Polkadot’s parachain auctions will mark the most important step in its roadmap since the launch of the mainnet in 2020. Currently in testnet on the Rococo network, the next step of the launch will involve the deployment of parachains on the Mad Cousin from Polkadot, the Kusama “canary network”. The deployment of Polkadot parachaines on the main network will follow.
What does it mean? Polkadot’s main network has been officially operational for almost a year now. However, only the central relay chain was operational, the last 12 months of development being focused on the implementation of the decentralized governance of the platform.
The deployment of the parachain is the last step to allow the launch of decentralized applications on the Polkadot network. However, with the rollout having passed its planned initial release date of Q1 2021 and almost three months have passed since the development roadmap was unveiled, there is still no exact date for the rollout. So what can we expect from this launch, and which projects will be auctioned off?
How do parachain auctions work?
Parachains are actually fragments on the Kusama or Polkadot networks, and the purpose of the auction is to allocate parachain locations to projects wishing to operate on either network. The overall goal is to have 100 parachaines operating simultaneously. However, these will be opened in batches, with the aim of having about thirty parachaines operational during the first year.
Projects wishing to secure a Kusama parachain slot machine can participate in the auction by tying their KSM tokens in a decentralized candle auction. These can be their own tokens, but a crowdfunding mechanism is available for projects to source the tokens from their communities.
A candle auction is a variation of the open auction where no fixed end time is given. This type of auction appeared in the 16th century when a candle was burned to determine the period for bidding. The idea is to encourage participants to make their highest bids as early as possible because they don’t know when the auction will end. Hence, it prevents “sniping”, where a bidder rushes for the last few minutes with a winning bid.
Rather than a candle, a random number generator will determine the end point of each slot machine auction after the auction has closed. Therefore, subsequent offers will be disqualified if they arrive after the retroactively determined closing time.
It should be noted that successful bidders will not purchase their locations – will only rent them, with the full value of the bid being locked in for the duration of the lease. Rental durations will be fixed (and durations may differ between Polkadot and Kusama), and projects can bid for a maximum of four successive periods. Therefore, the total duration of the offer will also be weighted in its value.
At the end of the final rental period, the slot will be auctioned again.
Peter Mauric, head of public affairs at Parity Technologies – the company behind the development of the Polkadot ecosystem – said the competition was likely to be fierce. Speaking to UKTN, he said:
“The competition, especially for the early slots on Kusama and Polkadot, should be pretty intense, in my opinion. Because competitive early bidding is usually expected, I doubt projects will be seriously disappointed, especially since there is a new niche open every two weeks to bid on.
What projects will bid for a parachain location?
In theory, any project can participate in the parachain slot machine auction. However, they must have a code base and hold or have enough KSM or DOT tokens to outbid the competition.
In addition, the Kusama Council has declared its intention to allocate two Kusama slots to infrastructure projects deemed to be for the “common good” of the ecosystem. They are PolkaBTC, providing a bridge to the Bitcoin blockchain, and Snowfork, a bridge to the Ethereum blockchain. Likewise, Statemint, a generic asset issuance platform, was proposed as the first common good project for the Polkadot network.
Several projects have already expressed their interest in participating. Acala, which aims to become Polkadot’s one-stop-shop for decentralized financing, will tender for its implementation of Kusama, called Karura. Moonbeam, an Ethereum-enabled smart contract platform, will be looking for a location for its Kusama version, dubbed Moonriver. And Kilt, which aims to bring decentralized credentials in the form of universal login for Web 3.0 applications, will also seek to secure a parachain slot. All three projects have been extremely active on the Rococo test network and have active community participation.
UKTN spoke with Dan Reecer, vice president of growth at Acala, about how the Kusama-Polkadot dual implementation will work in practice. He explained that Acala and Karura aim to be the decentralized financial centers of their respective platforms and that the project plans to run them simultaneously in perpetuity. However, everyone has a role to play, as he said:
“The difference between Karura and Acala is that with Karura we will be more willing to take risks and experiment with new features and products. We follow the Polkadot ecosystem paradigm from test network to experimental network (Kusama) to major network (Polkadot). Acala will remain the bank grade and risk aversion network for DeFi on Polkadot with likely much higher TVL and assets under management in the Treasury. “
While the roadmap didn’t set a date, it looks like projects are ready to go into production within weeks or even days of securing a location. Derek Yoo, founder of the Moonbeam Network, has confirmed that Moonriver is almost ready for deployment. He told UKTN, “Moonbase Alpha has been running continuously since September 2020, and during that time we were able to release six environment upgrades, each with significant new features,” adding:
“We were able to iterate quickly because we have this stable testnet environment, and we think it prepared us well to go live as a parachain.”
Ingo Rübe, CEO of Kilt Protocol, told UKTN: “After winning a Kusama parachain slot, Kilt will be available in days rather than weeks. The functionality for decentralized identifiers (DIDs) and verifiable credentials is ready and has been shown to be stable on our test network. “
If demand for a niche indeed turns out to be high, then many other projects are likely to express an interest in competing for a niche on Kusama, especially since many projects have been patiently awaiting parachain auctions with no confirmed date yet. they will. happen. Plasm, Darwinia, Robonomics, and Crust are just a few of the other projects that could get involved.
And the prices?
Assuming the competition for slots is high then this is a reasonable enough predictor that bullish price action will occur for KSM and DOT. At the most superficial level, more competition means that bidders will be likely to go to the top from the start. Since the tokens are bonded for the term of the lease, this will remove some of the outstanding supply of DOT and KSM from the markets, which will restrict the supply.
However, the Kusama Parachain Auction is the first live event of its kind, so there is a chance that things may not go as planned. If the entry barriers for acquiring a niche are set reasonably high, there is an external chance that some players will try to outbid the competition only to sell it at an even higher price in secondary markets.
Indeed, this is a scenario recognized in the Polkadot documentation. It is also possible that such an actor will attempt to “crouch” on the parachain slot simply to prevent other projects from using it.
Such a scenario would not be good for the Polkadot ecosystem and would make it difficult for projects hoping to secure a parachain location. About the price of the tokens, it’s hard to say. On the one hand, a bidding war could be positive for prices, but on the other hand, reputational damage could negate any bullish effect.
Another unknown is how rental rules and the continuous auction process can affect the overall stability of the Polkadot ecosystem. Projects that are already working could lose their niche later. Again, auction bidding wars could be good news for token prices, but they could deter smaller projects from participating.
However, Mauric de Parity does not believe this will be a problem. He explained to UKTN that the first parachaines will likely end up in the hands of well-established projects “who have been building their chains based on substrates for years,” specifying in more detail:
“There are several options for a project that doesn’t gain space on Polkadot at first, including deploying a parachain on Kusama or exploring a deployment as a parathread in the future. Many application layer projects will deploy to parachains when they launch, opening up additional opportunities for teams and projects to collaborate and build on the active parachain while waiting for their own location if that is the goal of their community. “
A word of warning
Ultimately, the highly anticipated rollout of parachains doesn’t just mean good news for the projects involved or those with KSM and DOT tokens. While BTC and in particular altcoins have seen a boom in recent months, for example, the price of DOT has mostly changed sides since the initial rise above $ 40 in mid-February. Further delays in the release will likely put more pressure on the token price.
Finally, when considering participating in the equity loan process, beware of scammers. Kusama’s auction page is warning that there may be bogus group lending campaigns going on. So if you are planning to stake your DOT or KSM in a parachain equity loan, make sure that you have done your due diligence on the project in question.
None of this is to say that any of these potentially worse scenarios will materialize and negatively impact Polkadot’s journey milestone. The project has a suite of out-of-the-box projects and from that point of view this launch may be more important than many other launches on the mainnet that then have to work to attract development.