The latest progress of the parachain in the future may be announced at the official Polkadot Decoded conference on December 3. Polkabase will broadcast the key points of the meeting as soon as possible.

Before the official announcement of the good news about the parachain, in this issue we will discuss the key functions of the Polkadot parachain. Polkadot’s parachain system makes the project stand out from other blockchain projects. We will discuss how the project becomes a parachain, how expensive it is to become a parachain, how to raise funds for the parachain project, and if the Polkadot project fails to run for the parachain, does it mean that the project will exit the Polkadot ecosystem?

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Polkadot Ecosystem Concept Map

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How does the Substrate project become a parachain?

First of all, parachain slots are actually limited, and the winner of the slot will be determined by the candle auction mechanism. In short, in a candle auction, bidders can gradually increase their bids during the open phase. The bidder with the highest amount at the close wins the bid. Candle auctions let everyone know the status of the auction but not when the auction will end, which helps ensure that bidders are more willing to bid early. Otherwise, they may find themselves in a situation where the auction is "closed" even before they bid.

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How much does it cost to become a parachain?

This process means that the cost of leasing a parachain slot will depend entirely on market supply and demand. It is difficult to accurately estimate the specific amount of the security deposit. However, we know that DOT will be an asset that needs to be staked in the auction. Polkadot emphasized that the actual cost of a parachain slot is different from a parachain bond because the bond is refunded at the end of the lease period, while the actual parachain cost is more precisely the opportunity cost of unstaked DOT.

According to preliminary modeling estimates by the Web3 Foundation, the annual maintenance cost of the main chain (eg, Cosmos, Tezos, and EOS) is tens of millions of dollars, while the maintenance cost of Ethereum and Bitcoin is as high as nearly billions of dollars.

At present, the market value of the top 300 cryptocurrencies is more than 10 million US dollars, and almost all of them have a daily transaction volume of more than 100,000 US dollars. The mainstream dApps on Ethereum will conduct an average of 30–200k transactions per month, such as Chainlink, MakerDAO and IDEX, meanwhile, pays an average monthly gas fee of $180,000–60,000. Assuming a conservative 2% annual inflation rate for mining, staking, or transaction costs, even the most modest crypto projects spend more than $200,000 per year on security. The opportunity cost of Polkadot’s 12-month rental of parachain slots is estimated to be only $100,000 to $200,000. At the same time, there is no gas fee. That is to say, most companies can actually use this price to gain economic advantages from leasing Polkadot parachain card slots, rather than using inflation-based consensus, which is costly, isolated and often insecure.

Further research and modeling will help to understand the approximate cost of acquiring a slot in Polkadot.

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How to raise funds for parachain slots?

At the beginning of the auction, Polkadot will stage a certain scale of slot competition, which is the opportunity for participants to obtain the tokens of the first batch of winning ecosystem projects. Many people refer to the tokens of these projects as "Poca Diamonds"

Polkadot has always been committed to giving power back to the community. Based on this purpose, Polkadot officially proposed a new model called Polkadot Parachain Auction. i.e. if a project decides they want to bid for an upcoming parachain slot, but is short on funds, then they can use Substrate's crowdfunding module to create a Polkadot parachain auction offering to accept DOT loans from any DOT holder. Funds secured by this module for users or participants will go to accounts on the Polkadot relay chain. If the project can get enough donations to win the auction, the DOT loan will be refunded to the donor at the end of the parachain lease period. If the project cannot get enough donations and the auction fails, then the DOT will be refunded to the donor immediately. DOT in this account can only be used for chain binding, and projects cannot transfer DOT out of this account. Since this module lives on the Polkadot relay chain, DOT donors can trust that their donations are safe, receiving their DOTs both at the end of the lease and in the event of a failed auction.

Due to the above characteristics, parachain projects are expected to incentivize donors in some way, such as rewarding them with native parachain tokens, etc. In a traditional ICO fundraising, investors are only rewarded with tokens. In parachains, project teams can also choose to reward investors for their role in governance.

What if the Polkadot project fails to bid in the parachain auction?

1. Link the project based on Substrate into the parallel thread. While this doesn’t give them the same throughput guarantees as a parachain, they can still leverage Polkadot’s shared security and interoperability using a pay-as-you-go model.

2. Deploy the parachain to Kusama. Although access to Kusama also requires a parachain slot. However, Kusama’s parachain auction costs may also be lower than Polkadot’s

3. Via Solidity or Ink! The smart contract in the application or service is deployed on the existing parachain. Although this operation has a high development cost, it is also an option for those projects that want to use the parachain.

4. Independently launch the Substrate-based chain of the project on the mainnet, use the project's native tokens to recruit and motivate validator nodes, and connect to Polkadot through a bridge.

Conclusion: Since 2020, the tokens in the Polkadot ecosystem have achieved astonishing increases. For example, LINK has increased by more than 100 times, and DOT and KSM have achieved dozens of times. And this parachain slot auction is also good for DOT and KSM.

For Polkadot itself, the ecology has landed, and Polkadot, led by the co-founder of Ethereum, is one step closer to the title of "Ethereum Killer".

Literature reference

https://medium.com/@longhashSG/preparing-for-your-first-parachain-auction-d965bfe2ac6e

Preparing for Your First Parachain Auction by LongHash Ventures

https://wiki.polkadot.network/docs/en/learn-auction

Polkadot Wiki

https://polkadot.network/obtaining-a-parachain-slot-on-polkadot/

Obtaining a Parachain Slot on Polkadot

https://medium.com/polkadot-ecosystem-promoteam/what-is-polkadot-parachain-auction-and-how-it-will-reveal-the-hidden-power-of-the-polkadot-f4fc5edc3d20

https://medium.com/polkadot-ecosystem-promoteam/promoteam-what-we-can-do-for-the-projects-and-polkadot-ecosystem-d6b46b8ed39