Polkadot & Kusama Parachain Auctions Explained
- Relay Chain – The main network where transactions are finalized.
- Parachains – Custom blockchains anchored to the relay chain that use its computing resources to confirm that transactions are accurate.
To fairly determine which blockchains get to leverage the Kusama or Polkadot relay chains and their distributed computing power, the networks use Parachain Slot Auctions (or ‘Parachain Auctions’ for short).
In its 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 governance vote over time. Parachain slot auctions are used as a means to decide which parachain will be connected to the relay chain.
Of note, if a project does not need to lease a fully dedicated parachain slot, they can temporarily participate (on a block by block basis) with a parathread.
How Parachain Auctions Work
There are many projects that intend to build on Polkadot and Kusama and each of them will need their own parachain slot to build upon. Rather than give the projects with the most funding a parachain slot, the Polkadot team came up with parachain auctions as a method to distribute the available slots in a more equitable manner.
During a parachain auction, DOT or KSM holders can bond their cryptocurrency to support the project that they believe should receive a parachain slot. In return, the project may commit to airdrop tokens (or provide other rewards) to their supporters.
It is worth noting that, due to the permissionless nature of the protocols, any project may also purchase a parachain slot on the secondary market from anyone who won a slot through auction.
Parachain auctions use a mechanism called a candle auction to randomize the exact moment the winner of an auction is determined.
Candle Auctions in Parachain Slot Auctions
Historically, candle auctions referred to the 16th century selling of ships, where a candle would be lit at the beginning of a bidding war, and the person with the highest bid at the time the candle went out would win the ship.
Similarly, parachain auction participants have a determined amount of time to place bids on the projects they wish to see get a parachain slot, and, in an effort to ensure fair bidding, the time at which the winner is determined is randomly decided on and retroactively applied to the projects with the most KSM or DOT support.
So, while there will be an official end to the auction, the candle auction refers to the random snapshot in time prior to the end that will determine the auction winner.
Of note, the parachain slot auction process should be nearly identical between Polkadot and Kusama, but some differences in the maximum slot periods and auction durations are expected.
Crowdsourcing Support for Parachain Auction Bids
In addition to direct participation by a bidding project, Polkadot and Kusama enable blockchain projects to crowdsource support for their parachain slot auction bid. Through this process, (sometimes colloquially called a “Crowdloan”), DOT and KSM holders can bond these assets to the Polkadot or Kusama network to signal support for a particular project. If the project wins, the bonded DOT or KSM is locked by the network for the duration of the parachain slot, after which the tokens are unlocked and may be re-claimed by those who contributed.
Difference between Parachain Slot Auctions and ICOs
A key difference between parachain slot auctions and traditional ICOs is that those who contribute DOT or KSM to an auction and receive the project’s tokens via an airdrop may do so without transferring control of their KSM or DOT contributions to the bidding project team or any third party. In an ICO, users funds are sent to the project team who use them at their discretion.
In a parachain auction, user funds can be returned if the project loses the auction and its campaign ends, or, if the project wins, once their access to the parachain slot expires.
Useful Parachain Slot Auction Resources
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