Here’s How to Participate in the Upcoming Polkadot Parachain Auctions

There’s a primary, short-term reason for why DOT has rallied in the past few weeks: parachain auctions. These are auctions to determine which projects can gain a slot on one of Polkadot’s 100 ‘parachains’, which connect and communicate with the network’s central ‘relay chain.’ As auctions, they involve prospective projects locking up DOT in order to outbid rivals. And given that DOT is required to participate, the price of the cryptocurrency has unsurprisingly rallied in recent weeks.

It’s entirely likely that it will continue rallying in the foreseeable future, particularly when Polkadot’s parachain auctions are open to public participation. This article explains how you can get involved in them, while it also unpacks why they’re such a big deal and what you can expect if you do decide to participate.

Why the Auctions Are Important

Parachain auctions are bullish for Polkadot because, as its roadmap states, they mark the point at which “the network’s launch will officially be complete.”

Source: Polkadot

With parachains occupied by actual projects, Polkadot will finally start hosting decentralized apps (dapps) capable of providing services, from DeFi platforms to NFT marketplaces. This will obviously bring increased traffic to the Polkadot network, and in turn it will also bring increased transaction fees (paid in DOT), as well as increased staking. In sum, we’ll witness a steady ramping up of demand for DOT.

Likewise, it’s worth pointing out that Polkadot’s founder is none other than Gavin Wood, who in a previous life was one of Ethereum’s co-founders. Given his pedigree as a coder, thinker and entrepreneur, a significant portion of the market has become very enthusiastic about Polkadot. It’s therefore reasonable to expect that there will be significant demand for a slot on one of the network’s parachains. By extension, it’s also reasonable to expect that such a demand will again result in a ramping up of demand for DOT.

Indeed, this explains why DOT has rallied recently. However, with auctions scheduled to take place once a week, there’s going to be a steady supply (and increase) in demand over time. Bidders will need DOT to participate in the auctions, and (if they win) they will also need to lock up bidded DOT for the duration of their lease of the parachain, a period lasting for two years.

In other words, a significant quantity of DOT is going to be taken out of circulation. As an indication of what to expect, it’s worth taking a look at the parachain auctions that have so far taken place with Kusama, Polkadot’s test network. For example, when DeFi platform Karura won the first ever Kusama parachain auction, it bonded 501,138 KSM. This is 5% of kusama’s max supply of 10 million KSM, and combined with the next four auctions, it resulted in around 11% of kusama’s supply being removed from circulation.

While polkadot currently has a supply of just over 1.1 billion DOT (and is inflationary), demand for slots on Polkadot is likely to be much higher than it was for Kusama. We should therefore expect more DOT to be bonded (and taken out of circulation), thereby having a big impact on the cryptocurrency’s price.

How You Can Participate in Polkadot Parachain Auctions

And this is where members of the public come in. While developing our own platforms to occupy a slot with Polkadot is likely well beyond most of us, we can indeed participate in the upcoming parachain auctions. These will start from November 11, with prospective parachains able to register and open their crowdloan from November 4.

Source: Twitter

There are a number of ways that individual holders of DOT can participate (here’s Polkadot’s official auctions page). For more confident and technically literate investors, parachains.info will provide a list of the parachains involved in the auctions, and from there users can visit polkadot.js.org — which is basically Polkadot’s equivalent of MetaMask — to contribute directly. You can also just go straight to polkadot.js.org/apps and view/contribute to ongoing auctions for yourself, although you will need to create a Polkadot-JS Extension account first.

However, it really does need to be stressed that this method is probably too complicated for the average retail trader. Alternatively, one other direct method for participating is to find the official website of any potential parachain you like and visit their crowdfund page, which should provide details on how to contribute. This will still most likely require you to have a Polkadot-JS account though.

For individuals and retail traders who want to use the simplest method, it would be best to use either Kraken or Binance. Both of these crypto-exchanges are supporting the auctions, and will allow signed up users to contribute DOT to a parachain via a very simple process. So if you have an account with either of these exchanges, it’s a simple matter of clicking the relevant tab on their homepages.

For example, with Kraken you simply click the ‘Earn’ tab at the top of the homepage. You will then see a sub-tab below, with two options: ‘Staking’ and ‘Parachains.’ Clicking on ‘Parachains’ will show a list of ‘Parachain auctions.’ You can contribute to any of these by clicking the deposit icon on the right (it’s a purple arrow pointing downwards at a horizontal line).

Participate in Parachain Auctions for Just 5 DOT

With Kraken, you can participate in an auction with as little as 5 DOT, and it’s likely to be a similar story with Binance. Participants can expect to receive a reward if their chosen parachain is successful. For example, Karura gave kusama bidders rewards (in its native token) worth $174 for every KSM bidded, while Moon River gave a whopping $5,348 per KSM.

As of writing, it still hasn’t been announced what the rewards will be per DOT locked up, although it should be fairly substantial. Of course, anyone who bids with a losing parachain won’t receive any rewards, although they will obviously get all of their DOT back.

As for contributors to winning bids, they won’t have their locked up DOT returned to them until the end of their parachain’s lease. These will end after 96 weeks, at which point the corresponding app/platform will lose its parachain slot, and will have to bid again if it wants to keep it.

So if you want to bid DOT, be prepared to have it out of reach for around two years. Still, by that time it may have risen dramatically in value.