Polkadot and Kusama’s Web 3.0 interoperable blockchain networks have begun their parachain slot auctions. Here’s what to know and 10 amazing projects.
- What is Polkadot?
- What Are Parachains?
- How Are Parachains Connected?
- How Will Parachains Bring Network Effect to Polkadot?
- What’s the Purpose of Polkadot and Kusama Parachain Slot Auctions?
- How do Polkadot and Kusama’s “Candle Auctions” Work?
- How are Parachains different from ICOs?
- How Does the DOT Token Fit into Everything?
- 10 Promising Parachain Projects and Their Purpose
- Staking on CoolWallet Pro
The Polkadot project was launched in August 2020 as another potential “Ethereum Killer” that would sidestep most of the tough obstacles that the giant proof-of-work network was struggling with as it evolved to a proof-of-stake final form., Blockchain technology had been facing major challenges regarding cross-chain transfers before Polkadot was developed as a way around the issue.
Much of 2021’s Polkadot hype has revolved around its incoming plans to launch 100 “parachain” projects built on its Substrate framework, through initial auctions to select winners. You can follow the latest action here on parachains.live.
In this guide we’ll review what Polkadot is, its structure, parachain projects, auction process and 8 of the hottest parachain projects building on Substrate for Polkadot and Kusama right now.
What is Polkadot?
Polkadot is an open-source sharding multichain protocol that allows for the ease of transfer of assets, data, and tokens between blockchains.
Apart from the interoperability that it provides, Polkadot offers enterprise-level scalability by spreading transactions among parallel blockchains. The network stands apart from the rest by being upgradeable without the use of forks, making it one of the most innovative blockchains and a core component of Web 3.0, the decentralized Internet that’s currently being built.
Through relay chains, parachains, parathreads, collators, and bridges, Polkadot offers its users advanced functionalities which makes it the 9th largest blockchain project in terms of market capitalization. Read more about how Polkadot functions and how to stake it on our CoolWallet Pro hardware wallet for DeFi users in our Polkadot Staking Guide.
What Are Parachains?
Parachains are custom, project-specific blockchains that are integrated within the Polkadot (DOT) and Kusama (KSM) networks. Parachains can be customized for different purposes. Basically, a parachain exists as an independent blockchain – with an entirely unique token, governance systems, and functionality. On parachains, transaction fees can also be set differently from the main chain. Think of them as independent networks that are compatible with Polkadot and each other, allowing for seamless cross-chain interoperability.
Since they are still connected to the main chain, parachains can enjoy the security of the Polkadot or Kusama network (Polkadot’s “canary” test network) and can also share the validators (individuals responsible for verifying transactions on a blockchain) of the main chain, replicating the security of the mainchain on the parachain.
How Are Parachains Connected?
Parachains are connected to the main chain (Polkadot or Kusama) through the central Relay Chain. The base features shared by all parachains come from the central relay chain, thus, it is considered to be the CNS of the Polkadot and Kusama networks.
Parachains are made possible by Substrate – the next generation of web app development frameworks known as Web3. The Polkadot and Kusama networks both utilize the web3 functionality of Substrate.
For a parachain to be added to the Polkadot network, it must have secured a parachain slot. The current Polkadot network supports the creation of only 100 parachain slots, therefore competition is very tough. Parachain slots are sold using a permissionless candle auction that has been slightly modified for the security of the Polkadot blockchain.
How Will Parachains Bring Network Effect to Polkadot?
Parachains are integral parts of the Polkadot and Kusama architecture as they are customizable blockchains that offer loads of incentives to the network. Aside from improving interoperability, parachains allow for faster and cheaper transactions.
Customizable features mean that projects can build their blockchains with unique use cases and their tokens. This will see an influx of projects to the Polkadot blockchain that will allow for increased levels of adoption.
Projects will be incentivized to embrace Polkadot because they will leverage Polkadot’s already existing infrastructure for security, which dispenses the need for them to have their own set of validator nodes.
What’s the Purpose of Polkadot and Kusama Parachain Slot Auctions?
Parachains must connect to the Relay Chain to enjoy Polkadot’s network architecture, however selecting the most worthy projects is a long process. Who must be connected and in what order? This is the purpose of parachain slot auctions.
Before parachains can connect to the Polkadot and Kusama Relay Chains, Polkadot’s canary network Kusama will first perform parachain auctions first for testing and optimization purposes. Parachains that are successfully onboarded on Kusama and run smoothly will later most likely be connected to Polkadot as well.
The auction’s primary purpose of the auctions is to give slots to projects that want to operate on either Polkadot or Kusama, and run up to 100 parachains simultaneously. However for 2021, it is expected that only 30 projects will be operational.
How do Polkadot and Kusama’s “Candle Auctions” Work?
Parachains are integral parts of the Polkadot ecosystem, making it possible for independent chains to be customized and integrated with the Polkadot and the Kusama networks. Projects wishing to build on Polkadot and Kusama rely on parachains to connect, and the concept of auctions was developed to decide which project gets an available slot.
The parachain auction takes the form of a modified candle auction format to prevent sniping. It’s also permissionless, meaning that anybody can bid to participate. To participate in the auction, a project will have to design, build and optimize a parachain using Substrate. After building, the project chooses a strategy and joins the auction to bid for the chance to get a slot lease.
Open bidding is utilized on the network, meaning that teams can see other bids and re-bid. The protocol uses a verifiable random function (VRF) to randomly decide the precise moment that the auction closes. The highest amount of DOT or KSM tokens that are willing to be locked up wins the auction and it can be unlocked upon the expiration of the lease.
Candle auctions come from the selling of ships in the 16th century, where the auctioneer would light a candle would at the start of biddding, and the person with the highest bid at the time the candle flame went out would “win” the ship.
As there is no official end to the Polkadot and Kusama auctions, it means that a random snapshot in time before the as-yet-decided end that will determine the auction winner.
How are Parachains different from ICOs?
While a parachain might resemble an initial coin offering (ICO) in some ways, it’s not really the case. Users who contribute their KSM or DOT assets to an auction and gets airdropped its tokens do not need to transfer control of their KSM or DOT to the auction participant or any other third part, and they retain control over their assets,which might get locked up for a period. Conversely, ICO investors must transfer their funds (like ETH or USDC) to a project team which can use it as they see fit.
How Does the DOT Token Fit into Everything?
DOT, the native token of the Polkadot network, is an essential component in the functioning of the entire network. The tokens are used for carrying out the key functions of the platform. The tokens are used for the following:
- GOVERNANCE: holders of the DOT token are entitled to the governance powers of the Polkadot network. This power includes setting fees for the network, the auction dynamics and schedules for parachain additions, as well as exceptional events like platform upgrades to fix the network. While this is the power that is embedded in DOT tokens, not every holder of the tokens is able to participate in the governance of the network.
- BONDING: the creation of new parachains on the network is performed using a process known as bonding. By tying up DOT tokens (bonding) holders are able to add new parachains to the network. The tied-up DOT will be locked up during the bonding period and released after the duration of the bond has elapsed and the parachain is removed. Bonding is a variation of the proof-of-stake consensus mechanism.
- CONSENSUS: back to consensus, DOT tokens are used in the consensus mechanism of the Polkadot Network. Holders of DOT tokens are given active roles in ensuring the security of the network. In the process of bonding or staking their tokens, participants are rewarded for allowing valid transactions to be performed on the network. Rewards are given based on the number of DOT tokens staked, the activity undertaken, and the duration of the staking.
10 Hot Polkadot and Kusama Parachain Projects in 2021
The Polkadot network boasts some unique features that have ushered many projects to the network. While dozens of projects have already been built on the Polkadot network, here are 7 of the most promising projects you’ll find on Polkadot:
1. Acala Network
Acala Network is a project native to the Polkadot ecosystem, serving as a one-stop DeFi hub. It is Ethereum-compatible and offers a stable currency, staking liquidity, and is governed exclusively by Acala Network Token (ACA) holders. Acala’s Kurara project won the first Kusama parachain auction in June 2021.
Moonbeam is a smart contract parachain that is Ethereum-compatible and is designed to allow for greater interoperability for developers. The project supports popular smart contract languages like Solidity and Vyper plus built-in integrations and Ethereum based tools like MetaMask. Its Kusama parachain sister project Moonriver won the 2nd KSM auction.
3. Astar Network (Shiden)
The Shiden Network, a sister project of Astar Network (previously Plasm Network) won the third Kusama parachain auction. It’s a layer-two decentralized app hub that functions as a Smart Contract platform for Kusama Dapps.
ChainX holds a lot of promise as it is poised to expand upon Bitcoin’s Layer 2. It intends to improve on Bitcoin as a means of transferring and storing value. It goes further to offer derivative and hedging opportunities as well.
As decentralized applications take the center stage, EdgeWare seeks to provide a platform for the next generation of Dapps. Ethereum developers can deploy their EVM smart contracts while new developers can get a head start by connecting with the community to cross-pollinate ideas and receive funding.
6. Phala Network
Phala Network is taking cloud computing to new heights with user privacy as the main focus. The Phala network relies on Polkadot’s infrastructure for advanced-level security, and offers smart contract interoperability and composability which makes it an exciting project to keep an eye on. Phala’s Web3 cloud computing project Khala won Kusama’s 4th auction slot, while Phala will eventually launch on Polkadot.
Bifrost, a staking liquidity DeFi project and protocol on Polkadot won the fifth and final round 1 parachain slot by locking up 136,000 KSM tokens. Bifrost connects Polkadot and other proof-of-stake blockchains by supplying staking derivatives. As the first blockchain middleware to allow multichain technology, Bifrost users are free to choose from different blockchain protocols, customize their network, and swap blockchains based on thieir needs.
Bifrost is also behind BiFi, a universal DeFi platform, helping to build the most transparent, flexible, and comprehensive DeFi platform.
Subsocial is a Web 3 grant recipient and an important component of the Web 3.0 universe, built with IPFS and Substrate.
Subsocial functions as an open platform and marketplace for the building of a fully decentralized social network universe, where creators can build their own social networks with full monetization tools, data privacy and censorship resistance. Subsocial users can earn money through a variety of monetization methods, which you can read about here.
Subsocial is currently running a Subsocial Fiesta competition for content creators, who can win prizes and tokens for their efforts. Visit the link here to participate!
9. Ares Protocol
Ares Protocol is an on-chain verifying oracle protocol powered by Polkadot that provides reliable off-chain data efficiently and in a trustless manner. It is the first decentralized cross-chain Oracle service protocol that can realize on-chain verification, and also establishes a compensation channel for data users who suffer business losses due to using Oracle data in the Polkadot ecosystem. Ares Protocol is an infrastructure builder that provides secure and reliable data services for the development of the digital economy and multi-chain communication.
10. Deeper Network
Last but not least is another ambitious Web 3 project and grant recipient, Deeper Network, which has attracted attention for its blend of both innovative hardware and software, a rarity in crypto projects which usually only focus on the latter. This Silicon Valley project raised a record amount on Indiegogo for their decentralized VPN (DPN) hardware products and has massive plans to build a gigantic world-first interconnected and fully decentralized global VPN network with over 100,000 users acting as nodes.
Nodes earn Proof-of-Credit (PoC) “mining” rewards in the form of Deeper Network’s DPR token by sharing their bandwidth with the network. The project also has a ton of other plans in progress, such as IPO NFTs, DeFi staking, a Dapp store and much more.
Staking on CoolWallet Pro
Looking for an easier solution to staking whilst keeping things non-custodial and in cold storage on an easy-to-use hardware wallet? CoolWallet Pro’s got you covered. Once you have set up your CoolWallet Pro, follow the below steps to start staking DOT.
STEP 1: GO TO STAKING IN YOUR APP
From the Marketplace page of the app, select ‘Staking’
STEP 2: CHOOSE COINS TO STAKE
Now, proceed with the next steps:
- Select the amount of DOT coins you would like to stake (you can then view the estimated APY, or Annual Percentage Yield, which reflects the real return on investment by adding compound interest). The DOT APY is variable so it’s important to check up-to-date staking rewards.
- Press ‘Stake’
STEP 3: VERIFY WITH CARD
Next, you will need to complete a series of card verification steps in order to complete the staking process. Please review the details of your stake and press ‘Verify with card’ to proceed to the next step.
You will then be prompted to turn on your wallet. Please ensure that Bluetooth is enabled on your phone and press the wallet button until you see the “Hello” message.
STEP 4: CONFIRM THE STAKE
Staking Wallet Confirmation. Once you have paired your wallet with the app, you will need to press the wallet button to confirm the stake:
- Coin type
- Transaction type
- Staking address (optional, you need to turn on the “Show Full Address” feature in the Settings page of the app)
- Stake amount
*CoolWallet Pro will not not show the staked address on your card for DOT. Since we nominate 14 validators in one transaction, it would be too long to display.
STEP 5: VIEW DETAILS ABOUT COMPLETED STAKE
Once you have confirmed the stake amount and the authorization for the Staking Validator’s address, you will see the “Stake Completed” message.
You can then press ‘Staking Management’ to see more details about the stake.
For more on how to claim stake rewards and Unstake, take a look at our comprehensive step-by-step guide.
Written by Werner Vermaak
(This article does not constitute financial advice in any way and is to be used for educational purposes only. Opinions are that of the author. CoolBitX and CoolWallet will not be held responsible for any financial losses stemming from misuse of this information)