Polkadot’s Parachain Auctions will mark the key milestone on its roadmap since the mainnet launched in 2020. The next phase in the testnet (test network) of the Rococo network will include the provision of parachains on the “canary” from Kusama network “. The provision of polkadot parachains in the mainnet will take place later.

What does that mean? The Polkadot mainnet has been up and running for almost a year now, but only the central relay chain is up, with development over the past 12 months focused on implementing the platform’s decentralized governance.

The deployment of Parachain is the final stage to enable the launch of decentralized applications on the Polkadot network. However, since the rollout has far exceeded the originally rumored release date of the first quarter of 2021 and almost 3 months have passed since the publication of the development roadmap, there is still no exact date for the final implementation. So what can we expect from this launch and which projects will be included in the auction?

How do parachain auctions work?

Parachains are efficient shards (shards) on the Kusama or Polkadot network, and the purpose of the auctions is to assign parachain positions to projects that want to work on either network. The overall goal is to have 100 parachains running at the same time. They are opened in batches, however, with the goal of having around 30 active parachains in the first year.

Projects that want a parachain position on Kusama can participate in the auction by linking their KSM tokens in a decentralized candle auction. This can be their own token, but there is also a community lending mechanism for projects seeking tokens from their community.

Candlestick auctions are a variant of open auctions that do not have a fixed end time. This type of auction originated in the 16th century when a candle was lit to determine the duration of the auction. The aim is to encourage participants to place the highest bid as soon as possible as they do not know when the auction will end. This prevents “sniping”, that is, rushing in the last few minutes with a successful bid.

Instead of candles, a random number generator determines the end point of each slot auction as soon as the bidding process is complete. Therefore, bids will be disqualified if they are received after the pre-determined closing time.

It is worth noting that successful bidders do not “buy” their positions, they just rent them, with the total value of the bid locked for the duration of the lease. The rental period is fixed (terms can vary between Polkadot and Kusama) and projects can be offered for up to four consecutive periods. Therefore, the total duration of the offer is also counted towards its value.

After the last rental period has expired, the location will be auctioned again.

Peter Mauric, Head of Public at Parity Technologies – the company that develops the polkadot ecosystem – says competition is likely to be fierce.

“In my opinion, the competition, especially at the beginning for the positions above Kusama and Polkadot, will be pretty tough. Because competitive auctions are usually expected at the beginning, but I suspect that the projects will be very disappointing, especially when you consider that a new position is open to bid every two weeks. “

Which projects are offered for a parachain position?

In theory, any project can participate in the Parachain position auction. However, you need to have codebase and Hodl or have enough community resources of KSM or DOT tokens to outbid the competition.

In addition, the Kusama Council has announced that it will award two locations in Kusama to infrastructure projects that serve the “common use” of the ecosystem. These are PolkaBTC – which provides a bridge to the Bitcoin blockchain, and Snowfork – a bridge to the Ethereum blockchain. Similarly, Statemint, a shared asset issuing platform, was proposed as the first mutual benefit project for the Polkadot Network.

Several projects have expressed interest in participating. Acala, which aims to become Polkadot’s decentralized financial center, will apply to implement Kusama called Karura. Moonbeam, an Ethereum compatible smart contract platform, is looking for a slot for their version of Kusama called Moonriver. And Kilt, which aims to provide decentralized credentials as a universal login for Web 3.0 applications, will also seek a parachain position. All three projects are very active in the Rococo test network and have an active community participation.

Dan Reecer, Acala’s Vice President of Growth, also commented on how the dual implementation of Kusama and Polkadot will work in practice. He stated that both Acala and Karura aim to become the decentralized financial nodes of their respective platforms and that the project plans to keep them running concurrently over the long term. However, each project has its own role:

“The difference between Karura and Acala is that with Karura we are more willing to take risks and test new features and products. We follow the ecosystem model of Polkadot from Testnet via Testnet (Kusama) to the Mainnet (Polkadot). Acala will remain the bank-grade hedging network for DeFi on Polkadot with TVL (Value Locked) and assets held in Treasuries will be much more likely. “

Although the roadmap doesn’t set a date, it looks like projects will be ready to go into production within weeks or even days of being placed. Derek Yoo, founder of Moonbeam Network, confirmed that Moonriver is ready for use.

“Moonbase Alpha has been running continuously since September 2020, and during that time we’ve released 6 upgrades to the environment, each with significant new features. We were able to iterate quickly because we had this stable testnet environment and we felt well prepared to act as a parachain. “

Kilt Protocol CEO Ingo Rübe says:

“After kilt reaches a parachain position on Kusama, it will be up and running in days, not weeks. Functions for decentralized identifiers (DIDs) and verifiable credentials are now available and have proven to be stable in our test network. “

If the demand for the location turns out to be really high, many other projects will likely show interest in applying for a place on Kusama, especially considering that many projects are patiently waiting for positions. Plasm, Darwinia, Robonomics and Crust are just a few of the other projects that could be involved.

TO DRAWthe price?

Assuming the competition for positions is high, it is reasonable to expect bullish action for KSM and DOT. Put more simply, more competition means that bidders can offer higher prices at all. Since the tokens are linked for the duration of the lease, part of the circulating supply from DOT and KSM will be withdrawn from the market, which will restrict the supply.

However, the Kusama Parachain auctions are the first of their kind to be live events, so chances are things don’t go as planned. Although the barriers to entry are quite high, it is still possible that some players will try to outbid their competitors in order to sell them in the market at an even higher price.

Indeed, this is a scenario recognized in the Polkadot literature. It is also possible for such an agent to try to have a parachain location just to prevent other projects from using it.

Such a scenario would not be good for the polkadot ecosystem and would make it difficult for projects hoping for a parachain position. It is difficult to talk about the price of the token. On the one hand, bidding wars can have a positive effect on prices, on the other hand, damage to reputation can destroy any upward effect.

Another unknown is how the rental rules and ongoing auction process could affect the overall stability of the Polkadot ecosystem. Active projects can lose their next position. Again, bidding wars at auctions can bring good news for token prices, but they can discourage smaller projects from getting involved.

Parity’s Mauric doesn’t think this will be a problem, however. He explained that the first parachains will most likely be in the hands of established projects “that have been building substrate-based chains for many years. There are several options for the project that didn’t win a place on Polkadot at first, including implementing a parachain on Kusama or exploring parathreaded deployment in the future. Many application-level projects are deployed on parachain at launch, which opens up additional opportunities for teams and projects to collaborate and build on active parachain while waiting for their own spot if that’s the goal.

A word of warning

In the end, the expected Parachain implementation doesn’t just mean good news for the projects involved or the holders of KSM and DOT tokens. For example, while BTC and altcoins in particular have skyrocketed in recent months, the price of DOT has remained largely unchanged since its initial surge above $ 40 in mid-February.

DOT / USD for 3 months | Source: Tradingview

Finally, beware of scammers when participating in crowdlending. Kusama’s auction site warns that there may be fake crowd loan campaigns running loan rounds. So if you are planning to put your DOT or KSM in crowd loan parachain, make sure you carefully study the project in question.

That’s not to say that any of these worst-case scenarios will happen …