Polkadot stands out as one of the most active blockchains in the crypto world, boasting over 300 projects built within its ecosystem.
This blockchain maintains a standard where projects standing within its ecosystem are deemed worthy and have the intention of long-term development.
Although 300 might not seem a substantial number compared to other blockchains in the same generation, such as Ethereum, projects within Polkadot are of high quality.
Ensuring the legitimacy of projects within the Polkadot ecosystem is achieved through Parachain Auctions, which serve as auctions for developers to secure a place to build within its ecosystem.
Polkadot is the first blockchain to implement this mechanism, thereby giving its ecosystem a unique edge, which is also viewed positively.
What are Parachain Auctions?
Polkadot is a blockchain ecosystem that prioritises multi-chain functionality. This means its blockchain ecosystem differs from others, as developers within it can not only build DApps or decentralised applications but also their own blockchains.
This mechanism is established due to the presence of the Relay Chain and Parachains, forming a kind of layer 0 beneath the layer 1 blockchain.
The purpose of the layer 0 blockchain is to serve as the space for the creation of layer 1 blockchains and for layer 1 blockchains to communicate with each other.
The Relay Chain serves as a space for specific transactions, including connecting data between one blockchain and another within the Polkadot ecosystem.
Meanwhile, Parachains serve as the space for the construction of layer 1 blockchains due to their infrastructure, which facilitates developers to build anything on top of them.
Parachains themselves do not have to be used to build blockchains because within parachains, developers can build decentralised applications that will follow Polkadot’s own consensus mechanism as a blockchain.
To build anything within Parachains, developers must participate in Parachain auctions or auctions.
These auctions take place over a period of one week, with their schedule determined through a voting process by the Polkadot community.
During this period, developers must lock DOT tokens in an amount they are willing to offer, with higher amounts increasing the likelihood of winning.
However, a higher amount of locked DOT tokens does not guarantee that the developer will win. This is because the auction uses a Candle Auction mechanism, meaning the selection of winners will not be determined in the final period but at a randomly chosen period according to the community.
For example, if the auction lasts for seven days but the community and auction mechanism decide to select winners on the fifth day, the winner will be determined based on the highest amount of locked DOT tokens and support on that fifth day.
This mechanism is implemented suddenly to minimise the potential for sniping or participants seeing the highest amount of locked DOT tokens and deciding to outbid that amount by locking a higher amount just before the end of the auction.
Thus, the auction period will end randomly to eliminate this possibility in order to create a fair auction.
In addition to a high amount of locked DOT tokens, developers can also seek support by embracing the community.
In the case of auctions in Parachains, developers can also involve the community in contributions, so the locked DOT tokens do not have to come solely from the pockets of the project developers but can be collected through “crowdfunding” with supporting communities through Crowdloans.
This feature is provided directly by Polkadot, and all fundraising occurs on the Relay Chain network because Parachains will be emptied for new occupants, namely the auction winners.
According to data from Polkadot’s official website, there will be a maximum of 100 Parachain slots available, allowing for a maximum of 100 winning projects.
These 100 slots have rental periods ranging from 8 to 12 weeks, and if the rental period expires, they must go through the auction process again.
Therefore, it should be noted that the slot for building projects is not a permanent place where winning once in an auction will last forever.
This mechanism is also one of the reasons why projects in the Polkadot ecosystem are still limited, as while it establishes good curation for projects with good intentions, it also becomes a complex matter that diminishes developers’ interest in it.
How to Participate in Parachain Auctions
To participate in auctions on the Polkadot Relay Chain, there are three ways to do it, which is through centralised exchanges, a Polkadot based wallet, and through the official decentralised applications formed by Polkadot.
Through centralised exchanges, two exchanges that offer this feature are Binance and Kraken, but only for communities, as on these platforms, Parachain participants are investors who vote and participate in Crowdloans.
The process involves accessing the application and exploring the available projects for support. Users will be prompted to lock DOT tokens in exchange for tokens from the supported project. This is done by clicking on the “Vote” button as shown above.
Once participation is complete, investors can claim the tokens by visiting the same page and clicking on the “Redeem” button as shown above.
Another way to contribute by being an active member of the project’s community is to use the Nova Wallet.
If you want to use the wallet according to the official guide from Polkadot, the steps are very straightforward. Firstly, you need to deposit DOT into the wallet and then go to the voting page.
Once there, the next step is to choose which project you want to support in the crowdloan and then click on the project’s image.
After entering the project’s page, the next step is to determine how many DOT tokens you want to contribute to the crowdloan and understand how long they will be locked for.
Finally, if everything is in order, the last step is to confirm and the DOT tokens will automatically be locked in the crowdloan.
If one wishes to participate directly in the Parachain auction, the process is a bit more complicated as it involves installing a node on a laptop or computer.
The first step is to install a node through the Polkadot Node JS Extension and follow the instructions on the website.
There are two installation methods: via Chrome or Firefox. This application acts as a node connecting developers or investors who wish to participate in Crowdloans directly on the Relay Chain with the Polkadot.JS application.
Once the installation is complete, the next step is to access the Polkadot.JS application and ensure that there is an account or wallet connected.
The next step is to go to the Parachain auction page and enter the auctions page for developers who want to participate in the auction or enter the crowdloan section for investors who want to participate in the auction for supported projects.
If participating in the auctions section, the next step is simply to click on the “bid” button and follow the instructions if there is an ongoing auction. But if participating in the crowdloan, the step is to click on the “add funds” button and contribute to the ongoing auction.
The “bid” and “add funds” buttons are in the same location but on different pages, as they are located in the top right corner. As for contributions in a crowdloan, investors can click on the “contribute” button next to all the available projects.
To send money to the connected wallet with the node account, investors or developers can send it just like a regular wallet, either from another wallet on centralised exchanges or through decentralised wallets.
Once done, the last step is to wait for the results to be announced to see if one has secured a spot in the auction.
This mechanism is unique and rare in other blockchains. However, it becomes one of the attractions for developers to build on Polkadot or for investors to buy DOT tokens.
