How much does it cost to become a Polkadot parachain?
Recently, good news about Parachains from Polkadot ecology has followed. Polkadot officials first announced that they will announce the latest progress on parachains at the Decoded conference on December 3rd at the end of the year, followed by parity engineers in the official Element chat room. When revealing the new progress of Rococo, it said that the current Parachain Cumulus master code has been upgraded to version v1, and it has initially met the conditions for online public testing.
The latest progress of Parachain in the future may be announced at the official Decoded conference of Polkadot on 12.3. Polkabase will broadcast the main points of the meeting as soon as possible.
Before the official announcement of the good news about parachains, in this issue we will discuss the key functions of the Polkadot parachain. Polkadot’s parachain system makes this project stand out from other blockchain projects. We will discuss how the project becomes a parachain, how expensive it is to become a parachain, how to raise funds for the parachain project, and if the Polkadot project fails to run for the parachain, does it mean that the project will withdraw from the Polkadot ecosystem?
First, we briefly review the Polkadot Parachain and related content of the auction.
Polkadot Ecosystem Concept Map
Parachains are part of Polkadot’s infrastructure and are adjacent to relay chains and transit bridges. In other words, a parachain is an autonomous native blockchain that relies on Polkadot’s relay chain to achieve shared security and communicate with other relay chains. As we all know, Parachain slots are limited, and at the same time it will be auctioned by candles in England. Bid for a limited number of parachain slots with other peers, and the parachain will be auctioned in batches so that only one parachain auction will occur at any given time.
The parachain is adjacent to the relay chain and the transfer bridge and is an important part of the Polkadot system
Each project connected to Polkadot as a parachain project will have a certain degree of unique professionalism and customization to ensure the best performance on the chain. Parachain is a local blockchain with the following functions:
- Customizable on-chain governance, block generation and unique token economics
- Sharing provided by the relay chain
- Can exchange information and assets with other parachains
- Usually based on Substrate
How does the Substrate project become a parachain?
First of all, the parachain slots are actually limited, and the winning bidder of the slot will be determined by the candle auction mechanism . In short, in a candle auction, bidders can gradually increase their bids during the open phase. The bidder with the highest amount won the bid at the end. The candle auction allows everyone to know the status of the auction, but does not know when the auction ends, which helps to ensure that bidders are more willing to bid early . Otherwise, they may find themselves in a situation where the auction is “closed” even before they bid.
It is estimated that there will be 50-100 Parachain slots available for bidding in the previous auction. The full cycle or maximum period of the parachain slot is 2 years, and it will be divided into four 6 natural months “lease period”, and bidders can bid for the selected lease period. The number of parachain slots available in the first round of auctions has not yet been announced, and it is estimated that the number of slots may be less than 10.
How much does it cost to become a parachain?
This process means that the cost of leasing parachain slots will completely depend on market supply and demand. It is difficult to accurately estimate the specific amount of the margin. However, we know that DOT will be an asset that needs to be mortgaged in the auction. Polkadot emphasized that the actual cost of a parachain slot is different from a parachain bond because the bond is refunded at the end of the lease period, and the actual parachain cost is more accurately the opportunity cost of unsecured DOT.
According to the preliminary modeling estimates of the Web3 Foundation, the annual maintenance cost of the main chain (for example, Cosmos, Tezos and EOS) is tens of millions of dollars, while the maintenance cost of Ethereum and Bitcoin is as high as nearly billions of dollars.
At present, the market value of the top 300 cryptocurrencies is more than 10 million U.S. dollars, and almost all of them have daily trading volume of more than 100,000 U.S. dollars. The mainstream dApps on Ethereum carry out an average of 30-200k transactions per month, such as Chainlink, MakerDAO and IDEX, meanwhile, the average monthly GAS fee paid is 180-60,000 US dollars. We assume that the annual inflation rate of mining, staking, or transaction costs is conservatively 2%, so even the most modest encryption projects have annual security expenditures of more than $200,000. The opportunity cost of Polkadot’s 12-month lease of Parachain slots is estimated to be only US$100,000 to US$200,000. At the same time, there is no GAS fee. In other words, in fact, most companies can use this price to obtain economic advantages from leasing Polkadot parachain card slots instead of using consensus based on inflation, which is costly, isolated and often insecure.
Further research and modeling will help to understand the approximate cost of obtaining a card slot in Polkadot.
We realize that connecting to the Polkadot network as a parachain is a very important cost. As we expand the network by increasing the number of parallel chain card slots and developing more transit bridges and lightweight transit bridges, the overall cost should be reduced. In general, the shared security on Polkadot is much cheaper and safer for network security than those networks that need to incentivize miners or validators by issuing tokens themselves.
How to raise funds for Parachain Slots?
At the beginning of the auction, Polkadot will stage a certain scale of slot competition, which is the opportunity for participants to obtain the first batch of winning ecosystem project tokens. Many people call the tokens of these projects-“Poca Diamonds”
Polkadot has always been committed to returning power to the community. For this purpose, Polkadot officially proposed a new model called Polkadot Parachain Auction. That is, if a project decides that they want to bid for the upcoming parachain slot, but suffers from a shortage of funds, then they can use Substrate’s crowdfunding module to create a Polkadot parachain auction to receive DOT loans from any DOT holder. This module guarantees that the funds of users or participants will enter the account on the Polkadot relay chain. If the project can get enough donations to win the auction, the DOT loan will be returned to the donor at the end of the parachain lease. If the project fails to get enough donations and the auction fails, then DOT will immediately refund to the donor. The DOT in this account can only be used for chain binding, and the project cannot transfer DOT out of this account. Since this module is located on the Polkadot relay chain, DOT donors can trust that their donations are safe, and they can receive their DOTs at the end of the lease or when the auction fails.
Due to the above characteristics, it is expected that the parachain project will incentivize the enthusiasm of donors in some way, such as using local parachain tokens to reward them. In traditional ICO fundraising, investors can only get token rewards. In the parachain, the project team can also choose to reward investors who play a role in governance.
What if the Polkadot project fails in the parachain auction bidding?
1. The project is linked into parallel threads based on Substrate. Although this does not provide them with the same throughput guarantees as parallel chains, they can still use the pay-as-you-go model to take advantage of Polkadot’s shared security and interoperability.
2. Deploy the parachain to Kusama. Although access to Kusama also requires a parachain slot. However, Kusama’s parachain bidding costs may also be lower than Polkadot
3. Through Solidity or Ink! The smart contract in Deploying its application or service on the existing parachain. Although this operation has a high development cost, it is also an option for those projects that want to use the parachain.
4. The project is independently launched on the mainnet based on the chain built by Substrate , and the project’s native token is used to recruit and incentivize validator nodes, and connect to Polkadot through a bridge.
Conclusion: In 2020, the tokens in the Polkadot ecology have achieved amazing increases. For example, LINK has increased by more than 100 times, and DOT and KSM have achieved tens of times in revenue. The Parachain slot auction is also a good thing for DOT and KSM.
For Polkadot itself, the ecological landing, Polkadot led by the co-founder of Ethereum is one step closer to the title of “Ethereum Killer”.
