A New Chapter in the Blockchain Industry: The Impact of Normalizing Polkadot Parachain Auctions

As 2021 comes to a close, looking back at the development of the Blockchain industry over the past year can be described as spectacular. From the boom of DeFi to the global popularity of NFTs, and now the explosive emergence of GameFi, blockchain technology seems to be gradually integrating into the lives of the public, leaving behind some widely recognized applications and concepts.

It is worth mentioning that as blockchain technology has developed to this point, people no longer question “what is blockchain,” but have begun to focus on the specific applications and implementation methods of products. This may be the biggest progress in the past year.

However, returning to the Blockchain itself, we still face some issues. For example, the high transaction fees of Ethereum, the balance of on-chain security and efficiency, and transaction delays are still troubling the development of the industry. In addition, the cross-chain issues that garnered much attention last year also fill people with anticipation.

Fortunately, at the end of the year, Polkadot finally welcomed the parachain slot auctions. This means that the controversial cross-chain operations may undergo significant changes with the birth of parachains, and the problem of information not being able to interconnect between chains seems to be ushering in a turning point. Some may question whether Polkadot’s parachains truly have such power?

Next, let’s discuss the changes that may occur in the Polkadot ecosystem after the parachain starts operating, as well as the impact these changes may have on the entire blockchain industry.

Polkadot Parachain Slot Auction

1. What is a Polkadot parachain slot auction?

Parachain slot auctions are essentially a leasing mechanism. 80% of the slots will be auctioned in the market, while 20% will be reserved for the Web3 Foundation to support the development of the community and the entire Polkadot ecosystem. The leasing period for each parachain is 6 months, and projects participating in the auction can choose to bid for one period or multiple adjacent periods, with a maximum duration of 2 years. Participating in the slot auction requires locking DOT, and after the leasing period ends, the DOT will be released.

The Polkadot slot auction adopts a form of candle auction combined with random parameters, which is different from traditional auctions. The auction is divided into two phases: during the security period, the project party can freely stake DOT; after entering the random period, the auction will end at a time point randomly selected by the system, using a VRF-based random beacon to determine the auction end time.

To win a slot, the project team needs to stake more DOT before entering the random period. This bidding method effectively prevents “auction sniping” and encourages project teams to participate in the auction early at a reasonable price.

2. Why hold parachain slot auctions?

The operation of a parachain requires the consumption of certain network resources, and currently, the Polkadot relay chain can only support 100 slots, so resources can only be allocated through an auction method.

Secondly, Polkadot is a scalable heterogeneous multi-chain Blockchain, and the realization of heterogeneous multi-chain relies on Polkadot’s unique design. The relay chain and parachains are the main components of the Polkadot architecture.

The relay chain is the center of the Polkadot network, responsible for the consensus of parachains and the overall security of the network. All blockchains can connect to the Polkadot ecosystem through slots, allowing them to not only share the security of the Polkadot network but also interact with other parachains to further expand their own business.

From another perspective, parachain slot auctions are also a filtering mechanism. Projects that can obtain slots need to pay a higher cost, and the longer lease period imposes certain stability requirements on the project party.

Therefore, only high-quality and strong projects can win slots. By connecting to the Polkadot network, projects can collaborate and enhance the composability between them, stimulate innovation in the ecosystem, and ultimately bring new value to the Polkadot network.

The Impact of Normalized Parachain Slot Auctions

Kusama, as the canary network of Polkadot, can be used to estimate Polkadot’s subsequent arrangements based on its situation. Currently, Kusama has established a detailed slot auction plan, conducting a slot auction every seven days, with a maximum lease time of 48 weeks for a Kusama parachain slot. A total of 48 parachains will participate in the slot auction.

This means that when the 48th slot auction is completed, the first slot will have just completed its lease and can be used for the next auction. In this way, Kusama can establish a cyclical auction period of one year and normalize the auction of parachain slots.

Polkadot is likely to normalize the parachain slot auctions in the same way as Kusama. So, what impact will the normalization of parachain slot auctions on Polkadot have on the projects and users within its ecosystem?

1. The impact on Polkadot

Polkadot has entered the stage of normalized auctions, meaning that some parachains have begun to run smoothly, and the Polkadot ecosystem has successfully launched and passed the initial stage. Many ecological projects can start deploying decentralized applications, and the development of the ecosystem will gradually make Polkadot a huge crypto economy.

The entire economy of Polkadot is divided into two major sectors and three tiers.

The two major areas are the internal economy of the ecosystem and the external economy of the ecosystem. The internal economy refers to the economic entities within the Polkadot ecosystem itself, while the external economy refers to the economic entities that connect to the Polkadot ecosystem through bridges.

When the Polkadot slot auctions begin to normalize, it indicates that at least the economy within the ecosystem is steadily developing. At this time, the official focus will shift to the development of parachains and the development of public interest parachains, among which the bridge connecting external ecosystem economies to Polkadot belongs to a category of public interest parachains.

The three tiers mainly refer to the economy within the ecosystem, which are: the first tier of Polkadot’s own assets, the second tier of Polkadot parachain assets, and the third tier of ecological project assets within the Polkadot parachains.

At this time, the Polkadot parachain is striving to develop its own ecosystem, and the third tier has just begun to develop. The value of the second tier will depend on the development of the third tier, while the development of the second tier will further be reflected in the first tier. These three tiers are interrelated and complement each other.

Therefore, the next steps for Polkadot will implement a two-pronged strategy of internal and external ecological economics. The official next steps will focus on supporting the following directions: external ecological economy led by the development of public interest parachains, such as cross-chain bridges; internal ecological economy mainly through accelerating hackathons, improving the Grant program to increase the usage rate of Polkadot technology, supporting more teams to join the Polkadot ecosystem, and vigorously developing second-tier projects. At the same time, the official also provides a program similar to “Builders For Builders Program” for second-tier projects to support them in better developing their own ecosystem, which will promote the development of the third-tier economy.

Regarding the issue of slot auction costs, it needs to be clarified that we cannot draw conclusions based solely on the initial auction situation. The costs of slot auctions will definitely decrease significantly in the later stages. The initial slots have a promotional effect, and many project teams will compete for the first few slots, leading to fierce competition and driving up auction costs. However, in fact, there is no essential difference between the slots, and some project teams may choose to avoid the spotlight and bid for the later parachain slots.

With the normalization of the Polkadot parachain slot auctions, slots are no longer a scarce resource, competition pressure has decreased, and costs will naturally lower. After the launch of parachains, Polkadot ecosystem projects will have more options. Ultimately, the cost of parachain slot auctions will not be significantly higher than the costs of using parachains.

In addition, the cost of parachain slots can also be resolved through the Crowdloan method. If sufficient support is not obtained, it indicates that the project itself has not gained enough consensus and needs to continue its efforts. Therefore, the parachain slot auction is essentially a touchstone for assessing the project’s qualifications, and this mechanism is more responsible for the participants. Alternatively, parachains can also be chosen to meet cross-chain needs.

In conclusion, there are various ways to join Polkadot and gain cross-chain functionality. It cannot simply be assumed that the high cost of slot auctions will affect the development of the Polkadot ecosystem.

2. Impact on ecological projects

For projects that have successfully acquired Polkadot parachain slots, this opens a two-year assessment period for the default maximum slot lease term of (. To ensure they can continue to acquire slots after this lease expires, these projects need to work harder on their operations.

The Polkadot parachain slot auction mechanism is inherently characterized by the survival of the fittest. Projects that perform well have sufficient funds to continuously bid for slots, while underperforming projects can only meet basic cross-chain needs through parallel threads, waiting for future operational improvements to re-enter the auction. This is beneficial for leaving higher quality projects in the Polkadot ecosystem, avoiding the phenomenon of bad money driving out good money, and preventing the entire ecosystem from falling into a vicious cycle.

When auctions become normalized, multiple parachains that have obtained slots have already connected to Polkadot. This is beneficial for these parachain projects to develop their own ecosystems and for multiple parachains to explore cross-chain scenarios. However, the Polkadot ecosystem remains an environment with ecological niches, so how to become a leader in the Polkadot ecosystem on their own ecological niche more quickly will be the primary task for these projects that have obtained slots.

Currently, some popular directions, such as smart contract platforms and DeFi centers, are highly competitive. It will be a tough battle to see who can stand out and become the leader. Where there is competition, there will inevitably be incentives, and many incentive measures and dividends will emerge. These parachains can be regarded as some public chains, so it is necessary to closely monitor their development.

For projects that have not yet obtained a slot, as the auction costs gradually decrease, they need to work hard to gain more support in order to succeed in the bidding. When the auction threshold is lowered and these projects have the opportunity to participate, new incentives may also emerge to bridge the final gap. Another strategy is to closely monitor the development of parachains, becoming one of the first teams to use parachains, not rushing to bid for a slot, but instead connecting to Polkadot first, focusing on their own development, and considering bidding for a slot only after becoming bigger and stronger.

For application-based projects, the normalization of parachain auctions is the most beneficial. This is because there are already numerous parachain projects connected to Polkadot, and they can fully adopt a multi-chain deployment strategy, deploying once on each well-operated Polkadot parachain.

Therefore, the more parachains there are, the more these projects expand into new markets, allowing them to grow rapidly while also promoting the development of the Polkadot ecosystem, achieving a win-win situation.

Thanks to the characteristics of Polkadot, deploying multiple chains on Polkadot can also enable cross-chain information exchange between different chains, forming an aggregation effect. Currently, good projects exploring this direction include Zenlink and RMRK.

) 3. Impact on Ordinary Users

The normalization of slot auctions can be seen as Polkadot becoming a rhythmic long-term “new project investment” place, providing many opportunities to acquire quality tokens, while DOT will become the proof of stake for participating in the “new project investment”.

Secondly, each parachain project will begin to strengthen its own ecosystem. If a certain parachain can emulate the approach of public chains in August by launching a public chain incentive program to attract mature, high-quality DeFi projects to deploy across its ecosystem, or incentivize funds to participate in high-quality projects within its ecosystem, thereby rapidly increasing its TVL, then this model may be replicated across many Polkadot parachains.

These incentive programs also represent a significant opportunity for ordinary users. Choosing high-quality parachain projects and accompanying their growth naturally makes it easier to obtain the dividends brought by their development.

Afterword

As we complete this article, the second winner of the Polkadot parachain has been determined, and the auction for the third slot has also begun. As the highlight of Polkadot this year, we expect to see the official operation of the parachain around December 18, which may bring new breakthroughs to cross-chain issues.

Of course, the performance of the Polkadot parachain after its launch is still unknown for this brand new cross-chain method. However, as the most professional and focused team in this field, we still have high hopes for it. This expectation will also bring new aspirations with the arrival of 2022, as the horn of Web 3.0 has already sounded, and it is time for Polkadot to showcase the charm of “interconnectivity of all chains.”