A Beginner’s Guide to Parachain Auctions
Polkadot is an open-source multichain protocol, enabling the seamless transfer of assets and data between connected blockchains. Polkadot creates a robust foundation for Web3 and the future of the internet with a platform that offers interoperability, scalability, and security amongst decentralized networks. Polkadot operates alongside its more experimental sibling network, Kusama, as part of the DotSama ecosystem of blockchains.
Both Polkadot and Kusama are based on a sharded architecture, with a central Relay chain providing shared security and parachains offering application-specific utility. However, there are limited parachain slots available. Therefore, Polkadot operates parachain Auctions to allow projects to compete for slots with a mechanism that ensures those projects with the biggest support from the DotSama ecosystem have priority.
But what defines a parachain Auction, and how do they work?
Parachain Winners are Determined in a Fair and Effective Manner
In their current state, both the Polkadot and Kusama relay chains can support up to 100 parachains, a number that is flexible and subject to change by a governance vote at a later date.
Polkadot holds parachain auctions to determine which blockchains will connect to the parachain slot. Once the auction begins, every project on the Polkadot is free to submit its bid. Teams bid using two pieces of information — their bid amount and slot duration. Parachain slots are not sold but rather leased for a fixed duration.
Bidding is conducted using Polkadot’s native DOT currency, or Kusama’s KSM, depending on the network.
Polkadot and Kusama use the candle auction model, ensuring fairness for all participants by obscuring the auction end time. Candle auctions are designed to eliminate sniping — a practice where bidders wait until the last minute to get cheaper auction deals. It encourages half-hearted bidding, denying auctioneers the true value of their sale.
A candle auction ends at an unpredictable or undetermined time; therefore, it prevents any party from being able to snipe the auction.
Technically, a project can also purchase slots on the secondary market from bidders who have already won the parachain spot at auction.
Securing a Polkadot or Kusama Parachain
Securing a slot means bidding the highest KSM/DOT amount during the auctions. Polkadot uses a crowdfunding mechanism called crowdloans, which allows projects to leverage the support of their communities when launching their parachain slot bids.
Сrowdloans invite DOT or KSM holders to lock up their tokens for the duration of the parachain slot lease. Contributors can receive rewards from projects in their native crypto tokens, or by other means such as early access to the project’s services or merchandise. Crowdloans offer plenty of creative freedom for projects to incentivize their communities to support their parachain slot bids.
Crowdloans support the broader development of the DotSama ecosystem giving users voting power to decide on the projects that participate. They also promote diversity by providing a funding source for projects with limited capital but inventive or exciting ideas.
Ajuna’s crowdloan plan is now well underway as we seek to secure our own parachain slot on Kusama. A parachain slot would give us a highly customizable base of operations and allow interoperability with other projects on Kusama.
You can back our crowdloan campaign now to usher in a new era of decentralized gaming and earn attractive BAJU and NFT rewards in the process. In the meantime, keep up to date on all the latest cowdloan news on our Twitter and Telegram channels.
How to Participate in a Polkadot or Kusama Crowdloan
When crowdloans start, you’ll see a “Join Now” button on the crowdloan auction table; clicking on it will lead to polkadot.js.org or to the parachain project website, where you may receive rewards for contributing DOT/KSM. Both crowdloan mechanisms use Polkadot’s native contribution model, ensuring users receive their DOT or KSM after the lease period expires.
In our case, community members who lock up their KSM in our favour will receive their loaned tokens back after 48 weeks if we secure a parachain slot on Kusama. Contributors receive their DOT/KSM a few days after auctions end for projects that don’t succeed.
Alternatively, community members can participate in crowdloans via exchanges that support crowdloan functionality. The minimum crowdloan contribution is 5 DOT or 0.1 KSM on Kusama.
Accommodating Every Project
Some projects may not need to lease the entire Parachain; Polkadot and Kusama provide an option for such platforms. If a project does not need to secure a fully dedicated parachain slot, they can temporarily take part, on a block-by-block basis, with a parathread.
Parachain auctions are a breath of fresh air in crypto crowdfunding; users contribute to the success of a project without ceding control of their crypto. Parachain auctions also increase crypto contribution credibility by safeguarding community funds through lock-ups.
About Ajuna
Ajuna Network is a Swiss-based decentralized gaming platform bringing blockchain gaming into the mainstream by integrating GameFi functionality with the world’s leading development engines, Unreal and Unity. Built on Substrate, Ajuna leverages the full potential of the Polkadot ecosystem to provide developers with a modular toolbox to add fully-featured GameFi functionalities to their games easily. Ajuna’s ultimate goal is to create real value for both gamers and developers by providing a fully interoperable decentralized ecosystem for games and virtual goods.
