The ongoing Polkadot and Kusama auctions generate a lot of buzz in the crypto community. These twin networks, founded by Ethereum co-creator Gavin Wood, give developers an advantage to create new crypto assets and decentralized applications on top of the network, which is interoperable with other blockchains.
The auctions are an important step in the Parachain ecosystem evolution by allowing mass investors to take part in new projects and obtain its tokens. The main difference between parachain and ICOs is that participants retain ownership over their funds. Users can stake their KSM or DOT in exchange for project airdrops instead of irrevocable exchanging ETH for tokens. If the project auction fails or the parachain slot expires, all funds will be revoked.
How do Parachain Auctions Work? Polkadot and Kusama are based on two blockchain types – relay chains and parachains. Relay chains finalize network transactions, but parachains validate their accuracy.
The relay chains do not support smart contracts themselves, but they secure smart contract functionality from parachains plugged into it. To launch a project on Polkadot or Kusama relay chains, projects must compete for one of 100 available parachains slots, although the number might change over time through governance voting.
The projects must rival for a limited number of large pools of capital, insulating capitals against market instability, but the most amount of funding does not ensure a parachain slot. To win a parachain auction, projects must stake millions of dollars, usually provided as ‘crowdloans’ lent by the community members.
Before launching the auction, supporters can stake KSM and DOT for a limited span of time, 48 weeks usually, to support the project they hope should embrace the parachain slot. In return, the projects are issuing airdrop tokens and other rewards to their backers. It seems the projects will be able to buy parachain slots on the secondary markets, as well, from those who won it on auction.
The dozens of projects are competing for the available parachain slots these weeks. As an example, there are five of the top of them to show that receiving the most institutional investment support, according to the community mentions:
- Sakura: Clover’s sister project, an operating system parachain candidate on Kusama, backed by Polychain Capital, Bithumb Global, OKex Blockdream Fund, Alameda Research.
- Karura: Acala’s sister project, developing a DeFi hub on Kusama, supported by Arrington XRP, ParaFi Capital, Pantera, and Coinbase Ventures.
- Moonriver: Moonbeam’s sister project, a Solidity Smart Contract platform on Kusama, supported by Parafi, Coinbase Ventures, and Fenbushi Capital.
- Crust Shadow: Crust Networks’s sister project, a decentralized storage network for the Web 3.0 ecosystem, supporting many storage protocols as IPFS. It is backed by Bitcoin.com and Chain Capital.
- Shiden: Plasm Net’s sister project, a multichain smart contract platform for Kusama, supported by Binance Labs, Block Dream Fund, Berkeley Blockchain Accelerator, and Microsoft MSFT +1.2%.
To participate in Kusama auctions, there are as centralized and decentralized options for users to stake their DOT and KSM.
Participants could contribute KSM directly by Kraken, KuCoin, and OKex exchanges. Also, participants can stake their KSM by decentralized options, like Bounce Decentralized Auction Protocol, FearlessWallet, MathWallet, and Polkadot.js.
It is unclear yet whether Kusama and Polkadot will create a new standard for participants to join cryptonetworks. But it seems like the community would gladly support the new ecosystem on the ongoing auctions and after.