The first round of Polkadot slot auctions has concluded. What role will the five parachains play?

Author: Polkadot Ecological Research Institute

Background

When we once again focus on Polkadot's parachains, it signifies that the first round of parachain auctions has concluded. Early this morning, we successfully gathered five parachains and are ready to "summon" the official launch of the parachains. This moment has been long awaited, and the Polkadot ecosystem has been looking forward to it for a long time.

As of now, the first batch of parachains has taken the historical stage, namely Acala, Moonbeam, Astar, Parallel, and Clover. Although the number of people interested in Polkadot's parachain auctions has decreased significantly, especially with the soaring TVL of neighboring blockchains igniting the market, the calmness of Polkadot is somewhat lamentable.

However, we are finally seeing the emergence of more gameplay options. After all, foundational functions such as smart contracts, Dapp applications, and DeFi have begun to be rapidly laid out. As long as the parachains operate smoothly, Polkadot will no longer be just a "blank chain" lacking functionality, but a true "cross-chain hub." This situation seems to have already begun.

At this moment, we can finally take a god's-eye view to consider the impact that the upcoming launch of parachains will bring, as well as how the functions of these five parachains will empower the Polkadot ecosystem. This is what we can think about and even observe at present.

Review of Polkadot's First Round of Slot Auctions

1. From the Perspective of Participation Numbers

Compared to the participation in Kusama's slot auctions, the number of participants in Polkadot's slot auctions is significantly higher. Coincidentally, the first four projects also successfully bid for parachain slots on Kusama. In comparison, it is evident that the number of participants in Polkadot's parachain slot auctions has generally exceeded double that of Kusama. Of course, the statistics in the chart do not exclude the interference of individuals participating in multiple projects simultaneously, but this data still supports our conclusion.

There are many reasons for this. Firstly, most people have always viewed projects in the Kusama ecosystem as testnets, overlooking or undervaluing their worth.

Secondly, the parachain projects that obtained slots on Kusama have gradually gone live and enabled transfers, naturally initiating trading. These project teams have also provided substantial rewards to their Crowdloan participants. With the wealth effect of Kusama ecosystem projects in play, Polkadot's parachain slot auctions naturally attracted more participants.

Thirdly, the distribution of chips between Polkadot and Kusama is different. Kusama's distribution mainly comes from early investor airdrops, while Polkadot has undergone extensive public offerings and has garnered more consensus than its predecessor Kusama, with more supporters and a more dispersed chip distribution.

2. From the Perspective of Auction Quantity

A total of 99,113,200 DOT participated in the bidding for the first five slots, accounting for 8.6% of the total 1.146 billion DOT. Currently, the staking participation rate for Polkadot is 63.8%, so the circulating DOT ratio is 27.6%.

However, Polkadot currently differs from Kusama in that it cannot be viewed according to the previously envisioned "circulation: slot lockup: staking lockup = 17:33:50." Because Kusama's optimal staking rate is 50%, Polkadot, which has not yet launched parachains, currently sets the optimal staking rate at 75%. This parameter will be adjusted back to 50% through a referendum as parachains go live.

3. The Gap Between Final Results and Expectations

From the results, with the rehearsal of Kusama's slot auctions, Polkadot's slot auctions had a reference point. Many project teams and participants adjusted their strategies during this period, so the overall auction situation in Polkadot shares many similarities with Kusama, but also has its unique aspects.

The similarity lies in our previous expectation that the initial competition for slots would be very fierce, with instances of racing for the first and last slots. The difference is that some project teams clearly recognized this and chose to avoid the competition, participating in the auction only from the sixth parachain slot, or projects that had not previously participated in Kusama chose to compete for the top five slots. Thus, the participating projects in the auction differ significantly from Kusama's top five slots.

Similarly, participants are continuously adjusting their strategies. Due to Moonbeam's good performance on Kusama's Moonriver, many participants actively engaged with Moonbeam, making it the project with the most DOT and supporters among the top five slots, unlike Acala's Karura on Kusama, which was far ahead of other projects. This again reflects one of the benefits of running a canary network on Kusama.

However, from the current data, some may argue that the top five slots in Polkadot account for less than 9%, and the DOT support for subsequent projects is also minimal, with fewer than five exceeding a million. Is it difficult for Polkadot to reach the previously set slot lockup ratio of 33%, and is the ecosystem not viable?

So, how should we view this issue?

First, although Kusama has initiated regular slot auctions, with a total of 48 slots auctioned in a yearly cycle, Polkadot has yet to announce plans for regular auctions. Therefore, the number of slots in Polkadot remains relatively limited, and this scarcity will put pressure on projects wanting to obtain slots early, thereby increasing the demand for DOT.

Secondly, looking at Kusama's situation, many projects in the second batch received higher support than those in the first batch, and most of these projects did not participate when the first batch of slots was open for bidding. Many of these projects have yet to participate in Polkadot's parachain slot auctions, indicating that potential candidates have not yet entered the arena. Thus, we cannot simply conclude that the Polkadot ecosystem is not viable based solely on the situation of the top five slots.

Finally, please recognize that Polkadot is still in its early stages. Although the Polkadot team has supported over a hundred development teams through grants or treasury, there are not many mature projects that can go live on the mainnet and connect to the Polkadot ecosystem. To take a step back, if Polkadot were to open 48 parachain slots like Kusama, auctioning them in a two-year cycle, there would indeed be a period where the Polkadot ecosystem has not yet developed, while the number of slots remains high, reducing their scarcity.

However, the logic of multi-chain ecosystems is gradually being validated. Regarding DeFi dominance, Ethereum's DeFi locked value ratio has dropped from over 90% to around 65%, and with many mature applications in areas like DeFi, NFTs, DAOs, and blockchain games, the multi-chain narrative will be further validated by the market. As Polkadot can quickly launch chains and allow these chains to connect to enjoy the cross-chain and scalability advantages of the entire Polkadot ecosystem, we believe that the birth of more parachains is not far off.

What Impact Will the Launch of Parachains Have on Polkadot?

We previously mentioned that the Polkadot ecosystem can be divided into internal and external economies. The economic entities within Polkadot's ecosystem are collectively referred to as the internal economy, while those that connect to the Polkadot ecosystem through bridges are referred to as the external economy. The launch of parachains means that Polkadot can at least officially begin the development of its internal economy.

Many of the projects that obtained parachain slots in the first batch are platforms supporting smart contracts, capable of hosting various DeFi and DApp applications. Notably, many of these projects have already won slots on Kusama and have connected to Kusama's relay chain, initiating preliminary ecological construction. Although these developments took several months for each project from winning the slot to connecting to the relay chain and deploying applications.

Fortunately, the differences between the canary network on Kusama and the mainnet on Polkadot are minimal. Although the initial debugging on Kusama took a long time, it was worthwhile because when deploying on Polkadot, the previous experience will make the process much smoother and faster. This means that for those parachain projects that have undergone sufficient testing on Kusama, they can quickly initiate ecological development after connecting to Polkadot, which is one of the significant meanings of Kusama for Polkadot.

However, Polkadot is still not complete. First, Polkadot's parachain threads have not yet gone live, and the last link in Polkadot's homomorphic cross-chain is still missing; second, the version of XCM is frequently updated, and seamless cross-chain communication between parachain projects has not yet been achieved; third, Polkadot's cross-chain bridges have not yet been realized, and the external economy of Polkadot has not yet manifested. Additionally, many foundational functions, such as the system parachains previously mentioned by the official team, as well as SPREE, BEEFY, and other functionalities, are still on the agenda.

Therefore, the complexity of Polkadot far exceeds that of other public chains. Please continue to view Polkadot as an early project and do not compare it with many existing emerging but technically mature public chains. If a comparison must be made, it would be more appropriate to compare it with the parachain projects on Polkadot.

Introduction to the Five Projects That Obtained Polkadot Slots

1. Acala

Acala is a one-stop DeFi hub on Polkadot, providing a series of out-of-the-box DeFi foundational modules for developers to build applications for end-users around the decentralized stablecoin aUSD, DEX, and on-chain staking derivatives.

Acala is committed to incubating and building truly decentralized financial applications, providing low-threshold financial stability and liquidity for the new Web3 economic world, aiming for a more open and fair future.

As the DeFi hub of the Polkadot ecosystem, Acala helps users achieve multiple functions such as staking, exchanging, lending, and earning. Acala's canary network, Karura, was also the first project to win the leasing rights for a parachain slot on Kusama.

After winning the platform chain slot auction, Acala officially connected to the relay chain on December 18. Acala also participated in Polkadot's first Metaverse Meetup and attended the Berkeley Blockchain Xcelerator 2021 Demo Day, Alumni Showcase & Career Fair to discuss trends in DeFi and DAO development.

In addition, Acala has established partnerships with many high-quality projects, including global decentralized storage provider OriginTrail and data aggregation solution SubQuery, and jointly released NFTs with cryptographic algorithm artist Reva. Following this, Acala will gradually complete its decentralized construction in four phases: crowdloan and genesis block, POA governance, council governance, and community governance.

Acala's successful connection provides important asset support for Polkadot. It occupies a significant position in mixed diversified finance, and as an Ethereum-compatible project focused on the DeFi track, Acala allows everyone to enjoy the DeFi dividends of Web3.0 in advance. Acala acts like a pump, facilitating the flow of assets within the Polkadot ecosystem and bringing it to life.

2. Moonbeam

Moonbeam is an Ethereum-compatible smart contract platform on Polkadot, with the vision of achieving multi-chain interconnectivity. Moonbeam deploys existing Solidity smart contracts and DApp frontends, serving as the smart contract chain of the Polkadot ecosystem.

It provides Polkadot developers with easy-to-use functional modules, enabling the Ethereum application ecosystem to smoothly transition into the Polkadot ecosystem while enjoying the shared security, interoperability, and scalability that Polkadot offers.

Moonbeam's canary network secured the leasing rights for the second parachain slot on Kusama and quickly built an Ethereum-compatible smart contract platform with interoperability based on the Substrate framework.

Moonbeam will follow the launch process of Moonriver, shortening the original five phases to three and adding new features to ensure network stability. The entire functionality enhancement plan will be completed by January 2022, after which the GLMR transfer function will be launched.

At the same time, Moonbeam has established partnerships with many high-quality projects, including SushiSwap, Zenlink, Chainlink, dTrade, and Lido, allowing Moonbeam to secure a place in the rapidly expanding multi-chain market. For Polkadot, Moonbeam leverages the unique functionalities of the Polkadot ecosystem and provides developers with a familiar development environment, integrating many well-known Ethereum protocols.

Moonbeam organically connects Ethereum's vast resources with the Polkadot ecosystem, laying the foundation for the era of multi-chain interconnectivity, allowing Ethereum applications to be more conveniently replicated in the Polkadot ecosystem and providing essential infrastructure for the explosion of the Polkadot ecosystem.

3. Astar

Astar Network is an early technical project in the Polkadot ecosystem, formerly known as Plasm Network, aiming to become a multi-chain DApp center on Polkadot, supporting EVM, WebAssembly, and Layer2 solutions to provide the necessary functionalities for smart contracts in the Polkadot ecosystem.

Astar Network has received over five grants from the Web3 Foundation and has successfully implemented Layer2 and Ethereum Virtual Machine construction. Meanwhile, Astar Network's canary network, Shiden, secured the leasing rights for the third parachain slot in the Kusama auction, providing a decentralized application layer for Kusama.

After obtaining the leasing rights for the Polkadot parachain slot, Astar will leverage its high scalability and diverse functionalities to provide support for developers. At the same time, Astar's ecosystem is achieving rapid endogenous growth and is building decentralized applications, including synthetic assets, stable multi-chain DEX, games, and NFT markets.

As a high-performance smart contract parachain based on the Polkadot ecosystem, Astar provides interoperability with many ecosystems, including Ethereum, BSC, and Avalanche. If Moonbeam allows Ethereum applications to smoothly land in the Polkadot ecosystem, then Astar is building a multi-chain, multi-virtual machine DApp center to compensate for the smart contract functionality of the relay chain.

Astar Network's support for Wasm, compatibility with Layer2, and empowering DApps in its economic model all give it a significant position within the Polkadot ecosystem.

4. Parallel

Parallel Finance is a decentralized money market that provides lending, staking, and borrowing products for the Polkadot ecosystem, bringing more liquidity to the Polkadot ecosystem. Depositors can lend funds and stake simultaneously to earn dual interest, while borrowers can use collateral to secure loans.

After winning the slot, Parallel will focus on the mainnet launch of the parachain and product rollout. On December 10, it officially announced the launch of the first DOT permissionless Crowdloan product, Auction loan, providing users with the best liquidity and crowdloan contribution rewards.

Auction Loan is just the first step in Parallel's DeFi parachain mission, and Parallel Finance is committed to innovating within the DeFi ecosystem of Polkadot, gaining broad community support. The recent completion of a new round of financing has enabled Parallel to smoothly complete the slot auction and team expansion, with plans to launch on the mainnet and release products in the coming months.

Parallel aims to double its engineering team within the next 6-12 months, conduct security audits, and establish Parallel Finance as a top-tier DeFi parachain within the Polkadot network and multi-chain ecosystem.

Parallel's ultimate vision is to create the safest and most user-friendly decentralized platform, allowing everyone to access financial services. Its innovative products, such as Margin Staking, Auction loans, and AMM, will bring unprecedented liquidity and capital efficiency to the Polkadot and Kusama ecosystems.

5. Clover

Clover Finance is a smart contract platform built on Substrate, creating a one-stop EVM-compatible framework aimed at providing easy-to-use blockchain infrastructure to lower the threshold and cost for developers. It hopes to help users utilize DeFi more easily. Clover Finance supports both EVM and Wasm, offering a one-stop fast cross-chain experience.

Currently, Clover has launched its own cross-chain wallet and browser, and has collaborated with various dApps on different chains to initiate the first phase of the Clover ecosystem incentive program, aimed at promoting the adoption of multi-chain wallets. These projects span from DeFi to GameFi, Web3 to NFTs.

Clover aims to become the largest connector within the Polkadot ecosystem, hoping to work with partners across all chains to build a better multi-chain future, seamlessly linking the DeFi space with the Polkadot ecosystem, and expanding Polkadot's ecosystem alongside developers and project teams.

Postscript

When Dr. Gavin wrote down the parachain architecture of Polkadot four years ago, most of the concepts were still in the exploratory stage. However, in recent years, we have witnessed the successful launch of the Substrate framework, the launch of the Polkadot mainnet, and now the imminent debut of parachains. Each step has not been easy and has been filled with various challenges, but now we are less than 24 hours away from the launch of parachains (expected early on the 18th), a moment that brings joy.

Next, we will see the second round of slot auctions for parachains, and even like Kusama, subsequent auctions will gradually normalize, leading to a rich Polkadot parachain ecosystem and various ecological teams beginning to exert their strength. Although there is not much time left this year, next year will be even more exciting, and we have more expectations.

Although people now talk about cross-chain with less enthusiasm than before, the advancement of technology may not be limited by market sentiment. We still look forward to interactions between chains and the innovations brought by Web3.0. Let us await the ringing of the bell as the five parachains connect to the relay chain and begin producing blocks!