A Brief Outlay of how Polkadot Parachain Auctions Work.
MOONBEAM NETWORK
To comprehend Polkadot auctions, it is necessary to first get a grasp of what parachains are. They are separate blockchains that run concurrently within the Polkadot and Kusama networks. Moonriver is a live parachain on Kusama, and Moonbeam is planned as a parachain on the Polkadot network. Moonbeam and Moonriver will provide a springboard for Ethereum projects that want to easily expand to Polkadot without rewriting their codebase for each network.
Each parachain is basically unique and different from each other, other parachains are designed for specific use cases, just as the Moonbeam parachains are optimized for the best possible experience when coming from an Ethereum environment.
Why Polkadot Parachain Auctions ?
A parachain auction connects parachains to the Polkadot or Kusama Relay Chains through an open, permissionless auction. The auctions are intended to allocate parachain slots to projects that wish to operate on either network. The overall goal is to have up to 100 parachains running at the same time. These will, however, be opened in batches, with 20–30 parachains operational within the first year.
These parachain slots are purposefully limited in order to encourage competition and the most efficient allocation of fixed Relay Chain resources. Because the number of available slots is limited, aspiring parachains must outbid each other to earn a lease, both during the initial launch and again when the lease period expires.
To obtain a significant edge over opponents, some new projects often engage in crowdloans. This process basically involves utilizing the help and support of their communities in order to raise the required tokens.
How Crowdloans work …….
Members of the community briefly lock their tokens (KSM for Kusama, DOT for Polkadot) in support of a specific project. These tokens are placed in a distinctly different crowdloan module that is not controlled by the project and is on the Relay Chain. This aids in the prevention of “rugpulls” by teams with ill intent.
When the auction begins, the crowdloan module bids on behalf of the parachain project it supports. A campaign ID will be assigned to each parachain. Any DOT or KSM that is locked into this module will bid on the parachain’s behalf. This bidding will continue until a parachain slot is won, as long as an auction is running and the crowdloan is open.
The parachain lease begins when a parachain slot is won. If a slot is not claimed by the end of the crowdloan, the tokens are unlocked and returned to their original owners. These leases began immediately after a slot was won on Kusama. On Polkadot, these leases will begin in batches of five, with the first five parachains connecting to the network on December 17, 2021.
If a parachain’s crowdloan campaign is successful, the contributed tokens will be locked on the Relay Chain until the lease expires. The tokens will then be returned to the contributors. So far, the majority of parachains have chosen to reward contributors with native project tokens.
Finally, and most importantly, it is noteworthy that the parachain may be unable to run a second crowdloan and must continue to pay for parachain slot occupancy over time. Successful parachains will most likely be able to fund the second lease on their own or through another crowdloan. Unsuccessful parachains may have difficulty renewing their slot.