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Polkadot Parachain Auction: How Are The Winners Performing After One Year?

In late 2021, the highly anticipated parachain auction process began on the Polkadot network. During a series of candle auctions, projects competed fiercely for the limited slots to become parachains on this next-generation blockchain

Winning a parachain slot provided projects with a valuable opportunity to leverage Polkadot’s interoperability and shared security. However, the substantial costs required to secure a parachain lease also carried risks. Now nearly one year after those first auctions, an assessment of the performance of the auction winners compared to their initial goals and roadmaps can provide useful insights.

The inaugural batch of Polkadot parachains has had a mixed track record over their first year. The group has had Some clear success stories, delivering substantial growth and development. However, some have notably struggled to gain traction and adoption after securing a coveted slot. As the next round of auctions approaches, lessons learned from the first wave of projects can help inform future participants and set realistic expectations. The variety of experiences highlights how securing a parachain slot is just the beginning, with sustained execution required to capitalize on its unique benefits in the Polkadot ecosystem.

What is Polkadot?

Polkadot is a revolutionary three-layer blockchain system that aims to create a highly interconnected ecosystem of independent custom blockchains. At the top layer, users experience various applications and interfaces, each unique to the businesses building them, similar to DApps on Ethereum. The middle layer consists of custom blockchains, known as parachains, which possess distinct features and functionalities based on the specific projects developing them. Finally, the bottom layer, the layer 0 relay chain, is the connecting backbone, linking all the parachains together.

Polkadot’s unique design emphasizes interoperability between different blockchains to an unprecedented extent. For example, the Moonbeam smart contract platform operates with full interoperability with Ethereum Virtual Machine (EVM), enabling it to run Solidity contracts, and users can easily transfer their logins across the two networks seamlessly. Moreover, Polkadot features parathreads, temporary parachains, and bridges that facilitate connections with other blockchains, further enhancing its versatility.

The relay chain plays a crucial role by bundling transactions from all the parachains into blocks. However, to ensure all transactions are included in each block, a parachain slot is required. Presently, there are only a limited number of slots available, with future plans to increase this number to around a hundred. As the first auction for parachain slots on Polkadot concludes, many are eager to witness the development of this low-friction, high-volume ecosystem, with Stably particularly interested in exploring opportunities for stablecoin platforms that can outperform existing solutions and attract significant user adoption and investment.

What is Polkadot Parachains?

Parachains are custom blockchains that connect to the Polkadot network to benefit from shared security and interoperability. The Polkadot relay chain acts as the central hub that parachains plug into, allowing them to interact without needing their consensus mechanisms.

Polkadot has limited parachain slots, so projects must lease a slot through candle auctions to become a parachain. Winning a slot allows a project to launch its own blockchain customized for a specific use case while leveraging Polkadot’s infrastructure. Common parachain specializations include DeFi, dApps, bridges to external chains, and more.

Parachains can transfer data and assets between each other seamlessly thanks to Polkadot’s cross-chain messaging protocol XCMP. This easy interoperability between parachains is a major advantage of connecting to Polkadot. Parachains also control their governance structures, block production rules, and token economics.

Role of Polkadot parachain auctions

Parachains allow projects to create customized blockchains for their needs while benefiting from Polkadot’s security framework and ability to communicate with other chains. The limited slots ensure only the most promising and committed projects will integrate as parachains. Parachains represent the deepest level of integration into the expanding Polkadot ecosystem.

The competitive bidding for access

Polkadot uses parachain auctions to determine which projects can integrate into the limited slots to become parachains. These auctions create a competitive process for projects to lease access to the shared security and cross-chain communication Polkadot provides.

Only the strong survive

The scarcity of slots forces projects to outbid each other, ensuring only the most viable projects secure a coveted position as a parachain. Projects must continually renew their lease through additional bids at expiry, proving ongoing value and usage to maintain their slot. This process weeds out unworthy or abandoned projects over time.

Promoting quality and innovation

The parachain auction model allocates slots to the most promising and committed projects by incentivizing competition. The auctions promote quality since projects know they must initially and continually earn their slot over time. This competitive bidding process is designed to produce the best possible parachain ecosystem.

How parachains help Polkadot scale

Custom shards for different needs

Parachains operate as parallel shards on Polkadot, each optimized for a particular use case. This heterogeneous sharding model allows each parachain to be uniquely tailored rather than taking a one-size-fits-all approach.

Specialized capabilities

For example, Moonriver and Moonbeam are designed to seamlessly onboard projects from Ethereum by recreating their environment. Other parachains focus on goals like privacy, DeFi, identity, etc. This specialization enables advanced functionality.

Scaling through parallelization

By splitting the network into over 100 specialized parachains running in parallel, Polkadot can process transactions for many different applications simultaneously. This parallel processing across optimized parachains allows Polkadot to achieve scalability of the overall network.

In summary, Polkadot leverages parachains to shard its network into specialized, heterogeneous components that can process transactions in parallel. This parallelization of customized shards is key to achieving the scalability of the Polkadot ecosystem.

Parachain auctions mechanism

The integration of parachains with the Polkadot or Kusama Relay Chains is facilitated through the mechanism of parachain auctions. These auctions are an open and permissionless process for connecting Substrate-based independent blockchains (parachains) to the main networks. The primary objective of these auctions is to allocate limited parachain slots to projects seeking to operate on either Polkadot or Kusama. The network aims to host up to 100 parachains running concurrently eventually, but initially, batches of 20-30 parachains will be operational in the first year.

The intentionally scarce nature of parachain slots encourages healthy competition among aspiring parachains, as they must outbid one another to secure a lease. This competitive approach ensures the optimal allocation of fixed Relay Chain resources. Each parachain must compete for the initial launch and lease renewal once the lease period expires. On Kusama, the maximum lease period is 48 weeks, while Polkadot allows a maximum lease duration of 96 weeks.

The competition and scarcity are inherent in the parachain auction process help guarantee that only the most viable and successful parachains occupy each slot. Parachains that demonstrate traction, active usage, and a sustainable token economic plan can retain their slots while underperforming or abandoned parachains relinquish their leases to more promising and deserving contenders. This system incentivizes the development of strong and thriving parachains within the Polkadot and Kusama ecosystems.

Crowdloans foster a thriving ecosystem

Polkadot’s parachains represent a groundbreaking approach to building an interconnected network of independent custom blockchains. However, gaining a parachain slot through an auction can be challenging, especially for new projects. To address this, crowdloans have emerged as a powerful tool that allows projects to rally their communities to secure the necessary tokens for participating in the auctions. In this article, we will delve into the mechanics of Polkadot parachains and explore how crowdloans enable innovative projects to flourish within the ecosystem.

Parachains, the autonomous blockchains that connect to the Polkadot Relay Chain, are key to the network’s versatility. To obtain a parachain slot, projects participate in open, permissionless auctions. The ultimate goal is to have up to 100 parachains running concurrently, but initial batches of 20-30 parachains are operational in the first year.

With limited parachain slots available, competition among aspiring projects is fierce. Established projects may have the resources to secure slots, but this poses a hurdle for new ventures seeking to enter the ecosystem. Crowdloans address this issue by enabling new projects to seek community support in raising the required tokens (KSM for Kusama and DOT for Polkadot) for auction participation.

Crowdloans operate on the principle of community-backed fundraising for a specific project. Community members temporarily lock their tokens into a dedicated crowdloan module on the Relay Chain, securing them against malicious actions. During the auction, the crowdloan module bids on behalf of the parachain it supports. If a parachain slot is won, the lease begins, and the contributed tokens remain locked until the lease ends. Should the auction not result in a slot win, the tokens are returned to their original owners.

Crowdloans offer several advantages. They foster a strong community around projects, separating funding from the contributed tokens’ utility in obtaining a parachain slot. Additionally, they encourage projects to build enthusiastic and engaged communities willing to support their initiatives.

However, successful parachains must continue to fund their slot occupancy over time, which may involve running additional crowdloans or self-funding the lease. Unsuccessful parachains may face challenges in renewing their slots.

The introduction of crowdloans has democratized obtaining parachain slots on Polkadot, providing new projects with an opportunity to thrive within this interconnected ecosystem. By harnessing community support and fostering competition, Polkadot continues to pave the way for a future of innovation and collaboration in digital assets.

Polkadot’s first Parachain auction, a milestone for sharded ecosystem

Polkadot’s highly anticipated first round of five parachain auctions has concluded, and the winners are now making significant strides in building a sharded ecosystem. Parachains are autonomous blockchains that connect to the Polkadot Relay Chain, introducing functionality for smart contracts and specialized computation on the network. These parachains allow developers to unleash the potential of Polkadot’s DeFi and the broader ecosystem, marking a crucial step towards its vision of a sharded multi-chain, proof-of-stake ecosystem.

The first five parachain winners

The first five parachain slots were won by prominent projects, each bringing unique capabilities to the ecosystem. Acala Network, a fintech-focused DeFi hub, secured the first slot and is set to launch customizable advanced financial applications using its EVM Plus open-protocol layer. Moonbeam, with its Ethereum Virtual Machine (EVM) parachain, positions itself as the gateway for popular EVM-based DApps looking to join the Polkadot ecosystem. Astar Network, formerly Plasm Network, supports EVM and WebAssembly-based programming, offering a unique dapp staking mechanism. Parallel Finance, a decentralized lending and staking platform, emerged as the largest decentralized crowdloan platform. Lastly, Clover Finance, a foundational layer for cross-chain compatibility, aims to facilitate high-speed compatibility with EVM-based assets and Layer 1s while emphasizing decentralization.

Crowdloans, the Key to winning parachain auctions

The parachain slots were allocated through crowdloans, a novel fundraising mechanism that allows new projects to rally their communities to raise the necessary tokens for auction participation. Community members temporarily lock their tokens in a dedicated crowdloan module on the Relay Chain, supporting their preferred projects. The winners predict that their dapps and liquid staking derivatives will go live in the coming months, further enhancing the Polkadot ecosystem.

Looking ahead

As the parachain ecosystem evolves, projects will continue to compete for the limited 100 slots available. Once the 100th slot is filled, the first parachain will return for auctions, ensuring a dynamic and ever-changing ecosystem. Polkadot’s sharded design and shared security offer significant scalability for decentralized applications, propelling the network into a new era of innovation and collaboration.

Polkadot’s first parachain auction marks a significant milestone in the network’s journey towards a multi-chain ecosystem. The success of these initial parachains opens the door to a vibrant and diverse ecosystem where projects can thrive and collaborate, unleashing the full potential of Polkadot’s decentralized future.

Winners in the second round of Polkadot parachains

The second round of Polkadot’s parachain auctions has kicked off, with teams vying to join the expanding DOT ecosystem. Polkadot, founded by Ethereum co-founder Gavin Wood in 2016, aims to create a sharded Proof-of-Stake blockchain ecosystem that allows for specialized computation and smart contracts through interconnected parachains. These parachains are allocated to projects that compete in auctions by locking up large amounts of DOT, which is later returned to holders after the lease duration, typically lasting two years.

The first five parachain slots

Five prominent projects secured the first parachain slots on Polkadot in the initial round of auctions. These projects included Acala, Moonbeam, Astar, Parallel, and Clover, each pledging substantial sums of DOT to win their respective auctions. These five parachains went live on December 18, 2021, opening the door for developing innovative decentralized applications and DeFi services within the Polkadot ecosystem.

Acala Network takes the first slot

Acala Network, a DeFi platform built on Polkadot’s sister network Kusama, won the first parachain slot. Acala offers a comprehensive suite of DeFi services, including lending, staking, and decentralized exchange. The platform aims to attract major fintech companies and neobanks by providing a customizable open-protocol layer, EVM Plus, for advanced financial applications.

Composable finance facilitating cross-chain DeFi

Composable Finance secured the seventh parachain slot by offering infrastructure to enable cross-chain DeFi. The project allows smart contracts native to different Layer 1 networks to operate within a single parachain, fostering seamless interactions between L1s and L2s. Composable Finance’s blockchain-agnostic tech stack offers versatility, enabling dApps to deploy across multiple layers and chains without disruption.

Centrifuge, connecting real-world assets to DeFi

Centrifuge, a hub of real-world DeFi, won the eighth slot, connecting real-world assets (RWAs) to decentralized finance. The project leverages its Tinlake platform to mobilize DeFi liquidity and fund invoices, inventory, mortgages, and other assets. The Centrifuge Chain, currently living as its own Layer 1, will become a Polkadot parachain, financing assets from both Polkadot and Ethereum ecosystems.

HydraDX’s Omnipool design for decentralized exchange

HydraDX claimed the ninth parachain auction with its innovative “Omnipool” design for decentralized exchanges. Instead of individual pools for each asset pairing, all assets traded on HydraDX will execute against a single Omnipool comprising a wide range of assets. The project uses two tokens, HDX for governance and Lerna (LRNA) as the pool token, measuring the price of other assets traded in the Omnipool.

Interlay, bridging Bitcoin to DeFi ecosystems

As the tenth parachain auction begins, Interlay stands out with substantial contributions from more than 8,000 contributors. Interlay aims to enable Bitcoin’s use in decentralized finance applications across multiple chains, focusing on bridging Bitcoin to the DeFi ecosystems of Polkadot, Ethereum, Cosmos, and Kusama.

With these winners adding mojo to the expanding DOT ecosystem, Polkadot’s interconnected parachains are set to play a crucial role in fostering innovation and growth in blockchain and DeFi. As the auction phase continues, it remains to be seen which projects will secure the remaining parachain slots and further enrich the Polkadot ecosystem.

Unraveling the parachain auction process on Polkadot

The process of a parachain auction on Polkadot can be complex and dynamic, determining which projects earn a coveted slot to connect to the network. Let’s explore a hypothetical auction scenario to understand how it unfolds, assuming a 7-day auction period and four competing projects: Yellow Parachain, Purple Parachain, Turquoise Parachain, and Salmon Parachain.

Stage 1: Initial Bidding (Day 1)

At the start of the auction, each project places its initial bid. Yellow Parachain and Purple Parachain, utilizing crowdloan functionality, bid their current crowdloan balances. On the other hand, Turquoise Parachain and Salmon Parachain enter their first direct bids. The standings on Day 1 are as follows:

– Yellow Parachain: 600 DOT (crowdloan)

– Turquoise Parachain: 550 DOT (direct bid)

– Salmon Parachain: 300 DOT (direct bid)

– Purple Parachain: 100 DOT (crowdloan)

Stage 2: Dynamic Crowdloan bids

As the auction progresses, the crowdloan-backed projects see their bids increase as more tokens are contributed by the community. The crowdloan remains open during the entire auction, enabling continuous bid updates.

Stage 3: Private bidding

The private-bid projects (Turquoise and Salmon Parachain) can enter additional bids, but they need to be cautious not to wait too long. The auction can end at any moment, and the highest bid at that point would determine the winner.

Stage 4: Intense bidding (Days 4-7)

On Day 4, Salmon Parachain enters a private bid of 5000 DOT, briefly taking the lead in the auction. However, on Day 5, Turquoise Parachain and Purple Parachain make significant moves to outbid Salmon.

Stage 5: Retroactive End of Auction

The auction utilizes a reverse “candle auction” approach, randomly selecting a time interval to end the auction retroactively. In this hypothetical scenario, the interval ends on Day 5, when Turquoise Parachain holds the highest bid.

Stage 6: Turquoise parachain emerges victorious

Due to the retroactive end of the auction, Turquoise Parachain secures the slot, granting it the opportunity to connect to the Kusama network. The lease period begins immediately, enabling the project to operate on the network promptly.

Future challenges

As the auction ends and Turquoise Parachain secures its slot, the remaining parachains must continue to compete for slots in future auctions. Projects utilizing crowdloans keep their modules open, while private bidders might decide to participate in another auction or wait for a less competitive opportunity.

Understanding the intricacies of the parachain auction process highlights the competitive and dynamic nature of securing a slot on Polkadot’s network. The system aims to incentivize the most promising and viable projects to contribute to the network’s thriving ecosystem.

Current state of Polkadot parachains in 2023

The Polkadot network completed its first batch of parachain auctions in December 2021. The winners of these auctions were Acala, Moonbeam, Astar, Parallel, and Clover. These projects have brought new functionalities and infrastructure to the Polkadot ecosystem, including DeFi, EVM compatibility, dapps, and other smart-contract capabilities.

Here’s a brief overview of how they performed

Acala: Acala won the first auction in a close race with Moonbeam. Users of the Polkadot network locked a staggering amount of 68.3 Million DOT for Acala and Moonbeam combined.

  • Moonbeam: After losing the first auction to Acala, Moonbeam stopped accepting contributions to their crowdloan to preserve their targeted reward ratio between locked DOT and crowdloan reward tokens. With the amount of tokens it carried to the second auction, Moonbeam won it easily and without any competition.
  • Astar: Astar won the third auction after closely competing with Parallel Finance. In total, 10.3 Million DOT were locked.
  • Parallel Finance: After losing the third auction to Astar, Parallel won the fourth auction without any competition seven days later, with a total contribution of 10.8 Million DOT.
  • Clover: The fifth auction saw some tense competition between Efinity and Clover. In the end, Clover won the fifth auction.

In total, token holders locked 99.2 Million DOT until October 2023 for their favorite parachain projects. The first batch of auctions concluded successfully, and all systems worked as desired. The network looks forward to the next batch of auctions, which will bring new projects and functionalities to the Polkadot ecosystem.

Polkadot’s parachain progress and plans

Polkadot has been steadily onboarding parachains, with significant additions from the second auction round in December 2021. These include Bifrost, Litentry, Interlay, Quartz, and Phala, which have broadened the network’s capabilities in DeFi, identity, and BTC bridging. The third parachain auction round is slated for Q2/Q3 2023, with the batch size and exact date to be determined through a governance referendum. Over 50 projects are anticipated to vie for 5-10 slots. As Polkadot continues to launch more parachains, it is expected to see a growth in its utility and activity. However, achieving seamless interoperability between chains remains a work in progress. The ongoing auctions are crucial for Polkadot to stay competitive with other platforms like Cosmos and Ethereum in 2023.

Conclusion

As the first year of Polkadot’s parachain auctions draws to a close, there have been successes and growing pains. The initial batch of winners, like Acala and Moonbeam, have made strides in launching key functionality like DeFi and Ethereum compatibility. However, adoption and activity in these early chains remain modest.

Meanwhile, crowdloans have proven an effective tool for bootstrapping new projects and aligning incentives between teams and contributors. Yet over time, projects must deliver ongoing value, not just technical milestones, to justify parachain slots. The bar will continue rising with each successive auction.

This inaugural auction class has laid a promising foundation for Polkadot’s vision, though much work lies ahead. As more projects connect as parachains, interoperability, and collaboration will be key to unlocking the full potential of this multi-chain future. Polkadot’s great experiment in blockchain economies and governance is still in its infancy. But if its team, contributors, and users collectively play their roles, this sharded ecosystem may transform how we build and interact in Web3 and decentralized finance.

FAQs

How many parachain auctions has Polkadot held so far?

Polkadot has conducted 3 batches of parachain auctions, onboarding a total of 23 parachains onto the network so far.

Which auction winner has seen the most adoption?

Acala Network has emerged as the most adopted parachain, becoming the leading DeFi hub on Polkadot with over 200,000 accounts.

Which auction winners have struggled the most?

Parallel Finance and Clover Finance have seen very minimal adoption and activity. Parallel has under $5 million TVL while Clover's token plummeted 95% in value.

What improvements are needed for the parachain ecosystem?

Key areas needing work are interoperability between chains and driving real utility and users rather than speculative activity.

How crucial is 2023 for Polkadot's success?

2023 is pivotal for Polkadot to gain mainstream traction and compete with other ecosystems through launching additional parachains and addressing current limitations.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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John Palmer

John Palmer is an enthusiastic crypto writer with an interest in Bitcoin, Blockchain, and technical analysis. With a focus on daily market analysis, his research helps traders and investors alike. His particular interest in digital wallets and blockchain aids his audience.

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