Parachains auctions provide a slot to the projects built on the Polkadot blockchain in a very transparent and equitable manner.
Let us first understand what Parachains are and who developed them before understanding their auctions process.
Parachains are essentially independent blockchains built on top of a parent blockchain. It is a blockchain with security features provided by Polkadot.
By using dApps/smart contracts, a developer has a lot of flexibility, security, as well as it is much easier to manage than managing their own blockchain.
A parachain is a native blockchain with customizable governance; customizable block production; customizable tokenomics and shared security from the Polkadot relay chain.
Parachains have the ability to exchange messages/assets between parachains and are typically built with substrate.
To have Parachains for your project, you need to participate in an auction popularly known as Parachain Auction, which provides this chain on a lease for a period of 6-month to 2 years. Naturally, the highest bidder wins. To get it, you need to own lots of Polkadot’s DOT tokens.
What are Parachain auctions?
As there are many projects that want to be built on Polkadot and Kusama and each of them will need their own parachain slot to build upon. Rather than give the projects with the most funding a parachain slot, the Polkadot team came up with parachain auctions as a method to distribute the available slots in a more equitable manner.
These auctions are held on the Polkadot relay chain to determine which blockchain will connect to the parachain slot. Teams bid using DOT or KSM (Kusama — Polkadot’s younger, wilder cousin).
Just like any other auction, these auctions have many players eyeing a slot for themselves. Normally, the one with the highest bid wins the slot, but because the bidding is done to get a blockchain, it is slightly different.
What are crowdloans?
Some parachain teams will fund their auction bid with the help of a crowdloan campaign, which allows them to accept contributions from DOT holders. Crowdloan contributors get their DOT back at the end of the lease, and parachain teams can choose to reward them in various ways, including with a distribution of the parachain’s native token.
Before every parachain auction, there is a period dedicated to crowdloans. This enables smaller teams to raise DOT or KSM from their community or interested investors. To incentivize them, the bidder teams offer native tokens of their blockchain in exchange.
Slot duration & lease periods
According to Polkadot, each slot on the relay chain can be leased for a maximum duration of 96 weeks. When bidding on a slot, parachains can choose the length of their desired lease by selecting a contiguous range of 12-week increments known as lease periods. Multiple parachains can win a single auction if they successfully bid on non-overlapping lease periods.
The auction process itself is pretty straightforward. The way it’s structured is that the start and end times will be known by everyone. Once it begins, then everyone on the network is free to submit their bid to the relay chain. Only one parachain slot can be auctioned at a time, and each auction process lasts for 7 days on Kusama and 2 weeks on Polkadot. Once the auctions are concluded, determining a winner is where things get interesting.
Using candle auctions method
Polkadot uses a candle auctions method to auction Parachains. This was a method used in the 16th century for selling ships, where a candle would be lit at the beginning of a bidding war, and the person with the highest bid at the time the candle went out would win the ship.
Similarly, parachain auction participants have a determined amount of time to place bids on the projects they wish to get a parachain slot, and, in an effort to ensure fair bidding, the time at which the winner is determined is randomly decided on and retroactively applied to the projects with the most KSM or DOT support.
So, while there will be an official end to the auction, the candle auction refers to the random snapshot in time prior to the end that will determine the auction winner.
Polkadot parachain auction schedule
After successfully running parachain auctions on Kusama, the Polkadot community is looking forward to the auctions on Polkadot.
The Polkadot team announced the schedule of the first auctions, which has passed council and has now gone to a public referendum.
Dates for Auction 1, 2 are already over, other schedules for other auctions batches with expected dates can be checked on the Polkadot Auctions website, under the Auction Schedule Batch 1 and 2 topics.
In order to provide their blockchain platform to more diverse projects, more and more parachain slots will be auctioned in the near future, where many more projects can get the benefits of specialized blockchains that connect to the Polkadot Relay Chain and constitute the multichain aspect of Polkadot’s groundbreaking multichain architecture.