A Parachain (“parallel blockchain”) is an individual Layer 1 blockchain that runs in parallel with the Polkadot and/or Kusama ecosystem. When connected to the Relay Chain — the Layer 0 multi chain network at the heart of Polkadot — Parachain teams can benefit from its governance, security and interoperability to build a variety of applications and use cases.
At the moment the Polkadot Relay Chain can support only a limited number of Parachains (about 100). With nearly 400 projects currently building on top of Polkadot and Kusama, this creates a scarcity of Parachain slots, which will be allocated to teams via a series of Parachain slot auctions in 2021.
Parachain Slot Auctions
To secure a slot, a Parachain candidate must acquire it through a non permissioned candle auction — an auction type that with an unknown ending time.
Each of the 100 available Parachain slots is divided into four lease periods of 6 month each, and projects can bid for single or multiple periods according to their needs.
As the canary network of the Polkadot ecosystem, Kusama will be the first chain to start the Parachain slot auctions, and there is an influx of projects expected to participate. Every 3–4 weeks a new batch of projects will be connected to Kusama as Parachains, with about 30 Parachains coming onboard in the first year.
To participate in a slot auction, a Parachain candidate project needs to choose the lease period, or combination of lease periods (there are four lease periods of 6 months each) and stake the a number of DOT or KSM tokens. The winners of the slot auctions are determined by a complex and innovative mechanism, which is basically a combination of the highest number of DOT or KSM staked and the lease period combinations.
A candidate project can stake their own DOT or KSM tokens, and/or incentivize community members to lock their DOT or KSM through crowdloans.
Community members who participate in the crowdloan of the project they support will lock their DOT or KSM for a period of 6, 12, 18 or 24 months and receive incentives (which can be project tokens and/or any other incentives) for doing so. Please note that DOT or KSM tokens which are locked in the crowdloan can not be staked on the Polkadot or Kusama mainnets for staking rewards. To attract crowdloan funds, project teams must take this opportunity cost into consideration and bring appropriate incentives to the table.
Crowdloans are currently offered by centralized exchanges, which are subject to counter-party risk for participants. Bounce Finance is the first and only decentralized solution, offering crowdloans and terminating third party risk. As of now, Bounce is set to become the home for decentralized Kusama and Polkadot crowdloans.
We will be announcing the first candidate projects and more details on how to participate in the coming days. Stay tuned!
Read more bout Parachain auctions and Crowdloans