Polkadot, the eighth largest cryptocurrency with a market capitalization of $55B, kicks off its first parachain auction on Nov. 11, and investors are lining up.
Nearly $800M in DOT tokens has been contributed via crowdloans, with Acala Network and Moonbeam leading the pack. Interestingly, both are Ethereum-compatible smart contract platforms focused on cross-chain DeFi.
Polkadot’s native DOT token is up 60% in the last 30 days and hit a record high of $54.98 on Nov. 4.
Parachains and Crowdloans Explained
The Polkadot blockchain does things a little differently from familiar Layer 1s like Ethereum, in which applications and the security/consensus mechanism operate on a single chain.
Instead, all applications run on their own customizable “mini-blockchains”, called parachains since they all run in parallel. All parachains connect to the main Polkadot relay chain, which secures the entire network but does not support applications itself.
This approach is meant to minimize congestion on the relay chain by moving computationally intensive applications to parachains, and can be considered somewhat similar to Ethereum’s Layer 2 scaling solutions which aim to alleviate the load on mainnet.
Parachain slots will be leased in a series of auctions commencing on Nov. 11 and will require DOT tokens to be locked for the duration of the lease.
Crowdloans are a way for projects to raise the funds necessary to secure a parachain lease. DOT holders are asked to lock their tokens in support of a particular project and are usually rewarded in that project’s native tokens for doing so.
Kusama Parachain Auctions
Kusama is Polkadot’s canary network, initially launched as a way for developers to experiment with the Polkadot architecture and prepare for deployment on Polkadot. The ecosystem has been expanding rapidly over the past few months, with dapps including Karura, which has positioned itself as the “DeFi hub of Kusama”.
Investors have pledged nearly $200M in KSM tokens in the latest round of crowdloans for parachain slots on Kusama.