I read a lot lately about the crypto cycle and that were are about to enter an Altcoin cycle. With this being said, one of the most interesting projects out there is Polkadot and I am pretty sure everyone of you has heard of it. In this article we will take a look at Polkadot and what it makes it so popular. Furthermore, we will take a look at one close up event that could change the whole crypto space.
How It Works
Lets start with some basics. Polkadot uses a novel proof of stake consensus mechanism called “nominated proof of stake”. The short version of this mechanism is that DOT holders nominate validators by delegating their DOT to them. These validators secure the relay chain which is the central blockchain. The relay chain is not smart contract compatible and only supports DOT transactions related to DOT transfers, staking, governance and parachain slot auctions.
Parachains are blockchains that plug in to the relay chain. In contrast to the relay chain, the plugged in parachains are smart contract compatible and host all of Polkadot’s DApps. The relay chain is limited to 100 parachain solts. Due to the fact that a lot of projects are built on the Polkadot Chain, an auction gets to decide which projects gets a Parachain slot. These auctions involve bonding DOT to the relay chain. A snapshot is taken before the auction ends and the winner gets one of these wanted slots.
Here, DOT holders can loan their DOT to the projects that are participating in these parachain slot auctions in exchange for their tokens. This is a mechanism called “parachain loan offering” (PLO). In contrast to an initial coin offering any loaned DOT are not sold or even given to the project. Loaned DOTs are simply bodned to the relay chain for the duration of the prachain’s lease. At the end of that lease period all bonded and loaned DOT are returned.
So what is the event, that I was talking about in the intro. Well, it is the upcoming parachain slot auctions. According to their website the first auction is supposed to take place on November 11th, so this Thursday. So what can we expect from these slot auctions?
Luckily, Kusama held some slot auctions already. Kusama is the test blockchain of Polkadot. That means that everything that is arriving on Polkadot is basically first tested on Kusama including those Parachain slot auctions. The winners of Kusama’s first round of auctions were: Karura, Moonriver, Shiden, Bifrost and Khala. These projects are planning on participating on the Polkadot parachain auction as Acala, Moonbeam, Astar Network, Bifrost and Phala. It is very likely that these projects will be the winners of Polkadots’s first round of auctions.
While these auctions were going on KSM, the native Coin of Kusama, had very high volatility due to all the bonded coins in the auction. This could mean that DOT’s prize will be spiking during these auctions because so many DOTs will be locked away. It is important to mention that if those DOT is used for the auction it will be locked up for 2 years, because that is how long the project will get its slot for. In my opinion, this could shoot the price for DOT very high, and it could break its all-time high.
Besides these auctions there are two mor events to mention. The first one would be its parachain interoperability which is planned to be achieved by XCM. If anybody wants to educate himself on this topic feel free to check out this article: https://polkadot.network/blog/xcm-the-cross-consensus-message-format/ .
The second upcoming milestone is the introduction of parathreads. These are essentially “pay-as-you-go” parachains. These parathreads could open the door to institutional adoption for Polkadot and a few of its projects have already had some traction on that end.
With all of these bullish news lets not forget to look at some concerns that might come up for this project. Currently, Polkadot is very centralized because all of the changes that are made is happening by one organization. This would make Polkadot an easy target for regulators. Another problem for Polkadot could be that most of its promising projects were Chinese projects. Now that China has officially banned crypto, it is very difficult for Chinese developers to access to their projects which takes away a lot of Polkadots ecosystem.
Lately it was very calm around Polkadot, but I think this will change soon. I think that with the starting auctions DOT’s price will start to pump and we could see new all-time highs! This makes me very excited for the upcoming weeks and I am preparing my exit strategy and so should you if you have some DOTs in your wallets. I think that it will be a very good opportunity to realize some gains and reinvest it in BTC.
What dou you guys think about this project and the upcoming auctions? Do you think DOT’s price will pump?
Published by ga38jem on
On 8th November 2021
Parachain auctions will move Polkadot