The parachain slots auction of Polkadot starts soon, but there are still many doubts to solve from users who are planning to block their DOT to participate.
What is Polkadot?
First of all, let’s start by explaining what Polkadot is to clarify concepts.
Polkadot is a platform on which blockchain networks are built and connected into a unified network. These networks, once connected, become parachains. They function as a living organism, working at the same time synchronized and secure. Their construction set down the rules on which Web3 will be built.
Dr Gavin Wood founded Polkadot in 2017. His goal was building a blockchain network that would solve scalability issues, allow updates without creating forks, manage more transactions per second (TPS), and where programmers would have the ability to build applications more easily.
The blockchain networks built on top of Polkadot use a development framework called Substrate, which is a simple and advanced blockchain creation framework for programmers.
Polkadot allows the connection of multiple blockchains, this way enabling a new approach for layer 0 networks. In conclusion, it is a 3-layer platform, unlike networks such as Ethereum, which are made up of a single, general blockchain.
In other words, Polkadot creates an ecosystem of multiple chains called parachains which are connected to its main network, called Relay Chain or Layer 0 network. However, projects must first win a slot auction to become a parachain to connect to Polkadot's main network.
What is so attractive about Polkadot for other projects?
Connecting to the Polkadot Relay Chain brings with it certain benefits to projects, such as:
Benefiting from the security of its core network: they will enjoy the security of Polkadot's PoS staking and validators.
Connecting with other parachains (cross-chain): they will be able to exchange data and assets (tokens) with them, ensuring interoperability.
Obtaining a Parachain slot is the only way to become a Polkadot Parachain. Earning a slot is the only way to benefit from all that Polkadot offers: plug and play security, intercommunication with other chains, governance, fork-free upgrades, scalability, low fees, etc.
How do parachains slot auctions work on Polkadot?
The first parachain slot auctions will start next November 11. A project can participate in the auction as long as it has raised enough DOT for bidding; to do so, it has two options:
Use the project's available funds to raise DOT.
Use the DOT tokens that the project would have previously raised through crowdloan in case it doesn’t have enough funds.
And you may ask, what are crowdloans? Well, they are a way to raise DOT through contributions made by the community in support of the proposal carried out by the project.
These DOT tokens that the community locks in as a loan in favor of the project will have a 2-year lock-in, until the end of the slot lease period. In return, contributors receive native tokens from the project when so indicated in its terms. In addition, after the 2-year period, they receive back the DOT loan.
Parachain slot auction timeline
Let's make a brief summary and see what is the order in which the auction of these parachains takes place.
First, projects collect enough DOT to be able to participate in the auction. Then, the bidding starts for the parachain auction, where a project will get a parachain slot and, as such, its space in Polkadot. Once it has managed to become a parachain, it will be able to carry out its launch. The slot must be renewed every 2 years (this prevents poor quality projects from continuing to operate), so the process would start all over again.
Well, let's see now in detail what each of these processes would consist of.
Step 1: Crowdloan opening
First, projects open their crowdloans and start accepting DOT contributions from their communities.
An important fact to keep in mind is that crowdloans remain active until day 7 of the parachains auction, so anyone can participate until the seventh day of the auction as long as the crowdloan has not reached the maximum value.
Step 2: Parachain Slot Auction
Next, the auction starts. It is a 7-day event, which has an opening period of 2 days (as a kind of warm-up), and an ending period of 5 days. Day 3 is the key day, when teams must provide details of their bid.
The bidding details will encompass both the total amount of DOT they will bid, and the length of time for which they intend to rent the slot; the length of time the slot will be used can vary from 6 months to 2 years.
Things you should know before participating in parachain auctions
When the parachain is launched, the native token of the winning project is distributed to the crowdloan participants and their platform and all its component products are launched.
Even so, it is very important that you keep in mind that each project has its own rules regarding DOT blockchain and native token distribution, so you will have to search for information about the processes and conditions of the project you want to support, this way, you will know if it fits your investment expectations.
Undoubtedly, parachain auctions and collective loans in Polkadot are an innovative, safe and ethical way to support startups that wish to be part of Polkadot.