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Parachain’s card slot auction is Polkadot’s most anticipated activity in the near future, but the sustainability of the parachain model remains to be seen.
Original title: “Polkadot Latest Development: Technology, Governance and Application”
Written by: Cui Chen, working at HashKey Capital Research
Audit: Zou Chuanwei, Chief Economist of Wanxiang Blockchain and PlatON
This article summarizes and analyzes the progress of the Polkadot mainnet since its launch. Technically, Substrate has been updated to version 2.0, and the Polkadot parachain function will be launched soon. In terms of governance, Polkadot’s on-chain governance has been activated, but the problems of large power and low public turnout still exist. In terms of ecological applications, there have been nearly a hundred projects based on Substrate, most of which are in the DeFi field. Parachain’s card slot auction is Polkadot’s most anticipated activity in the near future, but the sustainability of the parachain model remains to be seen.
At the end of May 2020, Polkadot launched the first candidate chain, starting the first step of the mainnet launch, and then proceeded quickly in accordance with the process. The Polkadot network was converted to NPoS in June, which means that DOT holders can staking. In July, the Sudo permission of the Web3 Foundation was cancelled and the on-chain governance function was turned on, giving the governance power of Polkadot to the community. In August, the DOT transfer function was opened through a proposal, and other core functions, such as parachain auction and XCMP, will also be opened through the proposal in the future.
As Polkadot is gradually on track, many applications have joined the Polkadot ecosystem. According to PolkaProject website statistics, as of November 20, the number of Polkadot-related projects was 296. Currently, the Web3 Foundation has funded more than 100 projects, most of which are related to Polkadot or Substrate. This article focuses on the recent progress of Polkadot, especially after its launch. It is divided into four parts: technical progress, governance status, ecological application and slot auction. Finally, it summarizes and analyzes the progress of Polkadot.
Polkadot is a heterogeneous multi-chain architecture. It uses a relay chain and a parachain to cross-chain, allowing interaction between chains and improving scalability. The Substrate framework plays a very important role. Substrate can be understood as a universal template that integrates various functions. Developers can choose to call different modules (pallets) to save development time. Substrate has a multi-layered architecture, giving developers enough freedom to choose. In addition to the pluggable feature selection, the non-fork runtime upgrade is also the advantage of Substrate. Once the runtime upgrade is passed, the WASM Blob where the runtime is located will be updated, and the nodes in the network will automatically synchronize and comply with the new rules, and there will be no hard forks in the Bitcoin or Ethereum network. Polkadot and most of the applications in the ecology are based on Substrate. The blockchain built using Substrate can easily cross-chain with Polkadot, otherwise it needs to pass through a transfer bridge.
In September 2020, Substrate launched version 2.0, adding more than 70 pallets and off-chain worker functions. The increase of pallet means that there are more functions for developers to choose from, including pallet-contracts, pallet-democracy, pallet-evm, pallet-treasury, etc., respectively, in smart contracts, on-chain voting, virtual machine migration, and treasury. Provide convenience for developers.
Off-chain workers (OCW, off-chain workers) can safely and efficiently integrate off-chain data on the chain. Usually this is the job of the oracle, but traditional prediction opportunities have defects in security, scalability, and structural efficiency. The off-chain oracle allows tasks with long-term or uncertain results to run, such as web requests, data encryption, decryption and signature, random number generation, etc. The execution time of these tasks may be longer than the block time. For security reasons, off-chain workers run in a sandbox environment, and they communicate with the outside world through a set of APIs.
Figure 1: Principle of off-chain working machine, picture source: substrate.dev
In Polkadot’s initial roadmap, the mainnet was originally planned to go live in the fourth quarter of 2019, but it was repeatedly delayed for various reasons. Instead, Polkadot’s testnet Kusama was launched in August 2019, and functions such as staking and on-chain governance were launched in October of the same year.
Different from other blockchain mainnets, the Kusama testnet still exists after the Polkadot mainnet went live, acting as the leading network. Kusama’s token KSM is also retained, and its function is similar to DOT. Risky functions will run feedback on the Kusama network before going live on the mainnet. For example, the upcoming Parachain card slot auction will be launched on Kusama for actual testing before being launched on Polkadot. In terms of governance settings, Kusama is faster than Polkadot, and the proposal on Kusama can be deployed 7 days after the proposal is passed. Due to the earlier launch and short governance time, the number of proposals and verification nodes on Kusama is currently more than that on the Polkadot mainnet.
Some projects will also go live on Kusama for deployment trials before going live on Polkadot. For example, some projects will choose to conduct card slot auctions on Kusama first. Since the value of KSM is less than DOT, the cost of running on Kusama is less. The functions of Kusama and Polkadot are basically the same, and there will be differences in application scenarios in the future. Gavin, the founder of Polkadot, once mentioned that Polkadot is more suitable for enterprise applications in the future, and Kusama is suitable for innovative experiments or start-up teams.
Table 1: Comparison of Kusama and Polkadot
Since Kusama’s card slot auction will be launched first, the Kusama testnet will have as much attention as the Polkadot mainnet in the future.
Parachain, as one of the most critical functions of Polkadot, is still in the development stage and has not yet been officially launched. Rococo is a testnet specially launched for testing parachains. The Rococo testnet uses PoA authorization and is controlled by Parity Technologies. At present, Rococo has launched Parachain V1.0, which means that it is one step closer to the parachain of the main network.
The article “Research on Polkadot’s Governance Mechanism” (Issue 38, 2020) has discussed Polkadot’s governance mechanism in detail, and only a brief description is given here. Polkadot’s governance is completed on-chain. Except for emergency proposals, it must be passed through a referendum before it can be implemented. The content of the referendum can be proposed by the public or by the council. Among the public proposals, the proposal that has received the most support (with the most DOT bound) will participate in the referendum. Among the proposals of the board of directors, proposals passed by all members or by a majority of the board members can participate in the referendum. The technical committee can put forward an emergency referendum together with the council, which can only be used in emergency situations. Ordinary referendums are held every 28 days, and referendums take turns on public proposals and council proposals.
After voting, the voter’s DOT will be locked during the execution delay period, and the voter can also voluntarily increase the DOT lock time to increase the voting weight. There are three methods for counting the number of votes after the referendum, and the choice is based on the method of proposal or motion. The public proposal adopts the positive voter turnout bias method (default is not passed, and the absolute majority agrees to pass), the board of directors approved by all members adopts the simple majority method, and the majority of the members of the board of directors adopts the negative voter rate bias method (by default, absolute majority) Failed after majority opposition). In order to prevent manipulation problems caused by low voting rates on the chain, Polkadot also introduced adaptive arbitration bias rules, that is, when the voting rate is low, the proportion of votes for or against can be higher before the proposal can be passed or rejected.
In the design of the Polkadot governance model, the council is generated by voting. The DOT in the referendum voting and staking state can still be used to elect board members, and the DOT in the staking state can also be used to vote in the referendum, so the Polkadot chain The upper governance voting will not affect the staking income, but it will lock the liquidity and cannot conduct transfer transactions.
Proposal content and voting
Currently, Polkadot has conducted 13 referendums. Before officially opening the voting on the chain, Polkadot initiated a vote on DOT split, and the final result was that DOT was split 100 times. Proposal No. 0 was launched on July 20, and the content was to cancel the sudo module, and then Proposal No. 1 was to enable the transfer function and improve the mainnet function. Proposal No. 2 is a public-led increase in the number of validators, Proposal No. 4 was cancelled because no information was added to polkassembly, Proposal No. 10 is a mandatory transfer, and most of the rest are technical upgrades led by the council and an increase in the number of validators.
Figure 2: Polkadot’s referendum proposal results, image source: polkadot.subscan.io
The picture above is a summary of the on-chain governance that has been launched by the Polkadot browser. It can be seen that it is difficult to pass a vote requiring an absolute majority of votes. That is, a referendum initiated by the public proposal is more difficult to pass than a referendum initiated by the board of directors. This is related to the lower turnout rate on Polkadot. Take referendum No. 10 and No. 11 as examples. Referendum No. 10 is a forced transfer, and users who are defrauded want to recover the stolen money. This referendum was initiated by a public proposal, and the final approval and disapproval numbers were 8.27 million and 4.51 million respectively. The approval rate reached 64.7% and the turnout rate was 1.26%. Polkadot’s forward adaptive arbitration deviation rule is that when the voting rate is 75%, the approval rate is over 66% before it can be passed (as shown in the figure below). It is obvious that Proposal No. 10 does not meet the requirement of an absolute majority approval, so in the end The referendum was not passed.
Figure 3: Polkadot’s adaptive deviation model, image source: polkadot.network
The content of Proposal No. 11 is a technical upgrade, which was passed by all members of the board of directors. The final number of approvals was 170,000, the opposition was 0, the voting rate was 0.017%, and the approval rate was 100%. It was passed under the simple majority rule. A referendum was voted, but there is also the problem of low turnout. If the voting rate is still low in the future, then if the public proposal is to be passed by a referendum, it will have to reach the level of approval by almost all members. On the Kusama testnet, the recent overall turnout rate is also in the single digits, indicating that shortening the governance time (locking time) did not bring about the increase in voting enthusiasm.
This adaptive voting rule has undoubtedly improved the relationship between stakeholders and the system, and the voting rate is also related to the content and rationality of the referendum, but whether this method is fair and whether it will increase the degree of centralization remains to be seen.
Although the functions of the Polkadot mainnet are not yet complete, many applications have emerged in the ecosystem. According to PolkaProject statistics, there are nearly 300 projects related to Polkadot, including projects, tools, forums, wallets, etc. developed based on Substrate. In all projects developed based on Substrate, it can be subdivided into asset bridge, privacy, DeFi, NFT and other fields. The figure below is an overview of Polkadot ecology summarized by PolkaProject.
Figure 4: Polkadot ecological overview, image source: PolkaProject.com
Some of these projects have received Web3 funding and are often mentioned in public. The following table is a typical project.
Table 2: Introduction to Polkadot Ecological Project
In general, it can be seen that Polkadot’s related applications are mainly concentrated in DeFi, which is also the most popular field in the industry at present. Others include data, privacy and asset bridges. Compared to other public chain platforms, Polkadot has almost no applications related to games, predictions, and social networking. This is related to the launch of Polkadot, and because some applications have been falsified on other public chains or have little cross-chain significance. In the DeFi field, liquidity release and DEX are the most popular sectors. The DOT in Polkadot has multiple ways to lock liquidity, including staking, governance, and slot auction (the lock of governance and other functions does not conflict), so there is a release flow The DEX is a necessary application for value exchange on the chain.
At present, almost all of Polkadot’s ecological applications need to be based on parachains. Applications that have not launched the mainnet also require validators on the Polkadot relay chain to ensure security, so these projects must participate in the parachain’s card slot auction.
Card Slot Auction
Polkadot is a heterogeneous multi-chain blockchain. Both the relay chain and the parachain are key roles in Polkadot. The relay chain is responsible for the security of each parachain. The parachain has not yet been launched and is expected to be launched at the end of this year or early next year. Testnet Kusama.
Polkadot’s network resources are limited. Currently, it supports up to 100 parachains. If you want to use parachains, the project party needs to rent a parachain card slot. The leased card slot needs to lock the DOT and release it after the lease period ends. The card slots are released by Polkadot officials one after the other, and one is opened at regular intervals, and the time interval is not fixed. The project party will use the form of auction to determine the right to rent the card slot. The lease period of each card slot is 2 years. The auction cycle is half a year. There are 6 months, 12 months, 18 months and 24 months. Optionally, the project party can bid for the 7th-12th month or the 13th-24th month.
The system will calculate the total amount of rent for each time period, and only one or more project parties with the highest overall rent bid can get the card slot. That is, if the two project parties choose to use the auction total amount in the first year and the second year respectively, which is higher than the third project party’s two-year auction amount, then this card slot will be used by the two project parties. The auction will be in the form of a candle auction, and the end time is not fixed. In card slot auctions, strategy is as important as the number of locked DOTs.
For the project, building based on the Substrate framework does not mean that it can become a parachain of Polkadot. It also requires the rental of parachain card slots. The DOT locked in the lease will be returned after the lease period ends, so the lease cost is only the opportunity cost of the DOT. Polkadot allows others to deposit DOT for the project party to help the project party win the auction. This requires the project party to set up effective incentives to attract DOT holders.
Generally speaking, project parties will reward their tokens to users who help them conduct parachain auctions, which is also called Parachain Lease Offering (PLO). Also for users, the cost of participating in PLO is the opportunity cost of locking in DOT. The current DOT scenarios include staking, governance, transaction and parachain leasing, and there will be some application scenarios in the future. For long-term DOT holders, it will be more advantageous if the value of the token given by the project party is higher than the benefits of participating in staking (currently more than 10%) or some DeFi.
In official information, in addition to the initial distribution of parachains by auction, Web3 will also sponsor some public welfare chains, including chains containing infrastructure or transit bridges. For example, parallel chains related to smart contracts may be directly assisted by Web3 in the use of card slots. If the card slot is not successfully obtained, there are several alternatives to participate in the cross-chain, using parallel threads and deploying to other parachains that have already obtained the card slot. If you already have your own main network, you can also transfer through the cross-chain bridge Received on Polkadot.
Thinking and summary
The above discussed the progress of the Polkadot mainnet since its launch. In terms of technology, Polkadot has updated Substrate 2.0, and there are corresponding technological developments on the Kusama and Rococo testnets. In terms of governance, Polkadot officially launched an on-chain governance program. The number of ecological applications has broken through. At the same time, Polkadot, as one of the most anticipated public chains, has maintained a high level of market enthusiasm, and the price change of DOT can also be reflected.
Ethereum 2.0 and Cosmos are two projects that are often compared with Polkadot. Ethereum 2.0 solves the scalability problem and adopts a sharding model similar to the Polkadot structure, which consists of a beacon chain and a shard chain. Cosmos focuses on the cross-chain field, and the specific implementation method is different from Polkadot. At present, Ethereum 2.0 has at least two years of development time. The popularity of Cosmos in the community and the number of applications need to be increased. Relatively speaking, Polkadot is still a relatively high-level project.
However, based on the current progress of Polkadot, there are still some unsolved issues. In the current governance plan, the problems of excessive power of large households and low enthusiasm for voting by the public still exist. The board of directors is elected by voting. This vote does not conflict with referendum and staking, that is, large households can elect board members who meet their wishes, and then use their DOT to participate in the referendum. Although this approach allows the governance results to express the wishes of the greatest stakeholders, it will cause centralization issues in governance. In addition, in referendum voting, the turnout rate of DOT holders is very low. In Polkadot, staking and governance voting do not affect each other. The current staking pledge rate is about 70%, but the referendum voter turnout is in the single digits. Low turnout will affect the degree of distributed governance, and it cannot truly reflect everyone’s wishes. This may be because the repeated operation of voting is too complicated, or because users do not understand the content of the proposal and cannot make a choice. This requires members of the Polkadot community to strengthen their understanding of governance methods and content so that governance can play its best role.
The launch of the Polkadot parachain is a major event in the community in the future. The card slot of the parachain will be leased, which means that most Polkadot projects will have to pay a cost (collateralized DOT) in exchange for the cross-chain resources on Polkadot, so use Polkadot The security of the relay chain has raised the threshold for parachain issuance. For most projects, only projects that can afford to rent cross-chain resources can take advantage of the security of Polkadot, otherwise they have to deploy nodes by themselves, which will increase the difficulty of starting early projects. The current PLO solution adopted by the project party will have sustainability issues. If the token is distributed, other methods must be used to attract users to assist in the auction. The project party’s token value capture ability after the parachain is also at risk. In the case of fierce competition in the parachain slot auction, the project party must carry out a large-scale publicity campaign before going online, and a cold start will hardly exist in the Polkadot ecosystem. If the competition is fierce in the future, due to the competition for cross-chain resources, the project will be “survival of the fittest” before it goes online. .
However, there are other cross-chain solutions on Polkadot, such as parallel threads or integration into other projects with parallel chain card slots, and you can also choose to publish on the Kusama network to reduce costs. At present, the difference between the availability of parallel chains and parallel threads, and the burden of other cross-chains on the team needs to be continuously observed after going online.
The functions of Polkadot and Kusama of the testnet are not much different, so teams pursuing different stability will have different choices, but it will cause users and communities to be scattered. Although the two will not fork when the technology is upgraded, the two communities were separated at the beginning, which invisibly caused the division of the community.
Polkadot’s goal is a platform platform, and cross-chain between public chains is one of the problems it solves. For public chains, the default cross-chain problem only exists between mainstream public chains, and current solutions continue to emerge. It remains to be seen how Polkadot can win among many cross-chain solutions. Polkadot also has the advantage of improving the performance of a single chain. There are also many ways to improve performance, such as the layer 2 network. The role of Polkadot also needs time to test.
Polkadot has a relatively large space for cross-chain imagination between enterprise platforms and public chains, and between enterprise platforms and enterprise platforms, but the cost and significance of cross-chains also need to be further investigated. ” Research on Connecting Public and Consortium Chains ” (No. 79 in 2020) There is also discussion in the period) that the current demand for connectivity between the alliance chain and the public chain is not urgent.