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Polkadot Parachain Auction: Participate in it or simply hold it?

Original title: "Understanding the Polkadot Parachain Slot Auction in One Article, Risks and Benefits Coexist? "

Original Source: Vernacular Blockchain

Recently, Polkadot/KSM The popularity of parachain slot auctions is getting higher and higher: there are more people discussing in the community, those project parties in the Polkadot ecosystem who have been low-key before have come out to promote activities, and even major trading platforms have begun to compete for layout , launched a variety of DOT lock-in financial management, and some even launched a special fund of several million dollars to support Polkadot ecological projects.

Some people say that the auction of parachain slots contains huge opportunities for wealth, while others say that this is just a "reprint" of the EOS super node election. small.

In the face of mixed evaluations, what we need to do is not rush to stand in line, but to understand first. So today’s article will give you a comprehensive understanding of the upcoming Polkadot/KSM parachain slot auction.

What is Polkadot and what is KSM?

Before introducing the parachain slot auction, let's briefly understand Polkadot and KSM.

When it comes to Polkadot, many people immediately think of "cross-chain". According to the official introduction, Polkadot's goal is "high-performance, scalable heterogeneous multi-chain blockchain". So, how does Polkadot achieve this goal?

First of all, before Polkadot, the Parity Technologies company founded by Gavin Wood launched scalable, Modular and general-purpose blockchain framework Substrate. Substrate integrates commonly used functions such as peer-to-peer network, consensus algorithm, common encryption algorithm, data storage, transaction management, etc., so that developers can realize "one-click release chain". With Substrate, developers don’t need to “reinvent the wheel”, they can focus more on the development of business logic, and they don’t need to wait for Polkadot’s development progress, because the Polkadot relay chain is also developed and built based on Substrate.

Those blockchains developed and built through Substrate have a similar structure to the Polkadot relay chain and belong to the "Isomorphic blockchain", in the future, it can directly become a Polkadot parachain and interact directly with the Polkadot relay chain. There are also some blockchains, such as the Bitcoin blockchain, the Ethereum blockchain, and the EOS blockchain. Their consensus algorithms and mechanism models are quite different from Polkadot's structure, and they belong to "heterogeneous blockchains." Heterogeneous blockchains need to pass through a "transfer bridge" to interact with the Polkadot relay chain.

So, we can see that the entire Polkadot network system consists of relay chains, parachains And the transfer bridge constitutes. The relay chain plays the role of the "federal government", and each parachain is equivalent to a "state". The transfer bridge is essentially a special parachain, but its responsibilities include linking other blockchains with different structures.

The so-called "cross-chain" means that each "state" (parallel chain) handles its own affairs, but submits the most important liquidation and verification to the " The "Federal Government" (relay chain) is not only responsible for the final proof of each "state" (parallel chain), but also provides security guarantees for each "state" (parallel chain) .

Kusama (KSM) has been playing the role of "Polkadot testnet" before the Polkadot mainnet goes live. After the Polkadot mainnet goes live, the identity of KSM has changed to Polkadot’s leading network. Many new functions will be tested on KSM first, and then added to Polkadot after running without any problems. This is a bit like Bitcoin and Litecoin. Many new functions of Bitcoin (such as Segregated Witness) will be tested on Litecoin first, and then deployed to Bitcoin after no problem.

Therefore, this parachain slot auction will also start on KSM first. On December 8, Gavin Wood, the founder of Polkadot, introduced the order of launch of parachain-related matters, specifically:

1. Launch Rococo v1 (test network) And wait for its stable operation;

2. Launch Kusama's system (public interest nature) parachain;

3. Open the auction on Kusama;

4 .Launch the parachain that successfully bid on Kusama;

5. After the audit is completed, launch Polkadot’s public interest parachain;

6. Start the auction on Polkadot;

7. List the parachains that were successfully auctioned on Polkadot.

What is Parachain Slot Auction?

In the above, we compared Polkadot's relay chain to the "federal government" and the parachain to the "state". It is to let the "states" join the "federal government".

Whether it is a homogeneous blockchain based on Substrate or a heterogeneous blockchain like Bitcoin, Ethereum, EOS, it is a one-way Independent blockchains are "islands". After taking the parachain slots and becoming Polkadot’s parachains, these chains can interact with the Polkadot relay chain directly or through a transfer bridge, as well as interact with other parachains connected to Polkadot, thereby generating More superimposed services, improve its own scalability, and at the same time enjoy the security provided by the relay chain.

The operation of the parallel chain needs to consume a certain amount of network computing resources, so there is an upper limit to its number. In the Polkadot China Tour event held in July this year, Gavin Wood, the founder of the Polkadot project, said that the upper limit of the number of parallel chains will be about 100 . The number of parallel chain slots is limited, and only one will be released at a time, and there will be a certain time interval for the release of the next slot, so the project party is required to participate in the auction.

Parachain slot auction, more accurately it should be parachain slot lease auction. Parachain slots are actually only rented and not sold. The lease period of each parachain slot on Polkadot is 6 months. Four lease periods can be bid for, which means that the project can bid for one or more lease periods, and the lease period of the parachain slot on KSM will be shorter.

The parachain slot auction uses candle auction. The candle auction originated from the ship auction in the 16th century. After the auction started, the executor of the auction lit a fixed-length candle. When the candle went out, whoever had the highest bid would win the auction item. The parallel chain slot auction will simulate this process on the blockchain, which is divided into two stages: the security period and the random period. During the security period, the auction will be carried out freely and will not end. The upper random number drops the hammer at any time. At the moment when the hammer falls, whoever stakes the most DOT/KSM will be able to rent this slot.

When the project party bids for the auction, due to cost considerations, it is impossible for the project party to purchase all DOT/KSM on the secondary market and pledge it to itself, but Relevant incentive mechanisms will be introduced, such as Token rewards given to the project, to encourage other users to pledge DOT/KSM to themselves. After the user pledges to the project party, the pledged DOT/KSM will be locked. If the project party takes the parachain slot, it needs to wait until the slot lease period expires to unlock it. If the project party does not take the slot, the auction Unlock and release when finished.

It is important to note that the pledged DOT/KSM is still in the hands of the user, but the loss In order to ensure liquidity, the project party cannot privately misappropriate the DOT/KSM pledged by users. This is similar to EOS node voting. Users can exercise voting rights after staking EOS and vote for supporting nodes. The pledged EOS only loses its liquidity, but it is still in the hands of users.

In addition to parachain slots, the Polkadot system also introduces parathreads. To put it simply, parathreads can be understood as "shared parachains", which support multiple projects to share some specific parachain slots in units of blocks. Therefore, Parallel Thread is specially designed by Polkadot for those projects that cannot afford the slot auction fee, or whose business model does not require long-term rental slots.

Which projects will participate in the parachain slot auction?

According to the statistics of the PolkaProject website, although the Polkadot mainnet has only been online for a few months, the number of projects based on Polkadot/Substrate has reached 308 . Of course, not all projects will bid for parachain slots, but it is foreseeable that the competition for slot auctions will be fierce.

Understanding the hotly discussed Polkadot parachain slot auction: Which projects are involved? What are the risks and benefits?

The following are just a few representative ones that have been publicly declared Projects to participate in parachain slot auctions.

Acala

Acala is an important DeFi infrastructure in the Polkadot ecosystem. DeFi projects in the ecosystem provide Ethereum compatible support. In addition, Acala also has: decentralized over-collateralized lending, similar to Maker on Ethereum; decentralized asset swap, similar to Uniswap on Ethereum; providing liquidity for pledged DOT/KSM through derivatives ; Decentralized Autonomous Fund DAO.

In the last issue of "Big Talk in Vernacular", Fuyao, a member of the Acala Council, revealed that Acala will take out a lot of slots in the first slot auction Part of the quota (8-10%) is used to motivate users who participate in staking.

Bifrost

Bifrost (Rainbow Bridge) is the Polkadot ecological DeFi basic protocol, and is committed to becoming Pledge assets provide liquidity infrastructure, and currently launch derivative vTokens for Staking and Polkadot Parachain Slots (PLO).

vToken can optimize transactions in multiple scenarios such as DeFi, DApp, DEX, CEX, etc., and realize the transfer channel of pledged rights and interests such as Staking and PLO through vToken, and realize pledged assets Risk hedging, expansion scenarios such as when vToken is used as collateral for lending, its Staking income can offset part of the interest, and achieve low-interest borrowing.

ChainX

ChainX is an asset cross-chain project in the Polkadot ecosystem. External assets such as BTC cross-chain into the Polkadot ecosystem and incubate subsequent derivative financial services. According to the introduction on the official website,

ChainX's goal is to become the asset cross-chain gateway of the Polkadot ecosystem.

ChainX Chief Operating Officer Kristen revealed that ChainX plans to use 15-20% of the parliamentary fund and the entire network computing power (which can dig out ChainX native tokens) to motivate supporter.

Crust

Crust provides a decentralized storage network for the Web3 ecosystem, including A variety of storage layer protocols including IPFS, and provide interfaces to the application layer. Crust's technology stack can also support a decentralized computing layer. Crust aims to build a distributed cloud ecosystem that values data privacy and ownership.

Crust will use about 40% of ecological development for Polkadot slot auctions and related expenses, and formulate a complete parachain auction before the auction plan.

Darwinia (Darwin Network)

Darwinia is a cross-chain bridge network developed based on Substrate. In addition to conventional assets such as ETH cross-chain, it also includes cross-chain of game assets and non-standard assets, cross-chain of application chain and other businesses. At present, Darwinia's main network has been launched, and it also promises to reward supporters with main network tokens.

Phala

Phala Network is a privacy infrastructure on Polkadot. According to the official website, Phala uses the TEE-POW economic mechanism to provide CPU privacy computing power to Polkadot’s parachains, DEFI, DAPP and other private data services. Its core products are confidential smart contracts, Polkadot’s ecological dark wallet, Libra Bridge and Web3 Analytics. At present, the Phala test network has started the TEE mining competition, and there are currently more than 500 TEE nodes around the world providing privacy computing services.

According to Phala Twitter information, Phala Network has merged into Rococo V1 code, and plans to become the first parachain of Kusama and Polkadot. They plan to allocate 5 to 10 million mainnet tokens in the KSM parachain slot auction, and 30 to 50 million mainnet tokens in the Polkadot parachain slot auction.

Plasma

Plasm is a scalable DApp platform based on Substrate technology, mainly for Cards improve scalability.

The above are only examples of a small number of projects that have publicly announced that they will participate in the parachain slot auction. In fact, there are many projects that are under planning or out of strategic consideration, has not yet been publicly announced.

Potential risks and benefits

Understand the wave of heated discussions Card Parachain Slot Auction: Which Projects Are Participating? What Are the Risks and Benefits?

As we mentioned above, due to cost considerations, the project party will introduce some incentives, such as rewarding the native tokens of the project, to encourage users to pledge DOT/KSM to them.

These pledged DOT/KSM, although still in the hands of users, will lose liquidity. If the currency price plummets, the DOT/KSM in the pledge cannot be sold in time to stop the loss. This is the first potential risk we need to consider before participating in the pledge.< /span>.

The second potential risk is that the income pledged to the project party is not as high as the income of Staking< /span>. At present, most of the incentive mechanisms given by the project party are to reward the native tokens of the project. The price of these native tokens fluctuates greatly, and the fluctuation of income will also increase. If DOT/KSM is directly staking instead of being pledged to the project party, Polkadot/KSM will give us staking rewards, and the rate of return of staking will be adjusted according to the staking ratio of the entire network. After the parachain slot auction starts, the proportion of staking in the entire network will undoubtedly decrease, and the rate of return of staking will increase.

Understand the hotly discussed Polkadot parachain slot auction: which projects are involved? What are the risks and benefits?

Figure: Polkadot adopts a non-linear inflation model. When the Staking rate of the entire network exceeds 50%, the Staking The rate of return (green line) will drop significantly

After talking about the potential risks, let's talk about the benefits.

Pledging DOT/KSM to the project party, the definite income is the incentive given by the project party, most of which are the original tokens of the project. If the follow-up projects develop well and continue to grow stronger and bigger, the value of these tokens will also increase. Therefore, when staking, be sure to choose excellent, down-to-earth projects.

Secondly, with the auction of parachain slots, the number of DOT/KSM that can be circulated on the entire network will decrease. The reduction in circulation reduces the resistance to price increases. Of course, the price is affected by many factors, not just the circulation.

How can ordinary users participate?

Parachain slot auction, how can ordinary people get a share of it?

If you are a hardcore user and are familiar with various operations of the wallet, then you can pledge DOT/KSM to the project you support directly through the wallet square. At present, the Polkadot/KSM wallet only has the most basic functions such as transfer and staking. After the parachain slot auction starts, the wallet will add corresponding functions and launch related tutorials, just follow the instructions.

If you are a novice user, it is recommended to participate directly through node service providers or trading platforms, and they will help you pledge. The advantage of this method is that the threshold is low, simple and convenient, but you need to guard against the possible risk of running away. Therefore, when choosing a platform, you must choose a node service provider or trading platform with a good reputation and strong strength.

No matter which way, the premise of participation must be to know and evaluate the potential risks and benefits, rather than follow the crowd.

Conclusion

At the Polkadot official Decoded conference not long ago, Polkadot co-founded According to Robert Habermeier, the development of the parachain has entered the final stage, and the preliminary public testing conditions have been met. It is expected that the parachain will release the parachain testnet in January 2021. Production-level deliveries are expected in February.

Since the release of the first white paper in 2016, the Polkadot project has attracted the attention of industry insiders. The parachain is the most important thing for Polkadot to realize its "cross-chain" vision step. The upcoming parachain slot auction is worth looking forward to.