It has been four months since crowdloans, the auctions to win a parachain spot, began in the Polkadot universe. The first places had been the subject of a fierce battle between the main projects. But gradually, fewer investors filed their DOT to support the candidates. As we approach the end of the 3rd round of auctions, it’s time to take stock of these Polkadot crowdloans.
- The principle of crowdloans
- From hype to disinterest?
- Polkadot Price Perspective
Crowdloans: An Equity Loan To Secure The Polkadot Ecosystem
By creating Polkadot, Gavin Wood bet on the importance of interoperability in the future years. This ecosystem is thus composed of a central core, Polkadot, around which would be connected specialized blockchains which would take their security from this core. To find out which project will have a parachain place to be secured, Polkadot has set up an auction system, crowdloans.
Investors can use their DOT on the projects they want to support. It is necessary to block the DOT 96 weeks to secure the project. In exchange, investors receive supported tokens.
We can therefore consider these crowdloans as an equity loan that ensures the financing of project security. This mechanism allows active participation of the community in the choice of projects to secure them. Apart from the technical aspect, they shed great light on the Polkadot project. At the marketing level, this visibility has led the largest exchange platforms to offer to participate in crowdloans via their platform.
The Success Of The First Parachains
The start of crowdloans on Polkadot in mid-November generated a lot of interest. The first week was the occasion of a duel between the two most important projects: Moonbeam and Acala. Symbolically, it was important for these two projects to be the first parachain on Polkadot. These two projects brought together 68 million DOT, therefore more than 5% of the existing tokens. This figure is all the more impressive as hundreds of parachains are planned in the future. It is therefore impossible to lock as many DOTs per project. And indeed, the following projects saw fewer and fewer loans from investors. Thus Interlay and HydraDX which have just won the 9th and 10th place of parachains received only 2.75 and 2.46 million DOT, therefore more than ten times less than the first two.
In a sense, the temporary cessation of crowdloans in mid-March after the allocation of the eleventh parachain will undoubtedly be beneficial for taking stock of this mechanism. Disinterest gradually set in after the spotlight. Only the faithful community around the Polkadot project continues to support the various projects.
Less Profit Than Expected
In fact, if many invested at the beginning, it was mainly for a reason of profitability. The hype around crowdloans was such that many believed they could have a big payoff by lending their DOT. Unfortunately, the return on investment is not as great as many might have hoped. For example, for Acala, rewards are equivalent to $5.62 per DOT loaned, and $9.72 for Moonbeam. At the current price of 17 dollars for the DOT, this is a 30 to 50% return by locking its DOTs for two years, and therefore without knowing whether what value the DOTs will have by then.
Bitcoin Drags Polkadot $DOT Down
What effect can crowdloans have on the price of DOT? To answer this question, you have to be aware that the DOTs on loan are locked for two years. Thus, there are currently 10% of DOTs locked for crowdloans in addition to the DOTs usually put in staking. So far, this hasn’t prevented DOT from falling along with Bitcoin since November. However, the launch of crowdloans in November saw it hit its all-time high at $53.88. The current decline is therefore also partly linked to the disinterest that has gradually emerged.
The Polkadot ecosystem is still young and many projects are not able to deliver their products. However, we can expect a new wave of fervor towards crowdloans when the real web3 and metaverse products are usable. In this case, a return to the historical record level is quite possible. A few large projects would be enough to increase the number of locked DOTs to more than 20% (10% has been exceeded for all projects).
Polkadot crowdloans have been the subject of great misunderstanding. Revolution for some, the goose with the golden eggs for others, everyone goes there to see what they intend to see. After the moment of glory that allowed the DOT to break its all-time high, a retracement accompanied the departure of investors. Now is the time for Polkadot to make its ecosystem more accessible to regain its bullish trend.