lease term, but you will be able to keep the benefits accumulated over the same period.

The only downside would be the interest you would be foregoing if you staked your DOT, which is on platforms like 8-28% every year octopus or Binance.

However, if you really believe in the success of a project, it can be worth missing out on an extra DOT.

If the project doesn’t secure space, you will get back your initial DOT investment as well.

However, if the project secures a spot, it will be added to the relay chain and your DOT will be locked for the lease term.

Final Thoughts: How to Bid in Polkadot Parachain Auctions and Parachain Auction List

Many DOT proponents advocate the growth of the Polkadot Network as an evolution of the Web 3.0 and the new Internet. Polkadot’s Test Net Kusama is already starting its preliminary parachain auctions, and if you are considering investing in something in the Polkadot Ecosystem, or DOT, the Polkadot landscape is well worth exploring.

Although Parachain auctions are not yet live, you can follow top projects on parachain.live.

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