Polkadot Parachain auctions
As you probably know, there are multiple projects that would like to become a parachain on either Kusama or Polkadot networks. These projects will benefit from the shared security model provided by the Relay Chain and will be communicating with each other via the XCMP protocol at the same time. So let’s deep dive into the whole process and explain how the parachain auctions will look like.
- Parachain types
- Leasing period
- Candle auction
- Exchange support
- More than one Relay Chain?
First of all, let’s briefly remind ourselves what the parachains are. As most of the cryptocurrency users know, blockchains can be really slow and painful to use (looking at you Ethereum 😛). Therefore multiple proposals for better scaling have been made up and one of these proposals is sharding.
Sharding lets you efficiently split the network into different parts, so-called shards. Transactions are then validated only within their specific shard which means that they don’t have to be validated by the entire network anymore, resulting in faster transactions and better scalability. Ethereum 2.0 chose to build its future on the sharding model but Polkadot took a different path.
Rather than having shards, Polkadot decided to split its network into independent blockchains that are called parachains. The name is derived from the fact that all parachains will run in parallel (like shards) and thus massively increasing network transaction throughput.
Polkadot vs. Kusama
Polkadot actually has its wild cousin network — Kusama. Kusama is a canary network, meant for experiments and testing new features before they are introduced to the Polkadot.
Therefore, we will first see parachain auctions happening on the Kusama and later on the Polkadot. There is no exact date set for any of these but the rumors are that the first auction on Kusama should happen around the beginning of March with Polkadot following in the summer.
Polkadot recognizes multiple parachain types and each of them is having a different purpose
- System level parachains
- Auction granted parachains
The important fact here is that there will just be 100 slots for parachains and some of these slots will be reserved for system-level parachains and parathreads.
System level parachains
These will be mainly bridges to the Bitcoin and Ethereum network which are necessary for Polkadot/Kusama basic functionality. Therefore Web3 Foundation is funding these projects and will guarantee them a parachain slot for the greater good of the ecosystem. Projects receiving these “free” slots will be chosen by the Polkadot/Kusama council which once again shows how decentralized the Polkadot ecosystem is from the very beginning.
We suggest you have a look at Snowfork or Interlay/PolkaBTC, these are definitely our favorite projects on this level.
Parathreads are very similar to the parachains in their functionality but they differ in the economical model. Parathreads don’t have the guarantee of having their transactions included in the block, users need to pay higher transaction fees in order to get them included. For a better explanation, see our introductory article to the Polkadot.
Auction granted parachains
These represent our favorite projects and these will be the heart of the Polkadot ecosystem. As we said earlier, there will be only a limited amount of slots for these chains (although there are ways around it, see the More than one Relay Chain section of our article) and now we will finally have a look at the inner workings of the parachain slot auctions.
Parachain slots are actually being leased for a certain period of time. Each slot has a 6-months duration and the parachain project can ask for 4 of these slots at maximum. After the lease passes by, parachain will have to compete again in the auction for new slots.
Therefore, we can expect that some parachains will go for maximum number of slots from the beginning while others will choose the cheaper option and run for only 1 or 2 slots at the time.
Candle auction is a modification of an open (English) auction where bidders can bid on their favorite projects. The origin of the candle auction lies in the 16th century where there was a burning candle during each auction — when the flame gets extinguished and the candle went out, the auction would terminate and the last bid won.
This system was invented to prevent auction sniping — a situation where nobody bids for most of the time but everyone starts bidding like crazy when the auction is about to finish.
In the context of parachain auctions, it means that the auction will run until the end and the winner will be randomly determined afterwards (see Randomness section). Therefore, the later you bid, the higher is the probability that your bid won’t be actually taken into account when the winner is determined.
Both parachain projects and individuals can become bidders during the auction. Every bidder can choose for how many slots he will be bidding (as we said earlier, there will 4 slots with 6-month duration). This is difficult choice since for more slots you vote, the more weight your vote has. On the other hand, your tokens get locked by voting in the auction so if you vote for all 4 slots, you have to be prepared for locking up your KSM/DOT tokens for 2 years.
Obviously, if the the project won’t succeed in auction, the tokens locked in the bidding will be released.
Crowdfunding & PLO
There’s a built-in module in the Substrate that offers project a crowdloaning functionality (in other words, Parachain Loan Offering). It’s meant specifically for the purpose of the auctions and its goal is to help project to raise necessary funds for bidding while keeping KSM/DOT tokens from users as secure as possible. The funds will locked & hold directly on the Relay Chain which means even the project that used crowdloan feature cannot touch these funds.
As you might know, generating randomness is very difficult on the open and transparent network that blockchain inherently is. Polkadot is using a so-called Verifiable Random Function (VRF) in order to obtain necessary randomness. For security reasons, projects will be able to bid until the auction officially ends and the winner will be determined from a random number which will be generated only after the auction itself concludes in the pre-defined time.
Rococo is a Kusama testnet for connecting parachains and testing their functionality. Testnet has been around for some time and we can easily judge how well the projects are prepared for running their mainnet when the auction starts by looking at whose actually connected to the Rococo.
This is the last testing phase of projects that are willing to participate in the first round of auctions. Therefore we can assume that projects connected to the Rococo V1 are the ones with skilled technical teams and will to secure the their first slot. Just be aware that connecting to the Rococo is not a mandatory prerequisite in order to participate in the parachain auctions. So this is not a final list and we will maybe see some surprises during the auctions :-)
Anyone can check currently registered projects and also have look at already working parachains within the Rococo network.
And finally, let’s look at the projects which are registered as a parachain and thus will probably join the upcoming auction for the first batch of slots.
List of registered projects
- Plasm Network
- Encointer (basic income economy)
- Phala Network
- Ares Protocol (oracles and IoT as well)
- Starks Network (zkSnarks)
- Robonomics (smart cities, IoT)
- Data Highway (IoT)
- Crust (decentralized storage)
We will be soon having Twitter campaign with infographics for each project and how they will approach the parachain auctions, so please give us a follow and stay tuned!
Multiple exchanges have actually announced their direct support for the auctions — we will update the list as soon as we know more
- Binance — they will also provide a liquidity solution for the PLO which means you will receive some synthetic tokens for your locked KSM/DOT that you will be able to trade.
More than one Relay Chain?
As we said earlier, there are two ways to get around parachain auctions with limited number of slots.
The first one is that new projects can actually buy slots from the existing parachains on the open market. It may be the case that some parachain will not fulfill its goal or it will lose trust of its users so they can decide to sell their slot and leave it for someone else.
The second one is far more interesting and that is nested relay chains. Not only parachains can be connected to the network, but other relay chains can also be connected as well! There are projects already working on this solution (Robonomics, Darwinia, or Energy Web Chain) so this actually multiplies the number of available slots. Imagine another 10 relay chains connected to the main one — suddenly we have more than 1000 parachains slots and all of them still backed up by the shared security model of Polkadot!
So that was for our introduction to the parachain auctions. We believe that this will be one of the main events in the cryptospace this year and we can promise you that we will be watching it very closely to bring you all the updates.
Polkadot finally delivers its promise to become one of the most influential cryptocurrencies ever created and the upcoming auctions will be only the start of the revolution.
This year will the year of the Polkadot! (and Kusama too 🙂)
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