Polkadot Crowdloans allow community members of a particular project to deposit DOT tokens to support specific projects during the Polkadot Slot Auction. Participants who support projects through this mechanism stand to gain rewards from the supported projects.
Starting a crowdloan campaign when participating in a parachain slot auction is optional. Projects can also win a slot directly without seeking funding from the community.
Understanding Polkadot (DOT) Crowdloans
Polkadot is an open-source protocol that facilitates data and application exchange and communication between blockchains. The Polkadot ecosystem consists of two types of blockchains: The Relay Chain, which is the main chain, and parallel blockchains, also called parachains. The Relay Chain is Polkadot’s central hub, connecting to different parachains. These parachains process transactions independently, off the main chain, significantly increasing blockchain scalability.
Parachain projects must secure a parachain slot if they want to connect their parachain to the Relay Chain. Projects can secure a parachain slot by participating in Parachain Slot auctions. Participation in the auction requires projects to stake DOT. The projects that stake the highest number of DOT tokens can become eligible to lease slots for a duration of 12 to 96 weeks and become a Polkadot parachain.
Projects can utilize Polkadot Crowdloans and raise additional DOT tokens from the community. Crowdloans act as a crowd-funding mechanism that allows members of the community to support a specific project by staking their DOT tokens. Community members who stake their tokens receive rewards from the project in the form of tokens from the supported parachain.
Once participants stake their tokens in support of a project, they are locked within its slot auction bid. If the project is successful in the auction, it can lease a slot and connect to the Relay Chain. The DOT tokens acquired through the crowdloan are locked for the entire duration of the lease.
How To Start A Crowdloan Campaign?
Any project that has registered a parachain can create a crowdloan campaign by depositing the required number of tokens. The campaign is configured as a range of slots, a cap, and a duration. The duration can last for several auctions as long as the range of slots matches the auctions. This means the project does not have to restart the campaign should they fail to secure a slot. Some important things to remember are:
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Crowdloan campaigns can start before the auction slot is opened.
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Campaign creation involves the setting up of a cap to specify the maximum amount a crowdloan campaign can collect.
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Projects can set the desired end of the crowdloan in the “Ending Block” field. This ensures the crowdloan is live for the entire duration of the auction.
How To Support A Crowdloan Campaign?
Once a crowdloan is open, anyone who wants to support the project can participate by sending a transaction referencing the campaign’s index. The tokens used to participate in these campaigns must be transferable, which means they must not be locked. Tokens can be locked for several reasons, such as staking, vesting, and governance.
Parachain teams must decide how they want to reward participants in crowdloan campaigns who lock their tokens in support of the campaign and forego staking. The rewards vary between projects. If the campaign is successful, the parachain is onboarded to the Relay Chain, and the tokens will be locked in the parachain account for the duration of the lease.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
