2021 Review: The Splendor of the Blockchain World and the Rise of Polkadot Parachains

As 2021 is coming to an end, looking back at the developments in the blockchain world over the past year, it has been a spectacular journey. From the DeFi boom to the global surge of NFTs, and now the popularity of GameFi, blockchain technology is gradually integrating into the lives of the public, leaving many well-known applications and concepts.

It is worth noting that Blockchain has developed to a new stage. People are no longer asking "What is Blockchain?" but instead are starting to focus on the implementation methods of specific applications or products. This may be the biggest progress in the past year.

However, the blockchain field still faces many challenges. For example, the high transaction fees of Ethereum, the balance between on-chain security and efficiency, and issues like transfer delays continue to trouble users. Additionally, cross-chain issues remain a focal point of industry attention.

Fortunately, at the end of the year, Polkadot welcomed the parachain slot auctions, which means that the criticized cross-chain operations may undergo significant changes due to the emergence of parachains. The issue of information not being able to intercommunicate between chains seems to be on the verge of a breakthrough. So, can Polkadot's parachains really bring about such a huge change?

Let's discuss the changes that may occur in the Polkadot ecosystem after the parachains start operating, and the potential impact it may have on the blockchain industry.

Polkadot Parachain Slot Auction

1. The concept of Polkadot parachain slot auctions

Parachain slot auctions are essentially a leasing mechanism. 80% of the slots will be auctioned on the market, while 20% are reserved for the Web3 Foundation to support the development of the community and the entire Polkadot ecosystem. The lease period for each parachain is 6 months, and projects participating in the auction can choose to bid for one or more adjacent periods, with a maximum of no more than 2 years. Participation in the auction requires locking DOT, which will be released after the lease period ends.

Polkadot uses a candle auction combined with random parameters for bidding. The auction is divided into two phases: the security period and the random period. During the security period, the project party can freely stake DOT. After entering the random period, the system will randomly select a point in time to end the auction, using a VRF-based random beacon to determine the end time.

To win a slot, project parties need to stake more DOT before entering the random period. This method effectively prevents "auction sniping" and encourages project parties to participate in bidding early at a reasonable price.

2. The significance of parachain slot auctions

The operation of a parachain requires the consumption of certain network resources. Currently, Polkadot's relay chain can only support 100 slots, so resources need to be allocated through an auction process.

Polkadot is a scalable heterogeneous multi-chain Blockchain system. The Relay Chain and parachains are the main components of the Polkadot architecture. The Relay Chain is responsible for the consensus and security of the entire network, while all Blockchains can connect to the Polkadot ecosystem through slots, sharing network security and interacting with other parachains, thereby expanding their own business.

Parachain slot auctions are also a filtering mechanism. Acquiring a slot requires a higher cost, and a longer leasing period also imposes certain stability requirements on projects. Therefore, only high-quality and capable projects can win a slot. By connecting to the Polkadot network, projects can collaborate and enhance the composability between them, stimulate ecological innovation, and ultimately bring new value to the Polkadot network.

The Impact of Normalizing Parachain Slot Auctions

Kusama, as the canary network for Polkadot, has auction arrangements that can be used to estimate Polkadot's subsequent plans. Kusama has established a detailed slot auction plan, taking place every seven days, with a maximum lease time of 48 weeks for a slot, and a total of 48 parachains will undergo slot auctions.

This means that when the bidding for the 48th slot is completed, the first slot will have just finished its lease and can be used for the next auction. This way, Kusama has established an annual auction cycle, normalizing the parachain slot auctions.

Polkadot is likely to adopt a similar approach to normalize parachain slot auctions. So, what impact will this normalization have on the Polkadot ecosystem, projects, and users?

1. The impact on Polkadot

When Polkadot enters the stage of normalized auctions, it means that some parachains have begun to operate smoothly, and the Polkadot ecosystem has successfully launched and passed the initial phase. Many ecological projects can start deploying decentralized applications, and Polkadot will gradually become a massive cryptocurrency economy.

The economic system of Polkadot is divided into two main sectors and three tiers. The two main sectors are the internal economy of the ecosystem and the external economy of the ecosystem, which refer to the economy within Polkadot's own ecosystem and the economy that connects to the Polkadot ecosystem through bridging. The three tiers mainly refer to the internal economy, including Polkadot's own assets, parachain assets, and the assets of ecological projects within the parachains.

After the normalization of slot auctions, the economy within the Polkadot ecosystem will develop steadily. The official focus will shift towards the development of parachains and the development of public interest parachains, which includes integrating external economies into Polkadot through transfer bridges.

Polkadot will adopt a two-pronged strategy of internal and external economics. The external economy focuses on the development of public interest parachains such as cross-chain bridges. The internal economy aims to increase the usage rate of Polkadot's technology by accelerating the organization of hackathons and improving the Grant program, supporting more teams to join the Polkadot ecosystem. At the same time, the official also provides programs similar to the "Builders For Builders Program" for parachain projects to support them in better developing their own ecosystems.

Regarding the issue of auction costs, it should be clarified that the initial situation of slot auctions cannot be used to judge subsequent situations. As auctions become normalized, slots are no longer a scarce resource, competition pressure decreases, and costs will naturally lower. The launch of parachains will also provide more options for projects. Ultimately, the auction costs for parachain slots may not be much higher than the costs of using parachains.

In addition, the cost of parachain slots can also be addressed through the Crowdloan method. If a project does not receive sufficient support, it indicates that its operation has not yet gained sufficient consensus and needs to continue its efforts. The slot auction mechanism is actually a test of greater responsibility for participants.

2. Impact on ecological projects

For projects that have successfully acquired Polkadot parachain slots, this opens up a two-year assessment period (the default maximum lease term). To ensure that they can continue to bid for slots after the current ones expire, these projects need to work harder in their operations.

The Polkadot parachain slot auction mechanism inherently possesses the characteristics of survival of the fittest. Projects that perform well have sufficient funds to continuously bid for slots, while underperforming projects may only be able to meet basic cross-chain needs through parallel threads, waiting for future operational improvements to re-enter the auction. This is beneficial for leaving higher-quality projects in the Polkadot ecosystem, avoiding the situation where bad currency drives out good.

After the normalization of auctions, multiple parachains have already connected to Polkadot, which is beneficial for these projects to develop their own ecosystems and explore cross-chain scenarios. However, the Polkadot ecosystem is still an environment with ecological niches, so how to quickly become a leader in their own ecological niche will become the primary task for these projects.

Currently, some popular directions, such as smart contract platforms and DeFi hubs, are highly competitive. Who can stand out and become the leader will be a tough battle. Competition will inevitably bring incentives, leading to the emergence of many incentive measures and bonuses, making it worth closely monitoring the development of these parachains.

For projects that have not yet obtained a slot, as auction costs gradually decrease, they need to work hard to gain more support in order to participate in the bidding. When the auction threshold is lowered to a manageable level, new incentives may also emerge. Another strategy is to focus on the development of parachains, becoming one of the earliest teams to use parachains, integrating with Polkadot to develop themselves, and then considering bidding for a slot once they have grown stronger.

For application-based projects, the normalization of parachain auctions is the most beneficial. They can adopt a multi-chain deployment strategy, deploying once on each well-operating Polkadot parachain. The more parachains there are, the more markets they effectively expand into, allowing them to grow rapidly while also strengthening the Polkadot ecosystem, achieving a win-win situation.

Thanks to the characteristics of Polkadot, multi-chain deployment on Polkadot can also enable cross-chain information exchange between different chains, forming an aggregation. Currently, Zenlink and RMRK are exploring well in this direction, representing a new type of application in the Polkadot ecosystem.

3. The impact on ordinary users

The normalization of slot auctions can be seen as Polkadot becoming a rhythmic long-term "new token" venue, providing many opportunities to obtain quality chips, while DOT will become the proof of stake for participating in the "new token".

Secondly, each parachain project will begin to strengthen its own ecosystem. If a certain parachain can emulate last year's public chain trend by launching a public chain incentive program to attract mature and high-quality DeFi projects for multi-chain deployment or to attract funds to participate in high-quality projects within its ecosystem, thereby rapidly increasing its TVL, this model may be replicated across many Polkadot parachains.

These incentive programs are also a significant opportunity for ordinary users. Choosing high-quality parachain projects and growing alongside them makes it easier to obtain their development dividends.

Conclusion

As we complete this article, the second winner of the Polkadot parachain has been determined, and the auction for the third slot has also begun. As the highlight of Polkadot this year, we expect to see the official operation of the parachains around mid-December, which could bring new opportunities for cross-chain issues.

The performance of the Polkadot parachain after its launch is still unknown for this brand new cross-chain method. However, as the most professional and focused team in this field, we are full of expectations for it. This expectation will also bring new visions with the arrival of 2022. With the dawn of the Web 3.0 era already sounded, it is time for Polkadot to showcase the charm of "interconnection of thousands of chains."