What are parachain auctions?
Parachain auctions help projects find funds to rent slots, and investors get profit and additional bonuses.
In the last article, I started talking about what parachains are and what benefits they bring to the crypto space. Today we will talk about what parachain auctions are, who can participate in them, and what bonuses users have.
What are parachain auctions
Parachains are another important step in the development of the Polkadot ecosystem. The number of places for parachains is limited – there are 100 of them. However, there are many more people who want to participate. The selection goes through auctions. This creates healthy competition between projects.
There are three types of parachains:
– parachains for the common good are blockchains that carry key functions of the Polkadot ecosystem, such as creating bridges. These parachains are selected using DOT token holders;
— Paramedia are blockchains with a prepaid function. These parachains are selected on the basis of the highest price;
– standard parachains – are leased for up to two years. Standard parachains are played at auctions.
Projects are strictly controlled for compliance with these categories. Each auction lasts a week. Any user can vote for the project. In addition, the conditions are quite simple. First you need to choose a successful project. Then you need to purchase and also send the DOT token to a specific address. These funds will be used to rent a slot for the parachain.
If the project wins the auction, then all user tokens will be frozen for the entire slot lease period. The rental period starts immediately after the end of the auction and is 96 weeks. After the expiration date, funds are automatically returned to users. If the project wants to extend the lease, it will have to look for additional funds.
If the project loses, then the tokens will automatically be returned to users. In fact, there is no risk for users to lose funds. In addition, some even use this method as a way of passive income.
However, investors participating in auctions also receive rewards from projects. In addition, in the future, if the token grows in price, it will also bring profit. This encourages users to look for promising projects and invest in them.
How to participate in the auction
You can take part in the parachain auction on many cryptocurrency exchanges, for example, Binance or Kraken. The “Parachains” tab contains all auctions – past and current. Next, you need to select a project and “Vote”. Then you need to enter the desired number of DOT tokens and “Confirm” the transaction. However, you need to remember that the tokens will be locked for two years. As a result, after a successful vote, a message will appear that the vote has been accepted.
So, the parachain auctions of the Polkadot ecosystem create healthy competition, motivating developers to build quality projects. Users, in turn, receive bonuses from projects for trusting them.