Polkadot’s parachain auctions next month could be a goldmine — if you choose the right one.
For those who haven’t been paying attention to the eighth-biggest cryptocurrency by market capitalisation, the parachain auctions are the culmination of a vision laid out by Ethereum co-founder Gavid Wood five years ago.
Readers may be familiar with how Ethereum is slated to adopt sharding sometime next year, hopefully increasing throughput a hundredfold. Wood took this idea to the next level, realising that there’s no reason each shard needs to be homogenous (identical).
Instead Wood envisioned a diverse network of heterogenous (differentiated) shards — “parachains” — each developed for a specialised blockchain, secured by the Polkadot mainnet.
That’s where the auctions come in. There’s a limited number of slots available on the Polkadot network, so projects have to compete with one another for slots in a crowdfunding auction. Polkadot holders basically get the chance to back a project by contributing their DOT tokens. If that project wins an auction slot, their DOT tokens are locked in a smart contract for 96 weeks (just under two years).
But in return they’ll get the native tokens of the project they’ve backed. This has already happened on Kusama, Polkadot’s “canary network,” and it’s been exceptionally lucrative for those who backed Moonriver (MOVR), the winner of the second auction. Moonriver is a network on Polkadot that’s combative with Ethereum’s virtual machine and Solidity, Ethereum’s coding language.
For each KSM token contributed to the Moonriver crowdloan, backers received 14.56MOVR tokens. At time of writing, Kusama is trading at $403 and Moonriver, at $430. So the 6,000 backers of the Moonriver have enjoyed about a 15x return. AND they’ll get their Kusama tokens back next year.
That said, the rewards for the other projects in batch one of the Kusama auctions have been nowhere near as lucrative.
There’s been a second round of Kusama crowdloans, but none of those project’s tokens have started trading yet. Note that people who backed projects that didn’t win, get their tokens back immediately.
So what’s next
Based on how sizeable the returns were for Moonbeam on Kusama, I think it’s a moderately safe bet that they’ll win the first Polkadot auction, and perhaps very quickly. The candlestick auctions stretch for a week, but there are hard cap contribution limits. It could be that Moonriver hits that within minutes, possibly.
Other hot projects will likely be Kurara, a DeFi hub that won the first Kusama parachain auction, and Kilt Protocol, a decentralised identity solution that handily won the first slot in the second round of Kusama auctions.
If you hold DOT and aren’t going to need it in the next two years, taking part in the parachain auctions seems like a no-brainer to me. (Not financial advice). I’d try to get involved early, and sign up with a project to get any early contribution bonuses they might be offering.
If your DOT is on an exchange, you can take part in the Polkadot auctions from within Binance and Kraken…. or you can simply download the Polkadot browser extension and do so on your computer. If you have your DOT staked, you’ll want to unstake it quick, however, as unstaking takes 28 days and the first parachain auction is November 11.
Based on how the Polkadot auctions played out, if you don’t manage to back a winner of the first two slots in the first round of auctions, it may make more sense to bid your time and contribute to the lead candidate in the second round of auctions, rather than contributing to the fourth or fifth-place candidate in the first round.
Also, some projects might offer “referral links,” where you can boost your contribution by getting others to sign up. While I’m slightly tempted to give you my referral links, you’d probably be better off contributing to the auctions using two different wallets, and using your own referral codes.