Polkadot's parachain auctions have been one of the most anticipated events since launching on the mainnet in May last year. Parachain auctions are starting again in Polkadot. So what will this mean for 2022? When the platform announced that auctions would begin on November 11, DOT prices had soared over 25% before hitting an all-time high in a matter of weeks.
First, Polkadot and its cousin network Kusama are the first blockchain platforms to run the concept of a parachain slot. While most blockchains are open for any developer to come and open a store, Polkadot has a fixed number of parachains that connect to its central Relay chain.
Projects can ask their backers to tie their DOT with a crowdfunding to increase their chances of making the highest bid. However, Polkadot's parachain slots are 96 weeks long, and mass loan participants will not have any access to their DOT during this time. Therefore, to make this worthwhile, projects offer attractive offers in the form of their own tokens.
But Polkadot is also a proof-of-stake network. DOT holders can already earn rewards for staking their DOT under the Nominated Proof-of-Stake consensus. As such, parachain contenders must ensure that their token rewards are convincing enough to outweigh the lure of staking.
According to DotMarketCap, two weeks later, there are about 100 million DOTs locked in crowdfunding, with a total value exceeding $3 billion. The charts show a distinct bullish trend at the point where parachain auctions open before equating to the same steady increase seen at the open. However, the number of contributors appears to be on a steady upward trajectory.
These auctions will take place in two batches, with five parachain slots being auctioned and going live on December 18. Assuming that the participation rate continues to increase in its current trajectory, we can expect to see a value of up to about $4.5 billion. DOT remained in lockdown for most of the next two years.
According to Parachains.info, at the time of writing, the largest contributor to the Moonbeam crowdfunding has put in 11.7 million DOTs with a valuation of over $450 million. It seems likely that sums of this size will come from exchanges rather than individual investors, meaning a single deposit represents hundreds or even thousands of backers.
This community will be encouraged to continue supporting Polkadot as long as their DOT is connected, which bodes well for the success of the projects operating on the platform.
On December 18, all five of the first parachains will be able to go live. Since that day will mark the moment the clock starts ticking in week 96 of their contract, they'll need to be ready to go if they want to make sure they're giving their lenders maximum value. After the slots go live on December 18, we can expect a very short lead time for launch for each parachain.
For most of the year, Polkadot was the second most popular betting network after Cardano, boasting that over 70% of the total DOT supply was locked. However, since October, many stakers have removed their DOT, which means that the network currently has around 53% of DOT locked in Proof-of-Stake. However, in response to the reduced staked DOT, the issuing algorithm will increase the rewards and ultimately pull more DOTs from the open market to improve the security of the network.
Six more are planned before March, bringing the total to eleven. However, we can expect Polkadot to continue to increase the number of parachains in the months and years ahead, meaning that more DOT tying cycles in crowd credits creating additional incentives for staking will continue unabated for some time to come.
Based on the performance of Parachain auctions over the past two weeks, the DOT tokenic model is proving to be successful.