Polkadot’s parachute auctions will mark the most important milestone on its roadmap since the mainnet launched in 2020. Currently in the Rococo network test network, the next phase of launch will involve parachuting on Polkadot’s mad cousin, the “Canary Network”. Kusama. The introduction of Polkadot parachutes in the main network will follow.
What does that mean? The Polkadot mainnet has been officially in operation for almost a year. However, only the central relay chain was in operation. The last 12 months of development focused on implementing the platform’s decentralized governance.
The parachute rollout is the final phase in which decentralized applications can be launched on the Polkadot network. Since the rollout is now past the originally expected release date of the first quarter of 2021 and almost three months have passed since the release of the development roadmap, there is still no exact date for the time of the deployment. So what can we expect from this launch and which projects will participate in the auctions?
How do the parachute auctions work?
Parachutes are effectively shards on the Kusama or Polkadot networks, and the purpose of the auctions is to assign parachute slots to projects that wish to operate on either network. The overall goal is to have 100 parachutes operated at the same time. However, these will open in batches with the aim of having around 30 parachutes in operation within the first year.
Projects that want to secure a Kusama Parachain slot can participate in the auction by connecting their KSM tokens in a decentralized candle auction. These can be their own tokens, but a crowd loan mechanism is available for projects that can be used to obtain tokens from their communities.
A candle auction is a variation of the open auction in which no fixed end time is specified. This type of auction originated in the 16th century when a candle was burned to determine the bidding period. The idea is to encourage contestants to place their highest bids as early as possible as they will not know when the auction will end. This prevents “sniping” in which a bidder steps in with a winning bid in the last few minutes.
Instead of a candle, a random number generator determines the end point of each slot auction as soon as the bid has been completed. Therefore, later bids will be disqualified if they are received after the retrospective closing time.
It is worth noting that the successful bidders do not “buy” their slots, only lease them, with the total value of the bid locked for the duration of the lease. The rental period is fixed (and the duration can vary between Polkadot and Kusama) and projects can have up to four consecutive periods. Therefore, the total duration of the bid is also weighted with its value.
At the end of the last rental period, the slot will be auctioned again.
Peter Mauric, director of public affairs at Parity Technologies – the company behind developing the Polkadot ecosystem – said competition is likely to be fierce. Speaking to Cointelegraph, he said:
“In my opinion, the competition, especially for early slots on Kusama and Polkadot, will be quite intense. Since auctions are expected to be generally competitive at the outset, I doubt projects will be severely disappointed, especially when you consider that there is a new slot open to bid on every two weeks. “
What projects do you offer for a parachain slot?
In theory, any project can participate in the Parachain slot auctions. However, you need to have a code base and either hold enough KSM or DOT tokens or be crowdsourced to outbid the competition.
In addition, the Kusama Council has announced its intention to allocate two Kusama slots for infrastructure projects that are seen as the “common good” of the ecosystem. These are PolkaBTC, which is a bridge to the Bitcoin blockchain, and Snowfork, which is a bridge to the Ethereum blockchain. Similarly, Statemint, a generic asset issuing platform, was proposed as the first public interest project for the Polkadot Network.
There have already been several projects that have expressed interest in participating. Acala, which is set to become Polkadot’s single point of contact for decentralized financing, will bid for the Kusama implementation called Karura. Moonbeam, an Ethereum compatible smart contract platform, is looking for a slot for its Kusama version called Moonriver. And Kilt, who wants to provide decentralized credentials in the form of a universal login for Web 3.0 applications, will also try to secure a Parachain slot. All three projects were extremely active in the Rococo test network and have active community participation.
Cointelegraph spoke to Dan Reecer, Vice President, Growth at Acala, about how the dual implementation of Kusama-Polkadot will work in practice. He stated that both Acala and Karura want to be the decentralized financial hubs of their respective platforms and the project plans to keep them running at the same time. However, everyone has a role to play, as he said:
“The difference between Karura and Acala is that with Karura we are more willing to take risks and experiment with new features and products. We follow the polkadot ecosystem paradigm from test network to experimental network (kusama) to main network (polkadot). For DeFi on Polkadot, Acala will remain the bank-grade risk averse network for DeFi, with likely much higher TVL and assets under management in the Treasury. “
Although the roadmap has no deadlines, projects appear to be going into production within weeks or even days of securing a slot. Derek Yoo, founder of the Moonbeam Network, confirmed that Moonriver is as good as operational. He told Cointelegraph, “Moonbase Alpha has been running continuously since September 2020. During this time we were able to release six upgrades for the environment, each with important new functions. “
“We were able to iterate quickly because we have this stable testnet environment, and we think it prepared us well to go live as a parachute.”
Ingo Rübe, CEO of Kilt Protocol, told Cointelegraph: “After winning a Kusama Parachain slot, Kilt will go live in days instead of weeks. The functionality for decentralized identifiers (DIDs) and verifiable credentials is ready and has proven to be stable in our test network. “
If the demand for a slot actually turns out to be high, then likely many other projects will show their interest to vie for a slot on Kusama, especially given the fact that many projects have been patiently waiting for the parachain auctions with no date for the date it was confirmed to have happened. Plasm, Darwinia, Robonomics and Crust are just a few of the other projects that are likely to participate.
What about the prices?
Assuming that the competition for the slots is high, this is a sufficient predictor of bullish price movement for KSM and DOT. At the most superficial level, more competition means that bidders are likely to aim high from the start. Since tokens are tied for the duration of the lease, some of the circulating supply of DOT and KSM will be removed from the markets, thereby limiting the supply.
However, the Kusama Parachute Auctions will be the first live event of its kind, so there is a possibility that things do not go as planned. While the barriers to entry to the market for purchasing a slot are relatively high, there is a possibility that some players will try to outbid the competition only to sell it in secondary markets at an even higher price.
This is indeed a scenario recognized in the Polkadot documentation. There is also a chance that such an actor could attempt to “crouch” on the Parachain slot to prevent other projects from using him.
Such a scenario would not look good for the Polkadot ecosystem and would make it difficult for projects hoping to secure a parachute slot. It is difficult to say about the price of tokens. A bidding war could, on the one hand, have a positive effect on prices, on the other hand, the reputational damage could undo bullish effects.
Another unknown is how the leasing rules and the ongoing auction process can affect the overall stability of the Polkadot ecosystem. Projects that are already in operation could lose their place later. Again, bidding wars at auctions could mean good news for token prices, but they could discourage smaller projects from participating.
Parity’s Mauric doesn’t think this will be a problem, however. He explained to Cointelegraph that the early parachutes will most likely get into the hands of established projects “that have been building their substrate chains for years,” and continued:
“There are several options for a project that won’t win a slot on Polkadot initially, including deploying a parachute on Kusama or investigating deployment as a parachute in the future. Many application level projects are parachuted at launch, providing additional opportunities for teams and projects to collaborate and build on the active parachute while waiting for their own slot, if that’s the goal of their community. “
A word of caution
Ultimately, the highly anticipated launch of parachutes doesn’t just mean good news for the projects involved or those sticking to KSM and DOT tokens. While BTC, and altcoins in particular, has seen a boom in the past few months, the price of DOT has moved largely sideways since the initial surge above $ 40 in mid-February. Further delays in release are likely to put more pressure on the price of the token.
If you are thinking about participating in the crowd loan process, beware of scammers. The Kusama auction page has a warning that there may be fake crowd loan campaigns making the rounds. So if you are planning on putting your DOT or KSM in a parachute caching loan, make sure you have done your due diligence on the project in question.
None of this means that any of these potentially worst-case scenarios will materialize and negatively impact the milestone on the Polkadot trip. The project has a pre-built suite of projects that are ready to use right out of the box. From that perspective, this launch may be a bigger deal than many other mainnet launches that will have to work afterward to attract development.