OKEx: Analysis of Polkadot Parachain Slot Auction Participation Methods and Potential Impact

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The crowd-lending scheme designed by Parachain Slot Auction gives market investors a way and opportunity to participate in the Polkadot ecology.

Written by: OKEx

On December 23, 2020, Polkadot co-founder Robert announced in PolkaWorld that Polkadot’s dedicated parachain testnet Rococo V1 has been up and running, allowing community parachains to connect to the relay chain through cumulus. On January 12, Bruno Skvorc, a member of the technical education of the Web3 Foundation, published on Twitter the documentation website (Polkadot wiki) about the registration of the Rococo V1 parachain test. Rococo V1 is expected to open the registration of the parachain test qualification in the near future.

Note: Rococo is a public testnet specially designed for testing parachain functions launched by Polkadot in August 2020, and is jointly maintained by Parity Technologies and the Polkadot developer community.

With the release of the Rococo V1 testnet, it means that Kusama and Polkadot parachain slot auctions and launches will gradually begin. For the highlight of the “slot auction”, the market has accumulated continued heat and high expectations. As of January 10, Polkadot DOT has risen by 97% in one month, and its market value has exceeded BCH and ADA. six.

So, what does the Parachain Slot Auction mean for Polkadot? How can project parties and ordinary users participate in the Polkadot ecology? What impact will it have on the future DOT?

What is a Parachain Slot Auction?

Before understanding the Parachain Slot Auction, we must first understand the architecture of Polkadot.

Polkadot is a scalable heterogeneous multi-chain blockchain, and cross-chain is its core vision. To achieve this goal, Polkadot is composed of relay chains, parachains, and transit bridges. Relaychain is a blockchain based on substrate. As the center of the Polkadot network, it is responsible for the verification of information interaction, protection and coordination of parachains, and maintenance of the security of the entire network. Parachains are connected through slots. The incoming relay chain runs and interacts with the relay chain, and is responsible for handling various “trivial matters”. Different parachains can focus on different businesses and serve different needs.

Parachain Slots are the interface between the relay chain and the parachain. If you want to share the security of the Polkadot network and conduct business interactions with other parachains, it must be implemented through slots. Slots are divided into community beta slots (community beta slots) and commercial slots (commercial slots), 20% of the slots are reserved for the Web3 Foundation for deployment and support, as a community beta parallel chain to promote the entire Polkadot ecology The remaining 80% of the slots will be used as commercial slots and will be opened through auction.

Since the operation of parachains needs to consume a certain amount of network computing resources, in order to ensure network efficiency and security, the number of parachains in the initial stage is limited. Polkadot founder Gavin Wood said at Polkadot’s China Tour in July 2020 that the upper limit of the number of parachains will be about 100, which means that the upper limit of the number of slots running at the same time is also about 100.

In order to ensure fair distribution, Polkadot designed an auction to allow the project party to obtain the right to use the slot through auction. The right to use means that the slot is only rented but not sold. The project party needs to lock a certain time and a certain number of DOTs to bid to obtain the right to use. After the lease period ends, the locked DOT can be unlocked and returned. (Note: DOTs that have participated in pledge mining cannot be used to participate in auction locking at the same time)

Regarding the specific time of the slot auction, there is currently no fixed date announced. According to Gavin Wood, it will be early this year. Judging from the current development progress, the Rococo Parachain testnet needs to run stably for at least a period of time before it will consider launching the online slot auction. According to Gavin Wood’s introduction on December 8th last year, after the Rococo V1 testnet is running stably, the Parachain slot auction will be opened on the Polkadot mainnet testnet Kusama, and the winning parachain will be auctioned online on Kusama. This process will then be copied to the Polkadot mainnet. So from the perspective of progress, the Parachain Slot Auction is one step closer to us. (It should be noted that Polkadot needs to use DOT, and Kusama needs to use KSM to participate.)

How to bid for slots and how to participate?

OKEx: Analysis of Polkadot Parachain Slot Auction Participation Methods and Potential Impact

Polkadot’s slot auction method is relatively new and relatively fair.

In order to reduce auction sniper, Polkadot Parachain Slots will use “candle auction”, and some improvements have been made to traditional candle auctions, and a retrospective closing mechanism is used.

“Candle auction” originated in the 16th century when ships were sold, and it was named after the “one-inch candle” that decided the auction open period. When the candle flame goes out, the auction ends suddenly, and the bidders at this moment will win. When the candle auction is applied on the Internet, a random number is needed to determine the termination time. Parachain slot auctions are slightly improved on the ordinary candle auctions. It has a known open stage. At the end, a random past block is calculated. This past block is the actual auction deadline. However, the retrospective block is performed after the entire process is completed, so no one knows when the auction will end.

In summary, the candle auction method means that everyone can know the status of the auction, but does not know when the auction will end, which helps to ensure that bidders are more willing to bid as soon as possible. There are two stages in the Polkadot Parachain slot auction process: the security period and the random period. DOT can be pledged freely in both stages. The auction will stop suddenly at an unpredictable point in the random period. The bidding book before this point in time will be awarded to the higher bidder. Therefore, bidders need to bid as early as possible and pledge as many chips as possible before the second stage.

The auction of parachain slots is held every six months, and only one slot is released at a time. The lease period of the slot is in units of 6 months, divided into 6 months, 12 months, 18 months, and 24 months. Only the items participating in the auction can bid freely, and bid for a single or multiple adjacent lease periods , The higher the price is. The winning bidder needs to lock (stake) its DOT within the corresponding fixed period, and the deposit will be refunded at the end of the parachain lease.

If the project party has insufficient funds, it can also become a parachain through PLO (Parachain Lease Offerings, Gavin calls crowdloan, crowdloan) and apply for funding from the Web3 Foundation. For example, through a series of incentive measures to attract investors to lock in DOT to themselves, in turn, investors can also lock in their own DOT to support their favorite projects in the auction module. If the auction fails to become a parallel chain, subsequent parallel threads can be used to access the relay chain.

This gives ordinary investors the opportunity to participate. If you are optimistic about a certain project, or which project you support, you can lock your DOT to help them bid. It should be noted that these DOTs are locked on Polkadot’s relay chain, not directly given to the project party, and will all be returned later. If the bidding of the project you support is successful, these DOTs will be refunded after a lock-up period (may be six months to two years), and if the bidding fails, they will be refunded shortly after the bidding ends.

Significance of Parachain Slot Auctions

So, why is everyone paying so much attention to the slot auction, and the project parties are actively preparing, what does the parachain slot auction mean to Polkadot, the project party, and investors?

Poka

As a representative of cross-chain projects, Polkadot is known as a blockchain project comparable to Ethereum. Parachain slot auction is an important milestone in Polkadot’s roadmap, and it is also Polkadot’s “big picture” this year, which means that its cross-chain vision will begin to land.

Gavin Wood once stated that one of Polkadot’s biggest goals in the future is to build a chain bridge with other blockchains. The current blockchain world is more like a data island. If Polkadot can bridge mainstream blockchains such as Ethereum and Bitcoin through a transfer bridge, data and asset exchanges between different blockchains will be realized in the future. Communication and interoperability. This will be of great significance to the Polkadot ecology and even the entire blockchain ecology.

At the same time, for Polkadot token DOT, the slot auction can enrich the usage scenarios of DOT. As the parachain slot auctions and investors support their favorite projects all need to pledge DOT, it will affect the total lock rate and lock structure of the DOT network.

When the parachain slot auction starts, a large number of DOTs are needed to participate in the auction, and some pledged DOTs will be unlocked. With the release of more parachains, it is expected that the total DOT lock rate (node ​​pledge + auction lock) of the entire network will rise. From this perspective, the increase in the total lock-in rate is expected to have a certain positive impact on the performance of the DOT secondary market (the same is true for KSM), but the specific currency price needs to be judged in accordance with the current market environment.

To the project party

The successful bid of the slot becomes the Polkadot Parachain, which will be able to share the Polkadot network consensus and security, and achieve business sharing and interaction while realizing different business lines, which has great advantages for the project party. The bidding for the first batch of slots will bring certain first-mover advantages to the project, and the planned development work can be promoted as soon as possible, which is conducive to its later ecological construction. At the same time, it is also a high-profile publicity, which is conducive to the project’s momentum

Parallel thread development will take some time. Before parallel threads land, many projects that intend to build in the Polkadot ecology will first try slot auctions. (Some lightweight projects that do not need to process transactions in every block are more suitable for choosing parallel threads with on-demand payment, which is more economical and cost-effective.)
According to PolkaProject, there are currently 333 Polka Eco projects and 106 based on Substrate. Parachain slot auction has not yet started. There are many well-known and representative projects ready to go, publicly claiming to participate in parachain slot auctions, such as Acala, Phala, ChainX, Darwinia, Bifrost, Stafi, Litentry, etc. .

OKEx: Analysis of Polkadot Parachain Slot Auction Participation Methods and Potential Impact

To investors

The PLO scheme designed by Parachain Slot Auction gives market investors a way and opportunity to participate in the Polkadot ecology. Investors can pledge DOT by selecting supported projects in the bidding module to help projects participate in auctions. At the same time, they can get some token rewards or other incentives for the project, which may be more imaginative than the staking income of NPoS.

At present, exchanges, investment institutions, and secondary market investors are extremely concerned about Polkadot’s development process, support and optimistic about its ecological development, and regard it as an opportunity worthy of attention. Many investment institutions that have deployed the Polkadot ecology have expressed their intention to participate in the auction, which will help the projects that have been invested in the auction, which can indirectly obtain greater benefits.

And each mainstream trading platform also regards Polkadot as one of the key layouts, and has established Polkadot Ecological Funds to provide investors with a convenient channel to participate in the Polkadot ecology. On December 30, OKEx issued an announcement stating that in order to support the Polkadot community and ecological co-construction, the DOT pledge mining service was officially launched. Users can receive daily mining income through one-click pledge of DOT in the “Earn Coins” area. The number of participants is 1DOT, and the expected annualized return is 12.8%. In addition, OKEx has also established the Block Dream Fund, a fund that empowers global high-quality blockchain projects, with an initial capital of 100 million US dollars. It will focus on investing in blockchain infrastructure, Polkadot ecology, DeFi, and OKExChain ecology.

There is no doubt that these important participating roles represented by trading platforms and investment institutions will help the construction and development of the Polkadot ecology.

In 2021, Polkadot and Parachain slot auctions have entered the public eye, and the prices of DOT and KSM have also continued to rise. According to the Ouyi OKEx market, DOT is currently quoting 39.77 USD, and KSM is currently quoting 589.60 USD.

OKEx: Analysis of Polkadot Parachain Slot Auction Participation Methods and Potential Impact Image source: OKEx

As far as Polkadot’s macro vision is concerned, the landing of the parachain is only one of the key nodes in its development process. The future development is still a long way to go, let us wait and see

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