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Looking back on the first boca slot auction, what is the strategy for future auctions?

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The dynamic events such as the renewal of parallel chains in the future and the addition of new parallel chains are analyzed and interpreted from two aspects.

原文标题：《 Polkadot 官方发文：插槽拍卖创造了历史！》

原文来源： PolkaWorld

Web3 Foundation research scientist Jonas Gehrlein released an overview of Kusama's first auction of parallel chain slots yesterday, explaining:

• 回顾首轮的 5 次拍卖、蜡烛拍卖和 Crowdloan 机制

• 以及拍卖机制带来的影响

• 未来平行链的续期以及新平行链加入的这些动态事件对拍卖带来的影响因素进行了两方面的分析和解读

Because of the length of the original article, PolkaWorld has compiled some highlights to help you understand the important information.

Candle auction at Polkadot/Kusama

The candle auction is an ancient form of auction dating from around the 16th century that allows bids to be made before the candles actually go out. Uncertainty about when the actual auction will end reduces the problem of auction sniping at the last minute.

Unlike the ancient candle fire auctions, the final result of slot auctions in Polkadot and Kusama is determined retrospectively. That is, auctions always have a fixed time for bidding, after which the actual closing block (the "end block") is randomly determined. We can mark four important points to describe the time course of the candle auction in terms of block height. See the figure below.

Up for auctionThe first stageLasting 27,000 blocks (approximately 45 hours), this initial phase gives teams and users time to learn, gather information, and set up their bid/participation contribution strategy. And after that,The candle stage(or closing phase) marks the "real" start of the auction, which lasts 72,000 blocks (about five days). At this stage, the auction can end with equal probability in any block. You can bid until the end of the auction! After formal completion, the termination block is computed using a combination of validating random functions (VRF). This way of counting the end blocks retroactively ensures that no one can predict the end before or during the auction.

What is Crowdloan?

Crowdloan is a decentralized way for teams to get support for bidding slots. That is, the tokens that support CrowdLoan are collected by the team, but are held and secured by the relay chain. Users can reclaim their tokens in two ways:

• 你支持的项目成功赢得平行链插槽拍卖。那在租期结束后，你就可以收到你的代币啦

• 你支持的项目的 crowdloan 到期后（通常很短），也可以截止取回代币的情况。

For those of you who successfully bid for a slot, your tokens are staking an opportunity cost by being locked in a relay chain, for example, a reward forgone by staking or otherwise. So in order to thank you for your support, the project will reward you with their own native tokens!

Look back at Kusama's first slot auction

When the teams were surveyed, 10 of the 15 teams said their goal was to participate in Kusama's first auction. Most teams (80%) said they also planned to auction on Polkadot (13.3% only on Kusama and 6.7% only on Polkadot).

As of this post, of all KSM tokens issued, 47% are locked in staking, 9.9%. Is locked in CrowdLoan. The first five slots were won by Karura, Moonriver, Shiden, Khala and Bifrost.

Karura From the very beginning, it outdid all the other teams by a wide margin.Moonriver It started lower than its competitors, but quickly overtook Shiden before the candle phase began. The & have spent Shiden I won the third place.

Below is a daily feed of crowdLoan contributions for these three projects.

Compared with the previous three auctions, the fourth auction was more dynamic, especially before the candle phase. The bidders were Bifrost and Khala. As the chart below shows, the lead has periodically shifted in this head-to-head game.

However, just as the candle phase began, Khala suddenly received a surge of support and maintained the highest bid of all the blocks.The final & have spent Khala won the fourth parallel chain slot on Kusama.

On the fifth auction, at first we thought it would be an easy win as no other project came close to Bifrost's bid. However, one person called Basilisk Bifrost's competitors announced stiff competition before the fourth auction. Basilisk's CrowdLoan did gain traction and quickly caught up with Bifrost. The vertical dotted line indicates the beginning of the candle phase.

While Basilisk was the highest bidder in the blocks that started in the candle phase, Bifrost ended up being the highest bidder in 96.6% of the blocks in the candle phase, meaning That Bifrost had a 96.6% chance of winning. In the end, there were no big surprises, as Bifrost managed to win its fifth auction.

Candle auctions encourage early bids

The candle auction consists of two different stages, the beginning stage and the candle stage. The latter is further divided into periods before and after the termination block. This mechanism may result in the highest bidder at the end of the auction not necessarily winning the auction, because if the bidder falls within the scope of the terminated block, his bid will be discarded.

But in general, auctions are designed to give every bidder an incentive to bid early. Based on the data from the first auction, it is not difficult to see that most of the contributions were made before the candle phase. So, the candle mechanism has been successful in encouraging early bids.

To summarize

The Kusama Network slot auction is an exciting time for the entire Polkadot ecosystem and the entire blockchain industry. With the advent of parallel chains, we've taken a big step toward a scalable, decentralized, and interoperable future. The first five projects to come online were Karura, Moonriver, Shiden, Khala and Bifrost. These projects will add powerful capabilities to the Kusama ecosystem by providing infrastructure for DeFi, liquidity solutions, smart contracts (native and EVM compatible), privacy cloud computing, and more.

1. Two features of the candle auction mechanism

Through the overall results of auctions, the Foundation found that the Kusama/Polkadot candle auction mechanism had two characteristics. First, it guaranteed efficiency, that is, it determined the highest bidder to win the auction.And it's a fair process;The second is that there is no "revenue" generated during the slot auction because it is a decentralized process and there is no profit-making entity!

2. Winning the auction is more important than minimizing the bid

Another observation was that, especially for Karura, the first to win the slot, too many tokens were bound. In theory, this might not be considered optimal. But we have to take into account the objective factor that the primary objective of all the teams currently bidding isLaunch online!

So in theAt this stageWinning the auction is more important than minimizing the bid. There are a few advantages to this. First, you can distribute the tokens to as many supporters as possible. Second, more support also means that the project is worth more to the ecosystem!

3. Multiple bidders can share the lease

Candle auctions can also be rent-sharing, where multiple bidders share a rental period. We haven't seen that happen yet, but that's because the teams that are currently bidding want to bid for the entire rental period! So it is to be expected that at this stage of the auction, any bid below the full lease term is doomed to fail. And in the preliminary survey, 80% of the participants said they would bid for the full lease!

4. Voting for crowdLoan that may fail is an economically costly decision

With the exception of the fifth auction, the other four auctions had a very leading CrowdLoan before each candle phase began. Since the tokens are locked up for at least the duration of the campaign, voting on CrowdLoan, which is likely to fail, is an economically costly decision. Not only do users have to choose their favorite team, they also have to evaluate which team is likely to win. Especially late in the campaign, it becomes increasingly difficult for some teams to keep up with the lead team, so their rational choice is to either contribute to other projects that win CrowdLoan or not participate at all. Over time, this rationale may increase the distance between teams.

A prediction of the future

You can expect that in the future, we will go from no parallel chains to some parallel chains that need to be extended leases to stay in business, and there will be other new parallel chains that will bid to join for the first time. This leads to a series of dynamic events that affect two main aspects, namely the mechanism of contribution and how bidding strategies are used in auctions.

Contribution mechanism

After talking to some of the parallel chain teams, we found that CrowdLoan's auction format is still an important part of their future economy. Some innovative teams are already looking for more appropriate alternative contribution mechanisms. One possible direction is a variant of the CrowdLoan module that takes advantage of chain interoperability. For example, users can deposit their parallel chain native tokens into smart contracts that automatically exchange them as relay chain tokens (i.e. KSM or DOT) through the decentralized Exchange (DEX) parallel chain. Smart contracts can then automatically use those tokens to bid in an auction. In addition to parallel chain native tokens, with the upcoming bridge between Ethereum and Bitcoin, there is even the possibility of smart contracts using ETH (and ERC20 tokens) and BTC.

As the initial native supply tokens are eventually fully allocated, it becomes increasingly difficult to provide platform rewards to contributors. Similar to the previously described smart contract solution, parallel chains could evolve into decentralized autonomous organizations (DAOs) that raise tokens during their operations and accumulate them in their on-chain Treasury. Eventually, to ensure retention, the chain may start accumulating relay chain tokens in this way to extend the lease. This means that the chain itself will become increasingly self-sufficient.

Auction bidding strategy

As mentioned earlier, the launch phase is a unique situation in the network where minimizing bids is not the most important factor. As a result, we see most teams focusing on binding as many tokens as possible, rather than using the optimal bid. However, once the network reaches the expansion stage, some parallel chains need to extend their leases and compete with new projects that enter the auction for the first time. In this case, flexible bidding, i.e. project minimization bid bidding, is an important factor in effectively maintaining the parallel chain.

In conclusion, through the slot auction, the team had the opportunity to benefit from the Kusama and Polkadot infrastructure and begin to realize their vision. In a sense, this helps motivate the project to keep going, as the team wants to prove that they are important in the ecosystem.

The scarcity of parallel chain slots ensures healthy competition in the future and helps find and screen out the most suitable projects. This novel contribution mechanism can improve the overall quality of the ecosystem, providing users with a healthy environment that can easily support new projects.