The Kusama and Polkadot parachain auction(s) is one of the most anticipated events of 2021. Shawn Tabrizi, a core software developer with Parity Technologies, took us through the whole process.
Tabrizi explained at Polkadot Decoded that Polkadot is a Layer Zero blockchain that will connect different Layer 1 blockchains to form a connected multichain blockchain. These Layer 1 blockchains are called parachains. Polkadot provides shared security, cross-chain communication to such parachains.
Polkadot has only a limited number of slots that it can give out. These slots will be handed out to the winners of the parachain auctions.
Optimistically, Polkadot can support 100 parachains. For that, we need 100 slots.
- There will be 10-30 Common Good Chains. These are parachains that will serve utility to the whole Polkadot ecosystem.
- There will be 40-90 leased slots. The slot winners will be selected through auctions.
- Added to this there is a pool of up to 50 parathreads.
Polkadot will slowly ramp up the network by a series of auctions.
Auctions will happen to lease a slot.
- Each slot is of a duration of 2 years.
- The duration has 8 pieces (periods).
- Each piece/period is 3 months long.
Scenario 1: In an auction, we can have up to 8 winners. Every individual winner will be for a different period of this 2-year duration.
Scenario 2: Or we can have one winner for the entire slot duration.
On Kusama, the slot duration is 48 weeks, and the lease period is 6 weeks.
The auction-style will be a “Candle auction.” This brings up a bit of randomness. No one knows when the bidding will end. Hence the bidders tend to bid higher amounts at the earliest possible time. There might be a situation that there are higher bids after the network randomly selects a bid end time. The network will not consider such bids. This discourages last-minute sniping.
- In the opening period, the projects take time to decide their strategy, put in lower bids. This is the only time to experiment.
- Once the ending period starts, the bidding can end at any time.
The process goes through the entire ending period, and then, within that phase, a block is selected randomly as the ending block.
In auctions, projects are using DOT. They will, however, not spend them but will just lock them. They cannot stake or vote during this period.
The auction length in Kusama has an opening period of 2 days and an ending period of 5 days. Auctions will happen every 2 weeks.
In the below example, Alice bids 200 DOT for each period. She bids for all 8 periods. Her total locked value is 1,800 DOT.
Bob bids for only 2 periods at 100 DOT each. His locked value is only 200 DOT. However, Charlie bids for the remaining slots at a higher rate of 300 DOT per slot. Bob and Charlie have locked a total value of 2,000 DOT together. The network will choose them together as the winner (despite Bob offering a lower rate).
Parachain bidders raise DOT from holders to increase their bid amount in the auctions. The projects might reward the DOT owners for their contribution. The projects will return the DOT at the end of the lease period. This ensures that the projects need to get the DOT holders’ trust to increase their bid amount.
All crowdloan participation can happen through the Polkadot.js app. We will provide more details on this soon.
DOT and KSM Price
At the time of publication, Polkadot (DOT) was trading at $25.62, with a market cap of $25,867,457,320 and a 24-hour trading volume of $7,462,758,130. By comparison, Kusama (KSM) was trading at $360.84, with a market cap of $3,257,184,785 and a 24-hour trading volume of $1,006,528,852.
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