The Risks and Rewards of the Polkadot Parachain Slot Auction
Polkadot (DOT) and Kusama (KSM) parallel chain card slot auctions are becoming increasingly popular, with more people discussing them in the community. Previously low-key projects in the Polkadot ecosystem have now come out to promote activities, including major trading platforms. Some even throw a special fund of several million US dollars to support the Polkadot ecosystem project specifically.
BigONE, as a world-renowned cryptocurrency exchange, is creating high-quality products that can deliver both liquidity and flexibility. When users invest in DOT, they will benefit from BigONE’s unique free position holding service with no lock-up period, which increases flexibility. In addition, they will be able to convert it 1:1 to BigONE DOT (BDOT). Furthermore, BigONE will take snapshots of the user’s BDOT account regularly to distribute rewards. In addition to investing in DOT to obtain BDOT, users can receive BDOT through DOT/BDOT and BDOT/USDT trading pairs, significantly increasing their liquidity.
Some claim that the Polkadot Parachain card slot auction contains massive wealth opportunities, while others claim it is a “replica” of the EOS super node election. Investors may even be perplexed by mixed reviews. BigONE’s advice is to let go of our preconceptions when dealing with new things and approach them with an open mind. In support of that aim, in today’s article, BigONE will provide you with a thorough understanding of the upcoming Polkadot Parachain Card Slot Auction.
What is Polkadot? What is KSM?
Before we get into the Parachain card slot auction, let’s first define Polkadot itself.
Many people think of “cross-chain” for the first time when they think of Polkadot. According to the official introduction, Polkadot’s goal is “a high-performance and scalable heterogeneous multi-chain blockchain”. So, what exactly is cross-chain? What role does it have?
Many high-quality blockchain projects have emerged in the blockchain industry since the birth of Bitcoin, and each blockchain project has its ecosystem. However, these blockchains face an ‘information silo’ problem, which means that different blockchains cannot communicate with one another, and data, assets, and information cannot be transferred and exchanged. This necessitates some cross-chain collaboration or interaction. Unfortunately, this is often hard to implement. Cross-chain is the process of bringing all blockchains together to allow for unified deployment, management, and interconnection. This is the most effective solution to the issue of blockchain information siloes.
Using Wrapped Bitcoin (wBTC) as an example, we can see how strong the demand for asset cross-chain technology is across the blockchain industry. wBTC is a token that can be issued on Ethereum using the ERC20 protocol. It is pegged at a 1:1 ratio to Bitcoin. Because of the emergence of wBTC, BTC is now available on the Ethereum network. Circulation becomes a reality because of cross-chaining. Bitcoin assets can thus be incorporated into the world of Ethereum wallets, DApps, and smart contracts. This makes wBTC one of DeFi’s most critical solutions, a watershed moment if you like.
After all, only the achievements within the project matter, no matter how well a project develops. It is not conducive to the development of a project if data and assets cannot be exchanged and transferred between projects. Polkadot, a high-performance cross-chain project, has the potential to solve this problem and enable network chain interconnection fundamentally.
Polkadot, on the other hand, is more than just a link between two chains. It builds a network that can support all blockchains. Any blockchain can be added to it, resulting in a specific network effect. This distinguishes Polkadot’s cross-chain from those of other projects that only do single-line cross-chain. Thus, Polkadot appears to be a blockchain infrastructure. Unlike Ethereum, Polkadot is a network that can connect all blockchains. Polkadot provides an underlying architecture that enables each blockchain to participate while sharing security and functionality. The benefit of this is that other blockchains do not need to learn how to build a cross-chain facility, instead of focusing on their own business.
A relay chain, a parallel chain, and a transfer bridge comprise the Polkadot network system. The relay chain serves as the “brain”, and each parachain serves as an “organ”. The transfer bridge is essentially a type of parachain, but it is also responsible for connecting other blockchains with different structures. The term “cross-chain” refers to the fact that each “organ” manages its affairs while submitting the most compelling liquidation and verification to the “brain” for completion. The “brain” provides the final proof of each “organ’s” certainty. It also offers precise instructions and assurances of safety for each “organ”.
We must mention an essential component of the Polkadot network, which is Kusama, also known as KSM. Before the launch of the Polkadot mainnet, it had always served as the “Polkadot test network”. When Polkadot’s mainnet launched, KSM’s identity was changed to that of Polkadot’s leading network. As a result, many new features will be tested first on KSM and then added to Polkadot if there are no issues. This is like the relationship that exists between Bitcoin and Litecoin. Many new Bitcoin features will be tested on Litecoin first and then deployed on Bitcoin if there are no issues. Polkadot’s parallel chain card slot auction will thus be launched first on KSM.
What is the Parachain Card Slot Auction?
Polkadot’s relay chain was previously compared to a “brain” and a parachain to an “organ”. The parachain card slot auction aims for each “organ” to join the “brain” for unified management. It is critical to understand that blockchains with different architectures, such as Bitcoin, Ethereum, and EOS, are all independent blockchains that serve as the previously mentioned “information silos”. When the parallel chain card slot is successfully captured and becomes Polkadot’s parachain, these chains can interact with the Polkadot relay chain directly or via a transfer bridge and other parallel chains connected to Polkadot. Interaction, generating more-overlay services, improving scalability, and reaping the relay chain’s security guarantee benefits.
However, because the operation of the parachain requires a certain amount of network computing resources, there will be a limit to its number. Polkadot project founder Gavin Wood once stated that the parallel chain card slots available on Polkadot’s relay chain could be limited. One will be released, and the next card slot will be released at a specific time interval, so the project party must obtain it through an auction.
A more accurate statement would be a parachain card slot ‘lease’ auction instead of a parachain card ‘slot’ auction. Card slots for Parachain are only rented, not sold. Polkadot’s parachain card slots have a lease period of six months to two years. Four lease periods can be bid on at the auction, implying that the project can be auctioned. The lease period of the parallel chain card slot on KSM will be reduced for one or more lease periods.
Candle auctions are used in parachain card slot auctions. Candle auctions evolved from ship auctions in the 16th century. The executor of the auction lit a fixed-length candle after the auction began. The highest bidder at the time the candle was extinguished would receive the auction item. Card slot auctions on the blockchain will simulate this process. It has two stages: a security period and a random period. During the security period, the auction will continue indefinitely. Then, the hammer will be dropped at any time by a random number. When the hammer falls, whoever has pledged a large number of DOT/KSM will be able to rent this card slot.
Due to cost considerations, the project party can’t buy DOT/KSM on the secondary market and pledge it to themself when bidding, but will introduce related incentive mechanisms, such as token rewards for the project, to incentivize other users to commit DOT/KSM to themselves. These pledged DOT/KSM are locked after the user pledges the project party. If the project party captures the parachain card slot, it will remain closed until the card slot rental period expires. If the project party does not capture the card slot, the auction will end with unlock and release.
It should be noted that, even though the pledged DOT/KSM is in the hands of users, it has lost liquidity. Nonetheless, this long-term pledge and low liquidity model is intimidating for many people, so the BigONE innovative model mentioned above is valuable. This is analogous to EOS node voting. Users can exercise their voting rights and vote for supporting nodes after pledging EOS. However, even though the pledged EOS is in the hands of users, it loses liquidity.
Parallel threads were added to the Polkadot system in addition to the similar chain slot. Similar threads can be thought of as “shared parachain’s”, allowing multiple projects to share specific parachain card slots in units of blocks. As a result, Polkadot created the parallel thread specifically for projects that cannot afford the card slot auction fees or whose business model does not necessitate long-term card slot rental.
Risks and rewards coexist
As previously stated, due to cost considerations, the project side will introduce some incentives, such as rewarding the project’s native tokens, to encourage users to pledge DOT/KSM to them. Although these pledged DOT/KSM remain in the hands of users, they will lose liquidity. Furthermore, if the currency price falls, the pledged DOT/KSM will not sell the stop loss in time. This is a potential risk that investors should consider before participating in the pledge. Still, if the user chooses to use the BigONE Exchange, there is no need to pledge, and it can be bought and sold at any time, effectively avoiding the risks caused by the pledge and currency price decline.
Talking about the benefits
If the DOT/KSM is pledged to the project party, the tangible benefits are the project party’s incentives, most of which are the project’s native tokens. If subsequent projects succeed and grow more substantially, the value of these tokens will rise as well. However, when pledging, we must select projects that are both high quality and practical. Second, as the parachain slot auction progresses, the number of DOT/KSM that can be circulated across the entire network decreases, reducing resistance to price increases. Of course, the price is influenced by a variety of factors, not just liquidity. These advantages are available on BigONE without sacrificing liquidity or flexibility.
Get involved in the Polkadot Parachain Card Slot Auction
Suppose you are a seasoned user of the currency and are familiar with the wallet’s various operations. In that case, you can directly pledge DOT/KSM to the project party you support via the wallet. According to the official announcement, the Polkadot/KSM wallet will gradually add corresponding functions, and related tutorials, and you can directly participate by following the process.
If you are a new user, it is best to participate through a node service provider or a cryptocurrency exchange that offers card slot auctions, such as BigONE. BigONE tokens, once again, do not require collateral and are liquid. This method has the advantage of having a low, simple, and convenient threshold. When selecting a platform, choose a node service provider or trading platform with a good reputation. Whatever method you choose, the prerequisite for participation must be knowledge and evaluation of the potential risks and benefits, not simply following the crowd.
Polkadot has gotten a lot of attention from the industry since the first edition of the whitepaper was released in 2016, and the parachain is one of the most critical steps for Polkadot to realize the “cross-chain” vision. In conclusion, BigONE believes that the upcoming parachain card slot auction is exciting and worth investing your time to find out more and take part.
For more details of BigONE’s Polkadot Parachain slot auction product service launching in November see here.
