The Polkadot parachain slot auction is approaching. What risks should users be aware of when participating in crowd loans?

Original Title: "Polkadot Slot Auction Approaches, Bidding Parties Raise Funds"

Written by: Kyle

After a long silence in the market, the cross-chain network Polkadot is once again back in the crypto spotlight, with the first round of parallel chain slot auctions set to begin on November 11 at 9 PM.

The Polkadot network architecture consists of three parts: the relay chain, parallel chains, and bridges. The launch of the parallel chain slot auction marks the beginning of the development chapter for the Polkadot application ecosystem. Between November 11 and December 16, there will be five rounds of auctions, with a total of five projects ultimately gaining the right to use the first slots.

The competition among projects on the eve of the auction has already begun. To increase their chances of winning bids, project teams are widely adopting crowd-loaning methods to raise Polkadot's native token DOT from the market. Currently, trading platforms like OKEx and Binance have partnered with project teams to open early voting channels, where users can earn token rewards and other bonuses after voting for a project.

It is important to note that the DOT staked by users for voting will have a long lock-up period. If the voted project ultimately fails to win the auction, users can retrieve their DOT after the auction ends; however, if the project successfully bids, the staked DOT will be locked for 96 weeks (672 days) until the slot lease period ends.

Recently, stimulated by market demand, DOT has risen from $33 to $53 within a month, an increase of over 60%. After the slot auction concludes, DOT may experience significant fluctuations due to reduced demand, so investors should be cautious of the downside risk of DOT prices before participating in voting; additionally, as many third-party platforms have opened voting channels, investors should also pay attention to the reliability of these centralized platforms to avoid falling into fraud traps.

Polkadot's First Slot Auction Locked on "Double Eleven"

In the past few months, the crypto market has witnessed the rise of emerging public chains like Solana, Avalanche, and Fantom, while Polkadot, which focuses on cross-chain concepts, has been steadily developing at its own pace. After several rounds of market hotspots, this cross-chain star is once again drawing attention.

Recently, Polkadot founder Gavin Wood announced that Polkadot is now able to support its first parallel chain. Subsequently, the Polkadot council voted to approve the proposal for the parallel chain slot auction, which is expected to start on November 11 at 9 PM Beijing time.

The "slot" that allows parallel chains to connect to the relay chain is a symbol of Polkadot's formal expansion of its on-chain application ecosystem.

According to the white paper, the Polkadot architecture mainly consists of parallel chains, relay chains, and bridges, with the relay chain serving as the center of the Polkadot network, responsible for verifying information exchange, protecting and coordinating parallel chains, and maintaining the overall security of the network; parallel chains connect to the relay chain through slots and can be similar to Ethereum's smart contract platform, a DeFi application, or a protocol focused on different niche businesses; while bridges help the Polkadot network establish communication with other independent blockchain networks.

Polkadot Network Architecture Diagram

Prior to this, the Polkadot testnet Kusama had already completed over ten rounds of slot auctions, providing ample demonstration for the Polkadot network's slot auction. Before Polkadot officially starts its slot auction, participants need to have a more comprehensive understanding of it.

The reason for establishing the slot auction mechanism is that the current relay chain can only support a limited number of parallel chains. According to official data from Polkadot, it can support a maximum of 100 parallel chains for cross-chain communication. According to the auction rules, each slot is rented, not sold, and only one will be released at a time. Auctions can bid for four lease periods, each lasting six months. Project teams can bid for a single or multiple adjacent lease periods. After the lease period ends, the Polkadot network will return the staked native token DOT to the projects.

The Polkadot slot auction adopts a "candle auction + random parameter" mechanism. Candle auctions originated in the 16th century for ship auctions, where the auctioneer would light a candle, and when the flame extinguished, the auction would suddenly end, with the highest bidder at that moment winning. When candle auctions are conducted online, a random number is typically needed to determine the end time. After the Polkadot slot auction begins, there will be two phases: a safety period and a random period, with the auction concluding at any time during the second phase based on an on-chain random number. To successfully secure a slot, projects need to stake as many chips as possible before entering the second phase.

Under the spotlight, who can secure the first slot position on the Polkadot relay chain becomes the biggest highlight. Previously, several well-known projects such as Acala (Karura), Moonbeam (Moonriver), Astar (Shiden), Phala (Khala), and Bifrost have won slot usage rights on the Kusama network through bidding, and these projects are also seen as strong competitors for the Polkadot slots.

Of course, this does not mean that there won't be any dark horses. Some potential projects with insufficient funding are raising DOT through crowd-loaning methods to gain a chance to win in the auction. Therefore, who can attract more DOT votes before the auction will determine the ownership of the first slot.

Slot Competitors Crowd-Loan DOT, Users Need to Be Aware of Lock-Up Risks

Crowd-loaning can be seen as a way for bidding project teams to borrow DOT from the market. To attract more users to vote with DOT, project teams usually offer token rewards to voters, and some may also provide additional bonuses. For market participants, choosing a project team is also a betting process; if they bet on the winning bidder, the token rewards they receive will be more substantial.

Before the official auction begins, many third-party platforms have already partnered with project teams to open early voting phases, with crypto asset trading platforms like Binance and OKEx being the main battlegrounds.

On November 3, OKEx launched the "DOT Slot Auction" feature, allowing users to stake DOT for early voting on multiple projects such as Acala, Astar, and Moonbeam. The page shows that each project has its own parallel chain number, and the project provides a token reward pool for voters, allowing them to "mine" token rewards proportionally by participating in voting. Meanwhile, OKEx also offers an additional reward of 100,000 USDT worth of DOT.

To catch up with this wave of enthusiasm, Binance quickly followed suit and launched a similar service on November 4, opening voting support channels for nine projects including Moonbeam, Clover, Astar, and Acala. In addition to the token rewards provided by the project teams, Binance is distributing an additional reward equivalent to $30 million to participating users.

Some platforms have opened slot auction voting in advance

Participating in early voting on third-party platforms is equivalent to an "advance agreement" between voters and project teams, meaning that after the auction begins, project teams have the right to manage the DOT staked by voters. Since these activities occur on centralized platforms rather than on-chain, in extreme cases, voters risk losing assets and failing to receive voting rewards. A more secure but relatively complex method is for participants to go to official channels and use wallets for on-chain voting after the auction begins.

It is important to note that regardless of the method used for voting, the staked DOT will have a long lock-up period, which may pose a risk of asset depreciation.

According to the auction process, this slot auction will start on November 11 and end on December 16, with five rounds of auctions taking place during this period. After voting, participants need to wait for the auction results; if the voted project successfully obtains a slot, the DOT staked for that project will be locked for 96 weeks (672 days) until the slot lease period ends; if the voted project fails to win the bid, the staked DOT will be unlocked after the auction ends.

A lock-up period of over a month to nearly two years is a factor that investors must consider before voting. Especially recently, stimulated by the demand for slot auctions, DOT has risen from $33 to $53 within a month, an increase of over 60%. After the first slot auction concludes, DOT may experience significant fluctuations due to reduced market demand, so investors should be cautious of potential asset losses caused by a decline in DOT prices during the lock-up period.

As participants may lock up DOT for a long time, platforms like Binance plan to provide liquidity solutions for users by issuing BDOT assets pegged 1:1 to DOT. After obtaining BDOT, users can freely trade it in the secondary market and can exchange it for DOT after the slot lease period ends.

It is important to note that BDOT has not yet been issued or launched, and there are few liquidity solutions available in the market. Investors should carefully evaluate the reliability of centralized platforms when choosing related platforms. Additionally, professionals have advised that the Polkadot network is still in its early development stage, and its future prospects are uncertain, so users need to be particularly cautious when participating. If they choose to participate in locked voting, they should also implement appropriate risk hedging strategies.