How much intrigue is behind Kusama’s parachain auctions?

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Eleven projects took part in the race when the Kusama Parachain auctions began on June 15. A few more were added to the first batch during the last auctions. With a whopping 900,000 KSM (approximately $ 180 million at the time of writing), are the Kusama auctions still fair and democratic, or is everything already being decided by whales? Let’s analyze the available data and try to shed some light on the current state.

Where we are now

As announced on June 8th, the first series of Parachain auctions on Kusama will include five events, each one week long. During the auction, projects in Kusama’s native token are offering KSM for their Parachain slots, and it takes approximately 100,000 KSM (or around $ 20 million) to win. To finance their offers, projects run crowdloan campaigns. A crowdloan is an innovative crowdfunding mechanism that ecosystem participants use KSM for their preferred parachain candidates and receive rewards in their utility tokens.

The first auction ended, and Karura – Kusama’s decentralized financial center (DeFi) – was clearly in the lead with an incredible bid of 501,138 KSM (about $ 100 million). The second auction only ended a few days ago and there was little doubt about its winner. Moonbeam’s Canarian network, Moonriver (205,935 KSM deployed), steadily gained 50% over nearest rival, Shiden Network (100,544 KSM). The latter, in turn, outperforms Khala Network (27,474 KSM) by 73% and appears to be an obvious leader for the third auction.

Here is the current list of the best:

From this graph the reader can conclude that the first three auctions were bought by major investors for their sock puppet projects, while the real competition is for the fourth and fifth auctions. But both conclusions are far from reality and I’ll explain why.

Parathread ID 2000

The very first crowdloan campaign was registered for a candidate under the ID 2000 and occupied the first line in the list of campaigns on the Kusama network. The name of the project, Karura, is symbolic. Kusama’s logo is in the shape of a bird, while Karura is a mix of a human torso and a bird’s head, which is symbolic in Japanese mythology. Perhaps this is directly related to whether an established connection with Kusama could make people godlike and inevitably align the creators of Karura with the gods who rule Kusama’s beings.

Karura’s crowdloan kicked off on June 11th, a few days before the first auction, and no other campaign generated as much interest. On June 17th, Karura collected an unprecedented 400,000 KSM. The total was 501,138 KSM, making Karura the unconditional winner of the first auction. Let’s take a closer look at the breakdown of the campaign’s posts:

These data may surprise those who expected large contributions to dominate strongly, but the distribution between small and nominal whales looks pretty organic.

Perhaps just a single post of 46.415.89082 KSM (around $ 9 million) stands out among other things. But there is a clear explanation: it comes from Kraken who launched their interface for Kusama crowdloans to pool bets for their users. Since the data on Kraken users’ activities is publicly available, we can see how it breaks down into individual posts:

The deposits on Kraken were evenly distributed over the entire period of the campaign and we could not detect any particular bursts of activity. It looks like Kraken users have shown increased interest in the Karura crowdloan campaign, which was expected given that Karura started its crowdloan before others.

We can further summarize the above tables into nominal whales (who gave more than 1 million KSM), average keepers (who contributed 50 to 1,000 KSM), and retail users (who contributed less than 50 KSM). The aggregated data looks like this:

Despite a significant proportion of whales in the Karura crowdloan (46.58%), the results still suggest extremely high activity by retailers. The total number of 16,896 individual participants in this campaign is almost three times as many as in Moonriver, the closest competitor:

With all the positive atmosphere around Karura, two questions remain to be answered. Firstly, without doubting that he wants to make a safe bet, is it worth paying that much for the Parachain slot? Second, how does it plan to maintain the implicit value of KAR to guarantee contributors a reasonable reward for their KSM since the token is not yet live and there will inevitably be selling pressure at launch?

Whales do not (yet) rule these waters

Interestingly, the bigger picture doesn’t change much when we look at two other front-runners in the race: Moonriver and Shiden.

Connected: Polkadot parachains full of promise, but the lack of a start date is cause for concern

Moonriver brings the smart contract functionality from Ethereum to Kusama. The parent project is very popular in the Polkadot ecosystem, and its sister chain also saw significant demand in Kusama. Moonriver clearly won the current second auction with 205,935 KSM, which were contributed by 5,977 participants:

If we summarize data by categories of retail, average, and whale participants (as we did for Karura before) it looks like this:

We’ll see almost the same line-up when we look at the second largest competitor in the current race, Shiden. Shiden is a Kusama-based sister chain of Plasm, a network for DApps that supports the Ethereum Virtual Machine and WebAssembly.

Shiden has raised 100,544 KSM from 4,192 contributors while having 50% less than Moonriver’s bid. Here is the breakdown of the posts and just like Karura, the largest single post comes from the Kraken exchange:

If we group by category, we will find that Shiden is getting a little more attention from retail and midsize vendors than Moonriver, with a little less dominance from whales:

As such, the whales share an average of 48% of the posts in these top three crowdloans. Of course, none of these projects could win a place without your support. But the influence of the retail trade participants (especially medium-sized companies) is impressive – on average over 50% of all participants.

As you can see, the idea that whales bought the first three slots is wrong. But for now, let’s find out how much competition there is for the last two auctions.

Is there life on Mars?

Since everything is clear with the first three parachains, it seems that the activity around the last two auctions should be even more intense. On the one hand, many more projects are competing for the remaining places (there are already 10 of them and a few more joining the competition). On the flip side, there isn’t a single project that claims to be an unconditional leader, so the uncertainty should encourage the community to endorse their favorites.

But when we see the actual KSM amounts for these 10 remaining projects, they look pretty modest. Overall, these 10 projects only raised about 10% of the funds raised by the top three Parachain candidates. Given Shiden’s 73% advantage over its closest competitor in the 10, Khala Network, it is very unlikely that there will be any real competition between them for the third slot.

Additionally, there is a dramatic contributor gap between Shiden and Khala Network, whose campaigns currently have the most community activity of the other remaining projects (4,192 contributors and 1,426 contributors, respectively). The other nine contenders combined don’t even have half of Shiden’s individual contributors.

Given the circumstances, is interest in the Kusama Parachain Auctions declining, or are there other reasons for the modest results of these 10 projects? How will the situation develop as we approach the last auction?

View into a crystal ball

Any single forecast could be far premature as the fourth auction kicks off on July 6th in more than a week’s time. The landscape can change drastically as we approach this auction.

Retail contributors are most likely looking to take their last chance to participate in Moonriver and Shiden’s big crowdloan campaigns. The remaining campaigns are out of scope for now and their actual activity could be closer to the last two auctions. In this sense, these large crowdloans are currently displacing the smaller ones.

Additionally, the remaining 10 projects may have some whales or their own large assignments up their sleeves. It would be best if they only reveal these when the third auction is nearing its final stage. This strategy could be one of the reasons we don’t see solid numbers here yet, similar to large crowdloan campaigns.

To make further assumptions, we will group the remaining contenders based on the type of current participation in their crowdloan campaigns. This essentially brings us to the following three groups:

  • Organic: The group in which the distribution between retail and whale participation is most comparable to the distribution among the large crowdloans.

Here we see that Khala Network is currently leading among these 10 projects. The KSM volume is evenly distributed across the user groups in these campaigns and the overall distribution looks pretty good. There aren’t many whales left to support them now, and their average contribution is around 2,700 KSM.

  • Monopoly: The group in which whales strongly dominate the retail participants.

In some of these campaigns, whale participation is approaching 90%, with fair community and retail interest being quite modest. On average, each whale contributed over 3,500 KSM to these crowdloans.

  • Democratically: The group where retail involvement dominates over whales or whales have not yet contributed.

As we can see, the whales are not there yet while most of the funds come from medium-sized donors. Darwinia Crab Network stands out among these projects because it attracted the greatest amount of community interest compared to others in this group.

Assuming retail interest shifts back to the remaining 10 projects after the third auction ends, each of these groups should have some kind of strategy to win:

  • Organic: They appear to be the most balanced while seeing constant interest from both retail and whale vendors. Therefore, you should maintain this level of consistency, but keep in mind that both categories are extremely important for a positive outcome.
  • Monopolistic: Of course, it depends on the “hidden jokers” to better develop community engagement. Ultimately (and we can see this from the experience of the top projects), retail support is of crucial importance.
  • Democratic: We don’t know if there are agreements with whales behind the scenes, maybe ones that they keep secret until the right time. If not, however, they could get into trouble. It is unlikely that their communities will get them to the top by the end of the third auction. If so, the influx of new contributors will dry up as viewers avoid the risk of a missed opportunity by betting on a knowingly wrong horse.

Apparently, some projects have done their homework to analyze the data behind the current campaigns. They recognized the influence of private and medium-sized donors and the importance of raising as much money as possible before the fourth auction. These players try to base their strategies on these findings.

For example, Khala Network – Phalas Canary Network, which brings confidential cloud computing to Kusama, announced an increase in its rewards for deployed KSM on June 25. Instead of 120 PHAs, all contributors will receive 150 PHA if Khala Network manages to collect 30,000 KSM. It seems that the project sees the 30,000 KSM milestone as an important threshold that will allow them to win the slot. In addition, non-fungible tokens (NFT) gifts will be airdropped to all Crowdloan participants who have contributed more than 1 KSM. Taken together, these steps illustrate the retail focus of Khala’s campaign.

Another example is Genshiro, a Canarian network operated by Equilibrium and the second of two high-profile DeFi platforms competing for Kusama parachains. On June 24, the day before Khala, the project announced changes to its crowdloan campaign, including an improved reward structure where rewards for contributions under 50 KSM were doubled from 1,000 GENS to 2,000 GENS per KSM. In addition, participation over 50 KSM is now considered to be large and the participants receive a 20% bonus, which rewards 2,400 GENS for each KSM. In addition, it has decided to unlock 10% of the reward assignments right after Parachain launches.

The bottom line

The top three Parachain winners are already undisputed given the high level of retail participants’ participation in their campaigns. However, the result of the last two auctions depends primarily on the behavior of the crowd and the availability of “hidden” KSM allocations.

As we shall see, some projects like Khala Network and Genshiro are already preparing for the potentially fierce competition for participants in the retail sector, as the last two auctions have shown. The eventual winners, however, will rely on the successful combination of whale support and good marketing campaigns that will maintain high interest through July 13th.

Will the intrigue persist for the final auctions? This depends on whether the interest and pockets of the crowd have been exhausted during the first three auctions. If so, all competition will come back to normal whale support muscle play. Otherwise, very soon we can expect a fascinating competition between the most skilled teams in the Polkadot and Kusama ecosystems.

All data used in this article is from the auction status on June 30th at 8 a.m. UTC.

This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision. The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.

Alex Melikhov is CEO and founder of Equilibrium, an interoperable DeFi conglomerate on Polkadot, which consists of a cross-chain credit platform and an order book-based decentralized exchange. With over 14 years of entrepreneurial and fintech experience, Alex has been working in the world of cryptocurrencies since 2013. His current project Equilibrium aims to solve the problem of liquidity fragmentation in DeFi.