Polkadot and Kusama have been preparing their parachain slot auctions to add new projects to their own ecosystem. But, these two exciting projects have to be analyzed word by word about new investments.
In my estimation, there are about 4 to 8 months left before the current crypto bull market starts to come to an end. Given that most cryptocurrencies have probably seen most of their games already you might be wondering where you can find that next 100x coin or token before it’s too late. Luckily for you, there are still a few smart contract cryptocurrencies that have yet to unleash their enormous ecosystems that are likely to contain dozens of 100xs. Now, one of these cryptocurrencies is Kusama, which will be announcing its first parachain slot auction at any moment.
The crazy thing about parachain slot auctions is that they will give you a chance to pick up that next 100x coin or token without having to give up a single penny of your hard-earned cash. How is this possible you ask? Well, stay tuned to find out.
Website: https://kusama.network/
Kusama Update
If you’re not familiar with Kusama, here’s a quick rundown. Kusama was created by Dr. Gavin Wood as a way of testing Polkadot under real economic conditions.
Unlike a regular testnet, Kusama exists as its own independent cryptocurrency, and this is why Kusama is often referred to as Polkadot’s canary network.
Coal miners would use canary birds as a way of checking if there was enough oxygen while working underground.
Kusama took flight on October 29 as a dry run for Polkadot’s own mainnet launch, which took place almost exactly one year ago. Kusama and Polkadot are technical projects by the Web3 Foundation a Swiss non-profit which commission’s a London-based for-profit software company called Parity Technologies to maintain and develop both projects.
In terms of tech Kusama and Polkadot are basically identical. The two primary differences are that Kusama’s code is not audited and all non-transaction-related processes are four times faster on Kusama.
Like Polkadot, Kusama uses a relay chain, which is a primary blockchain the coordinates governance and communication between attached parachains.
Now, you can think of parachains as being additional blockchains that plug into the relay chain for security and interoperability.
The purpose of parachain is to host smart contracts and decentralized applications for Kusama and Polkadot. Now, both Kusama and Polkadots relay chains can only support up to 100 parachains and parachain slot auctions are how both ecosystems will decide which projects get a slot.
Parachain Slot Auctions Recap
Although, I covered parachain slot auctions in my last post about Polkadot. A few details have come up since then that warrant a re-examination of this process, especially as it relates to Kusama.
As some of you may recall, there are technically three types of parachains. Regular parachains, parathreads, and common good parachains.
Regular parachains are acquired through the parachain slot auction process. Like regular auctions, parachain slot auctions involve bidding on a slot using money. In this case, KSM or DOT tokens.
In contrast to regular auctions, the winner of a parachain slot auction is determined based on a snapshot that is taken at a random time shortly before the auction ends. Whichever project put down the most KSM or DOT when the snapshot was taken wins the slot. Now, this is to prevent projects from bidding up the price shortly before the auction ends.
The KSM or DOT that a potential project uses to participate in a parachain slot auction can come from their own pocket or it can be crowdfunded from their communities using something called a parachain loan offering.
Parachain loan offerings or PLOs work similarly to initial coin offerings or ICOs. Basically, you give your KSM or DOT to the project for them to use in the parachain slot auction and they will give you some of their tokens in return.
The difference is that the KSM or DOT you give to these projects never actually goes to the project. It just gets locked in the smart contract that connects the project’s parachain to the relay chain.
Once the parachain lease period is over, all the KSM or DOT you locked up is returned to you and you still get to keep the tokens you got from the project. In other words, you didn’t actually spend a single cent.
If you’re wondering what the catches, well the answer is time. Participating in a parachain loan offering means your KSM or DOT could be locked for up to two years. This could be a problem if KSM DOT suddenly explodes in value.
If your tokens are locked on a parachain, you won’t be able to sell them on the open market for a profit. This is why you have to make sure the Kusama or Polkadot project your lending your crypto to is legit and is also going to give you a substantial amount of tokens in exchange for helping out with the parachain loan auction. I’ll explain how you can figure that out in a moment.
Parathreads, Common Good Parachains, Parachains Roadmap
If you’re wondering what happens to a parachain after its lease period is up. The short answer is that it gets demoted to a parathread.
You can think of parathread as being pay-as-you-go parachain slots. Projects that use parathread must pay a fee in KSM or DOT for each block they produce. This makes parathread ideal choices for projects on Kusama and Polkadot that don’t necessarily need to be running 24/7 such as certain data oracles.
The primary difference between parathread and regular parachains is the parathread can be shared by multiple projects, which take turns producing blocks as needed. If a project looking to build on Kusama or Polkadot serves a function that is considered to be critical to their ecosystems, it can secure a parachain slot without any KSM or DOT.
Now, these common good parachains fall into two categories; system-level chains and public, utility chains.
System-level chains include parachains for governance processes or token minting, and public utility chains include parachains for bridges to other cryptocurrencies like Ethereum and Bitcoin.
While they are obviously many projects waiting to build on Kusama and Polkadot that can fall into either of these two categories. The ones which secure a common good parachain are decided through community governance.
During the recent Polkadot decoded event, Parity developer Shawn Tabrizi noted that there will be anywhere between 10 and 30 parachain slots reserved for these common good parachains.
The first common good parachain recently launched in Kusama. This is the shell parachain which doesn’t do anything besides produced blocks. It’s there just to test Kusama’s parachain functionality.
In a few days or so the shell parachain will be upgraded to the state mine parachain, which will make it possible to mint fungible and eventually non-fungible tokens or NFTs on Kusama.
Once state mine has been up and running for a day or two with no major issues, Kusama will announce the start of its parachain slot auctions on its website and on Twitter.
Assuming everything is running smoothly after Kusama has plugged in a handful of parachains, Polkadot will begin its own parachain slot auctions. Here’s how you can participate and what you can expect.
Parachain Slot Auction Timeline
As far as I understand, Kusama will be announcing its parroting slot auctions just over a week before the first one begins. This is to give enough time for everyone staking KSM to unstake, so they can participate in the first parachain slot auction.
The KSM unstaking period is seven days in case you’re wondering. Now, what I’m about to say is very important but also complicated. So read closely or else you might get wrecked.
I mentioned earlier, the parachain slots can be leased for years at a time. On Kusama, the maximum parachain lease period is 48 weeks, which too short of one year.
This 48 week period is broken down into 8 * 6 weeks slots. This means that if you loan your KSM to a project looking to secure the full parachain lease period you won’t get it back for 8 slots, which is 48 weeks. By that time we will probably be in another bear market.
Now that said some projects looking to secure a parachain slot and Kusama might opt for the minimum period, which is just one slot or six weeks. So in this case KSM would only be locked for about a month and a half.
The most important thing to remember about parachain slot auctions on Kusama is that your KSM will also be locked during the actual auction period, which lasts two weeks. Not only that but it seems the project you give your KSM to could choose to use it in upcoming auctions if they lose the first one. In other words, there is a risk that your KSM could be locked for weeks on end without receiving any rewards, and that’s something you’re going to have to check with each project.
Kusama’s parachain slot auctions will happen one after the other meaning there will be a new parachain slot auction every two weeks. Founder Gavin Wood noted in a recent interview that they will probably do just five parachain slot auctions back to back to start with and will continue afterward if Kusama remains stable.
If all goes well, at least one of the Kusama projects you loaned your KSM to will secure a parachain slot during these auctions. Once that happens, their parachain should be attached to the relay chain the same day, and that’s around the time you’ll get whatever tokens or rewards they promised you.
There are over 440 projects currently building on Polkadot and most will be launching on Kusama first.
An easy way to keep track of which project will be launching on Kusama is to use the slot tab of the Polka Project Website. Just note that there are other Kusama projects that are not mentioned here.
Once you’ve identified a few Kusama projects that you think have potential the next step is to check what the terms and conditions are for their parachain loan offerings.
For starters, you probably don’t want to pick up a project that already has a coin or token in circulation somewhere. You’ve probably noticed that many of these polka projects already have ERC 20 tokens. This is because there is a high likelihood that the existing investors will sell these tokens if the price spikes too much after the parachain loan offering end. However, it might be worth it if the price per token being offered for their crowdfunding campaign is significantly lower than the price of the token currently trading on the market.
Now, this is where things get a bit tricky because most projects looking to launch on Kusama will give you tokens in proportion to how much KSM you’re lending to them. What you’ll have to do is calculate the price per token in reference to KSM’s current price.
So, for example, if KSM is trading at $400 and they’re offering 400 of their tokens per KSM, each of these tokens is now worth implicitly $1. The problem here is that this initial price might be way over what the token should actually be worth. Now, this is admittedly hard to determine, but checking tokenomics can sometimes be enough.
If you’re lending your KSM to a project that will give you one of their tokens per KSM, and the maximum supply of their token is 1 trillion. Ask yourself if their project is really worth 400 trillion dollars. Now obviously that’s an extreme example but the tokenomics of the token you’re going for are extremely important.
The only thing more important than that is the unlock period for the tokens you will receive. From what I’ve seen most projects launching on Kusama, only give a small percentage of the total tokens allocated to each holder, when they are perishing launches. This makes sense because they don’t want people to just blindly sell their token when it comes at the very beginning. However, some of these vesting schedules can be quite lengthy. So keep an eye out for those.
At all times, you have to ask yourself if the KSM your lending is worth the tokens you’re going to get. If you don’t have time to research every project that wants to secure a parachain on Kusama, you can watch my read about the top 3 Polkadot projects and see if they will be launching on Kusama first.
How To Participate In Parachain Slot Auctions?
To actually participate in Kusama parachain loan auctions, you need to have the Polkadot{.js} browser extension wallet, you may reach the wallet by clicking here.
Once you’ve downloaded the browser extension, open it up using the icon on the top right of your browser window and click create an account. Be sure to write down that seed phrase and don’t show it to anyone.
Next, you’ll be asked to create a name and password for your account. Once that’s done head over to the Polkadot{.js} web app.
A pop-up should automatically appear asking for your permission to connect your web wallet to the web app. Click confirm.
Next, click on the top left where it says Polkadot. This will open up a larger menu on the side and you’ll see Kusama as an option just below Polkadot.
Click on Kusama and then click the switch at the top of the sidebar.
On the main Kusama dashboard, hover over the network tab and select parachains.
When the parachain slot auctions begin, you will be able to participate in any crowd loans under the crowd loans heading.
The ability to add KSM will show up on the right side and should be easy to spot. Now, you might be wondering, what the hell is all of this parachain stuff going to do to the price of KSM.
KSM Price Analysis
KSM has gone up by nearly 10x since the start of the year, and the primary cause of this climb is the preparation for the parachain slot auctions.
I suspect that most individuals and institutions that are planning on participating in Kusama’s parachain slot auctions have been accumulating KSM since last year.
After all, it looks like they’re going to need hundreds of millions of dollars in KSM to secure a parachain slot. I reckon these early investors are smart enough to know that if they waited to buy until the parachain slot auctions began, the sudden surge of demand would send KSM to prices, they are unwilling to pay.
What this means is that the demand that will be created by parachain slot auctions on Kusama has already been priced into KSM. However, something tells me that there are more than a few people who haven’t been paying attention to what Kusama has been up to, and heck even I didn’t notice that Tether will be launching USDT on Kusama.
When Kusama’s parachain slot auctions begin, I think it is extremely likely that we will see another massive move to the upside that will last for weeks, especially when some of those new tokens start trading.
Moreover, all the KSM that is locked in those parachain slot smart contracts won’t be immediately sellable. This means that we could see a massive amount of KSM taken off the market for months.
As you know, when you lower the supply of something, but the demand stays the same or increases, the price will rise.
Possible Parachain Problems
There are only two things that could take the wind out of Kusama has wings, and these are network issues and Polkadots own upcoming parachain slot auctions.
As far as network issues go, parachain technology is brand-new nothing like it has been tried before and it is extremely complex.
As competent as Kusama as developers are something is likely to break. Also, all the KSM being taken out of circulation might be good for its price, but it’s also going to take a massive bite out of the KSM currently being staked to secure Kusama’s relay chain.
If there isn’t enough KSM stating to secure Kusama, we could see some serious network issues or even a straight-up attack on the network. Thankfully, this is not likely to happen since Gavin said they will only be deploying a few parachains at a time, but this could cause another issue for Kusama.
People have been pushing for parachains on Polkadot since long before it’s mainnet launched and the pressure is on to begin those slot auctions as soon as possible.
This means that as soon as Kusama spare changes to stable. The devs won’t hesitate to start those same auctions on Polkadot.
It’s possible that a lot of consumers' momentum will be transferred to Polkadot as KSM holders look to ride that second wave of 100x token allocations.
Alternatively, we could see Polkadot and Kusama connecting their ecosystems together to create an unprecedented economic effect for both KSM and DOT.
This plan to bridge Polkadot and Kusama has been in the works for quite some time, and Gavin recently noted that they are very close to completing this bridge. There’s just one problem here that and that’s that transferring assets between Kusama and Polkadot will take quote several minutes possibly an hour.
This is concerning because one of Kusama and Polkadot’s promises was to create this seamless ecosystem of blockchain interoperability.
As parachains begin to deploy, however, Parity’s top developers are admitting the cross-chain communication between parachains is not going to happen anytime soon.
What this means is that Polkadot and Kusama could become a collection of 202 separate blockchains that are relatively isolated from each other.
It’s not a problem that’s unique to Polkadot and Kusama either. The developers at Ethereum are also trying to figure out how to make cross-chain communication efficient in Ethereum 2.0.
The difference is that on Ethereum and its layer-2 solutions like Polygon (MATIC), it’s possible to put multiple decentralized applications on a single chain.
Something tells me that the winners of Polkadot’s parachain slot auctions won’t be too keen on sharing their space with their competition, which could result in an extremely poor user experience.
These problems are just part of the process however, and something tells me that Gavin and the Gang will solve them just in time.
Conclusion
Kusama’s upcoming parachain slot auctions are a once-in-a-lifetime opportunity. Besides the possibility of making a pretty profit, participating in the means being a part of cryptocurrency history.
If you’ve ever taken the time to look under the hood of projects like Kusama and Polkadot, you’ll know that their underlying technology is nothing short of revolutionary.
Whether it’s their Proof of Stake (PoS) consensus mechanism all that elaborate governance structures, it’s easy to see that this isn’t some crypto project that was put together overnight for the sake of profit.
These parachain slot auctions are no different in this regard. They offer a radically different way of crowdfunding projects that not only retains a user’s capital but even skirts most regulations related to similar initiatives. You can’t say someone sold a token if there was no sale involved.
The best part is that the unique candle auction mechanism increases the likelihood that the projects that do make it onto Kusama, and eventually Polkadot will be seriously legit. This begs the question of whether some large investor could buy up all the KSM or DOT they need to secure one or even multiple parachain slots.
Funnily enough, this seems to be possible but the developers aren’t worrying too much about that for now. I reckon it’s low on their list of concerns, given that what happens in the next few weeks could make or break Kusama and Polkadot.
The smart contract cryptocurrency niche is extremely competitive, and any serious mistakes or setbacks could put projects in a hole that is too deep to climb out of.
Ethereum 2.0 is coming to and Cardano will be rolling out its smart contracts at any moment. When watching interviews with Gavin Wood, I could see that he is just as stressed as he is excited. That’s how we’re all feeling these days, though, isn’t it? I for one wouldn’t have it any other way.
Now just before I sign off I want to clarify a small detail from my previous post on Kusama. When I covered the project back in February of this year. I mentioned Kappa Sigma Mu. A society on Kusama that incentivizes members to join and share a percentage of treasury rewards. Now, I said the Kappa members get treasury rewards on a monthly basis and this isn’t exactly correct.
Kappa Sigma Mu members get to vote on how the money in their treasury gets spent. It doesn’t automatically go to each individual member. I hope that hasn’t caused too much confusion.