Crowdloans, also known as parachain auctions or Initial Parachain Offering (IPO), are a way to earn free cryptocurrencies on the Polkadot (DOT) and Kusama (KSM) blockchains. How to participate in these auctions? We explain everything to you in this complete guide.
What are Polkadot (DOT) and Kusama (KSM)?
The Ethereum, Bitcoin or even Avalanche blockchains are layers 1, Polkadot (DOT) and Kusama (KSM) are what are called layers 0 . Said like that, you probably don’t understand it and there’s nothing wrong with that. Let’s illustrate all this with more telling examples.
Think of your two hands as two independent blockchains . Each of them can manipulate objects without the other having to perform a particular action, just like two separate layer 1 blockchains . On the other hand, your hands are connected to your spinal cord and more broadly to your entire cerebral system thanks to a nervous network, this is your layer 0 .
You cannot hold a fork with your cerebral system, layer 0, on the other hand, you can with your hands, layer 1. And these, although independent, can transmit the fork to each other thanks to their mutual connection to your brain system .
In the case of Polkadot and Kusama, their respective brain system is called the Relay Chain . The hands and other limbs connected to it are called parachains, or alternatively para-chains . The fork of this example represents financial flows or any other information likely to be transmitted in a blockchain.
You may have understood it, but we are therefore not building “on” Polkadot and Kusama, but “for” them. And to be able to integrate this ecosystem, the projects need to become a parachain , namely, to rent part of the capacity of this nervous system: the Relay Chain .
For this, you need impressive quantities of DOT tokens (on Polkadot) or KSM tokens (on Kusama) , sometimes several tens of millions, so that’s what crowdloans are for. An auction system allowing the community to rent projects their DOT and/or KSM by locking them for a fixed period. In exchange, if the projects win an auction, they distribute part of their tokens to reward the investors who have supported them.
Parachain auctions – How do crowdloans work?
Before seeing the differences between the Polkadot and Kusama blockchains, let’s look at how crowdloans work , which use the same principle: the candle auction .
With each new auction batch, the projects benefit from a preparation period . During this period, investors can begin to lock in funds to support the project of their choice. Next comes the end period , and this is where the auction actually begins.
Illustration of a candle auction
The preparation period and the end period each have a start and end date that is well defined and known to the investor. On the other hand, the interest of this mode of bidding lies in the fact that nobody knows at what precise moment the winner of the crowdloan is elected .
For example, consider an end period spanning from 02/01/22 at 3:00 pm to 02/15/22 at 3:00 pm The auction will be open throughout this period, but if the algorithm has randomly determined that the winner was designated on 08/02/22 at 1:43 pm, all support given to a project after this limit will be void .
The objective here is that this does not encourage investors to support the project with the most votes at the last moment. Indeed, if in this example project B has more votes than project A at the end of the end period, while it was the opposite on 08/02/22 at 1:43 pm, it is the project A which wins the auction. And no one could know the real deadline for votes.
Thus, when you want to support a particular project, you should do so as soon as possible or risk having your vote not counted. And you will certainly have understood it, the vote is carried out by locking DOTs or KSMs depending on the blockchain on which we are.
When a project wins an auction, your funds are locked for the duration of the parachain slot rental. If the auction fails, your stake is also returned to you at the end of the auction. In both cases, you recover your DOT and/or KSM after the lockout period .
The difference being that if the project that received your support gains their slot, you are eligible for a distribution of their token . On the condition, however, of having voted within the actual time of the candle auction. As of this writing, there is a maximum of 100 para-chain slots on each of the two blockchains.
On the Parachains.info site, you can find a detailed follow-up of the auction calendar for Polkadot . The site also gives you access to the actual end of the candle auction as shown in the illustration below:
Polkadot Parachain Auction Tracker
Differences between Polkadot (DOT) and Kusama (KSM) parachains
Although very similar, the two blockchains nevertheless have some notable differences . First of all, it is necessary to break a received idea: Kusama is not the testnet of Polkadot , it is rather Rococo which has this role.
Rather see Kusama as a general rehearsal before the big live to fine-tune the last settings, but the real tests take place on Rococo of which it is not the object today.
In general, Kusama works four times faster than Polkadot. Please note, we are talking here about its organization, not the speed of its transactions. To give a quick example, our daily life is organized into days which are themselves divided into 24 one-hour periods. Kusama and Polkadot are organized into eras, themselves divided into epochs .
This makes it possible to organize the functioning of a blockchain, like us who eat at fixed times, there is a well-defined number of actions at each period of a network. And it is this time value that is four times faster on Kusama . This allows the network to be more flexible and to realize more quickly what needs to be changed before a deployment on Polkadot.
In the same logic, on Polkadot, the rental period of a para-channel is 96 weeks when the duration on Kusama is reduced from a few months to a year. And by extension, so is the duration of your funds lock.
Let’s see an example in pictures to make it more meaningful. In the illustration below, we can see that an auction ends on February 7 at block 11,288,400 on Kusama, so the winner will be awarded a parachain slot until January 31, 2023.
Example of an auction calendar on Kusama
On the other hand, the winner of that of February 10 on Polkadot will have a parachain slot for a longer period, namely from March 11, 2022 to January 12, 2024. By the way, if you have assimilated the previous part of this article you will note that if the crowdloan starts on February 3, the effective vote limit can however be anytime between February 5 and 10.
Example of an auction calendar on Polkadot
To participate in an auction on Kusama it will be necessary to support a project with at least 0.1 KSM , while with the Polkadot network the minimum is set at 5 DOT .
Finally, projects change names depending on the blockchain where they implement their para-chain in order to avoid confusion. For example, Project Moonbeam on Polkadot is called Moonriver on Kusama , or Acala on Polkadot is called Karura on Kusama . It is important to know that if a project wants to be present on both networks, it must win a crowdloan on each of them.
How do I participate in the Polkadot and Kusama parachain auctions ?
The decentralized method
If you’re used to using wallets like MetaMask , this won’t be too difficult for you. Here, the official wallet is the Polkadot{.js} browser extension (desktop only). Like MetaMask, be careful about how you keep your 12-word recovery phrase safe. No website, other than the official extension itself as part of a recovery or anyone else will ask you for it.
Once your wallet is configured, you can select the network on which you want to bid on crowdloans and then go to the official application dedicated to this purpose. For the remainder of this tutorial, we’ll be using the Polkadot network , but be aware that the mechanics are exactly the same on Kusama .
Official Polkadot {.js} extension view
Once on the official site, you should see the banner below appearing at the top of the screen.
Banner of the official site polkadot.js.org
If this is not the case , click on the far left (to the left of “Accounts”) on the name that appears then: Polkadot → Apply .
Network selection menu
In the top banner, then click on Accounts → Accounts . You will arrive on a page allowing you to manage all the addresses added to your extension. Addresses which should logically be 0 if this is the first time you are browsing this blockchain. It will therefore be necessary to credit them in DOT tokens .
View of your different accounts on the Polkadot blockchain
To credit an account with DOT tokens, click on the name you have given to it, a window will open on the right of your page and you can copy your address at the top of it. An easier solution is to copy the address directly from your browser extension (see “View of the official Polkadot{.js} extension” illustration above).
Then use this address from the account where you already have DOTs. If you don’t have one and want to get some, you can buy some on Binance .
Once your DOTs are in possession of your address, you will need to go to the Network → Parachain → Crowdloan tab in order to arrive on the page below which lists all the auctions in progress:
Crowdloans main page on Polkadot
For each project, you will see the time remaining before the end of the auction, the percentage of progress of the funds it seeks to raise, a “Homepage” link to its site and then the possibility of voting with the “Contribute” button . .
After doing your research and selecting the project(s) you wish to support, click on “Contribute”. You will see the following window appear which informs you of the minimum amount to be allocated as well as the possibility of choosing the account with which to participate in the crowdloan.
Preview of a contribution to a Polkadot parachain auction
After clicking again on “Contribute”, the transaction signature menu will open in order to validate it. If the auction is successful, keep in mind that you will no longer have access to your DOTs for 96 weeks on Polkadot and for several months for your KSMs on Kusama . If it loses, they will be returned to you at the end of the round of votes in which the project participated.
Thereafter, you will be able to see your votes and their amount in the “My contributions” tab as below with the Interlay project which seeks to bring Bitcoin to Polkadot. Do not take this as investment advice, this illustration is for informational purposes.
View of a contribution to a crowdloan
It may be that the display does not work properly despite your vote, we invite you in this case to explore the project site. By connecting his wallet to it, it is sometimes possible to see the amount of his contribution as in this example with Equilibrium below.
Example of contributing to an auction via a project site
Let’s now look at an alternative method to participate in crowdloans.
A centralized way to bid on a parachain
This is not the only option, but Just Mining being a French company with PSAN status , let’s discuss their solution to participate in crowdloans. In this case, this method is currently limited to the parachains of the Polkadot blockchain.
You will first need to create an account and complete a KYC process before you can invest, then go to the “ Parachains” tab when your identity verification is validated.
It is important to note that Just Mining does not offer all of Polkadot’s parachains on its site, which could be a drag if your core project is not listed. On the other hand, it is a solution that is easier to access for someone who is not used to interacting directly with a decentralized ecosystem.
In the event of a winning bid, Just Mining will retain 5% of the rewards you are eligible for. In addition, by betting on a crowdloan in a decentralized way, you are sometimes entitled to a reward bonus if you do it early enough, this possibility is not found at Just Mining .
One of the big advantages of using the Just Mining platform will be for small budgets. Where a minimum of 5 DOT is needed using the decentralized method, Just Mining allows you to start bidding with just one DOT . You will need to buy DOT directly from their platform for a 4% transaction fee .
Participate in crowdloans on Just Mining
As shown in the illustration above, you can also participate by depositing DOT from another address or using funds that would already be present in your Just Mining account.
Note that if you send DOT from an external address to Just Mining the minimum of 5 DOT is applied, you must enter the exact amount to be credited and make a deposit request. You will then receive an email from their customer service with an address to make the transfer.
Deposit DOT on Just Mining
As with the classic solution, your funds will be locked for the duration of the parachain slot rental if the auction is successful. If the auction fails, your DOTs will be credited back to you within 48 hours of the end of the auction.
You now know how to participate in Polkadot and Kusama crowdloans. However, keep in mind that if you do not have the risk of losing your investment, excluding technical risk, your funds are blocked for periods that can be substantial . This implies that cryptocurrencies may lose value in the meantime .
As with any investment, take the time to weigh the pros and cons of each possibility based on your own strategy.
