by Katherine Webb

What is Polkadot?

Polkadot positions itself as a true interoperability blockchain. It is made up of a network protocol that allows arbitrary data to be transferred across open and permissionless blockchains as well as private and permissioned blockchains. It can be thought of as “a blockchain of blockchain’s” or a multichain. The native token for the Polkadot ecosystem is DOT. DOT is used for network governance and can be staked for the operation of the network. It can also be bonded to create a parachain [i].

Polkadot Main Operation

Relay chain: Relay chain acts as the main blockchain and is responsible for the network’s security, consensus (Nominated Proof-of-Stake validation mechanism), and parachain auctions. Its main role is to coordinate all the parachains connected to it. Although this base layer of the Polkadot ecosystem has no smart contract functionality, this can be solved by a connected parachain.

Parachains: Parachains are individual blockchains that connect to the main relay chain (via nodes called collators). But there is no specific reason why parachains should be limited to only blockchain technology. They are built and optimized to serve a single purpose. For instance, smart contracts implementation or to complete transactions at speed. Each parachain can have its own governance rules, but it must be able to pass blocks that the relay chain can interpret. Parachains lease their space in the Polkadot ecosystem by locking the funds for the duration of the lease. Each chain has the ability to disconnect and connect back to the relay chain.

Parathreads: Parathreads are the same as a parachain, but they are used for non-continuous connection to the Polkadot network and use a “pay-as-you-go” model for their leases.

Bridges: Bridges provide cross chain interoperability which allows both the parachains and the parathreads to connect and communicate with external blockchains.

Find below the layout for a single Parachain connected to the Relay chain:

Parachain connected to the Relay chain

Scarcity of Parachains:

Polkadot supports a limited number of parachains, currently estimated at around 100.[ii] Parachains are allocated in the following ways: governance granted parachains which contribute to projects that provide “common good” to the Polkadot ecosystem. There are also auction granted parachains as well as parathreads.

What is a Parachain Slot Auction?

For a parachain to be added to the Polkadot network it needs to inhabit one of the available parachain slots. Parachain slots are sold using a modified un-permissionless candle auction system. This system is where bidders submit increasingly higher bids. The one who submits the highest bid at the conclusion of the auction is the winning bidder.

Some projects use a crowd loan campaign to fund their auction bid, which allows them to accept contributions from DOT token holders. Crowd loan contributors get their DOT back at the end of the lease. Parachain teams can also reward contributors with prizes, for example: an airdrop of the parachain’s native token.

Auctions for Polkadot parachain slots have an open bidding period of roughly one week. The precise moment for the auction ending is determined retroactively to prevent last minute auction sniping. If successful, each parachain slot can be leased for a maximum duration of 96 weeks. The length of the lease is chosen by the parachain when they bid for the slot, with 12-week minimum set lease periods. This allows multiple parachains to win a single auction if they bid on non-overlapping lease periods.

When is the next auction?

The auction starts on November 11th, 2021, with the bidding ending on November 18th, 2021. The winning parachains will be onboarded from December 17th, 2021, with the maximum 96-week lease ending on October 20th 2023.

For more information on the latest actions, click here.

CrossTower provides information on tokens and unique protocols for educational purposes. Certain tokens may not be available for purchase, sales, or trading.

Share

CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.

Research, reports, and market insights from the experts

Sign up for daily reports on trends in the markets, bespoke reports and research, webinars with pros, and more.