The success of the Kusama parachain auctions paved the way for Polkadot’s mainnet launch, with many auction-winning projects, including Acala’s DeFi hub Kurara, announcing plans to launch on Polkadot as well.
Polkadot’s ongoing parachain rollout represents the final phase of its multi-chain sharded architecture’s testing, optimization, and auditing, which began on testnets such as Rococo and canary network Kusama.
Polkadot parachains were first mentioned in September, when Gavin Wood hinted that they were “technologically ready for launch.” This was followed in October by a motion for the Polkadot Council to hold the network’s first parachain slot auctions, which were later approved by on-chain governance, putting buy pressure on DOT in the run-up to the launches.
The auctions are divided into batches, with the first batch of five auctions beginning on November 11 and running weekly. The winning projects will then be accepted on December 17 for a lease period ending October 20, 2023.
A Parachain’s Anatomy
Parachains are custom blockchains that are anchored to Polkadot’s Relay Chain for up to 96 weeks with the option to renew. An on-chain candle auction mechanism assigns each slot, with successful projects securing a bond in DOT for the duration of the lease.
Parachain teams can use a community crowdloan campaign to fund their auction bids, allowing them to accept contributions from DOT holders and demonstrating demand for the project’s idea. Participants in crowdloans receive their DOT back at the end of the lease, and parachain teams can choose to reward them with their project’s native token.
Auctions and crowdloans differ significantly from initial coin offerings (ICOs), exchange offerings (IEOs), and DEX offerings (IDOs) in that holders are not required to transfer control of their DOT in exchange for the project’s tokens. In fact, DOT is returned if a project loses an auction bid; slot holders, on the other hand, reimburse supporters when their lease expires.
Another significant distinction is that project teams are not permitted to use or sell DOT at their discretion. Instead, they gain access to scarce network slots, fee generation opportunities, and the launch of parachain tokens.
Implications for the Coming Year
Acala secured the first Polkadot parachain slot after raising 32.5 million DOT (approximately $1.27 billion at the time) from a community of over 81,000 users.
The inaugural parachain auction’s success exemplifies the power and strength of the Polkadot community, which has banded together to pledge DOT to their chosen ventures. Moonbeam, which lost to Acala, is currently the best of the rest, with 35.8 million DOT for second place.
In comparison to the more speculative structure of other offerings, the number of tokens locked up demonstrates how many participants are invested in the success of the projects. This should lead to greater accountability for projects, which must deliver applications quickly due to the 96-week leasing period.
So far, over 205,000 contributors have participated in this healthier balance of incentives between participants and projects, with more contributing via exchanges such as Kraken and Binance.
Assuming the trend continues, by the end of the first round of auctions, between $4 and $4.5 billion in DOT will have been locked up for nearly two years, reducing potential sell pressure and circulating supply on the market.
This not only demonstrates Polkadot and DOT’s faith over that time period, but it also incentivizes hundreds of thousands of supporters to become active users in the ecosystem because it is in their best interests.
The Polkadot community and its burgeoning ecosystem will undoubtedly be one to watch over the next 96 weeks, with the rise in contributors expected to continue.