Parachains Crowdloans: 3 Best Ways on how to participate in Crowdloans for Polkadot Auctions
Hello, friends! This is James Agenda here.
Many people are asking: "When Parachains"?
Well, Parachains Slot Auctions on Polkadot are near!
We do not have an exact date yet. (Subscribe for free, and I'll tell you when it's time.)
But here is something that we already do know:
There are 3 ways to contribute to Crowdloans for Parachains Slot Auctions on Polkadot.
Exchanges, Project's Website, and On-Chain.
I'll tell you about them, and about the advantages and disadvantages of each one.
And also, which I recommend you to use for the best results at Crowdloans!
Today I'll cover:
If you want to save some time, you may navigate through the underlined topics.
What are Parachains Slot Auctions on Polkadot? A simple explanation.
Polkadot is a very complex project.
It's the most high-tech Project in crypto, and it has a magnificent team behind it.
To understand all about parachains, you'd need to dedicate some time to read Polkadot's official guide.
I'm just going to highlight the most essential characteristic of Parachains Slot Auctions.
Parachain Slots are like a reserved space on Polkadot's blocks.
For example, let's look at how "auctions" works on Ethereum (which I also study and have on my portfolio).
Transactions from Layer 2 projects compete for space on each block.
The transaction that pays the higher fee wins a space on that block.
The "loser transactions" need to compete again in the next block (until they pay the higher fees and become winners).
On Polkadot, Layer 1 projects compete in a Parachain Slot Auction.
The Auction winner will have a reserved space on all subsequent blocks (up to 2 years).
Then, Parachains don't need to compete in fees on each block, like projects in Ethereum.
Parachain Slot Auction arrangement on Polkadot avoids problems that happen on other blockchains.
Sometimes in Ethereum, the fees explode because of NFTs, causing a clog in the network even for people just trying to trade other assets.
Every so often, fees on Uniswap are above $100 because many people are minting new NFTs on OpenSea.
This "dynamic auction" of every Ethereum block also brings other critical problems.
But those problems do not occur on Parachains:
On Polkadot, an NFT Parachain will NEVER clog another DeFi Parachain, and vice versa.
Both will have a reserved space on every block for the next 3 to 24 months.
What are Crowdloans on Polkadot's Parachains Slot Auctions? (or PLO: Parachain Lease Offering)
Crowdloan has similarities to Crowdfunding.
Crowdfunding is when many people ("crowd") raise money to finance ("funding") a new business/project.
For example, on Ethereum's ICOs, many people send ETH to a team that is building a project.
Polkadot, for example, had an ICO in its beginning, where the team raised $140 million.
The team then used this money to build the Polkadot Blockchain.
But not all ICO projects ended well like this.
Many other ICOs turned out to be a scam, and all the investors lost all the money they invested.
This is a big problem of Crowdfunding ICOs.
And this problem is solved by Crowdloans for Parachains Leasing Offering.
On Crowdloans, many people ("crowd") lend money ("loan") to a team.
On Polkadot Crowdloans, people lend money to a team that is building a Parachain project.
But the team does not receive the money directly!
They can't runway with the DOT you contributed on Crowdloans!
Then, there is no risk of scammers building a fake Parachain project to steal the funds you contribute on a Crowdloan.
The contributed funds are locked exclusively for the Parachain Slot Auctions, and no one can touch them!
The Project with more DOT locked to the Parachain Slot Auction (on a particular snapshot) wins the Auction.
And the team rewards your contributions with project tokens.
And the best part:
If the Project wins the Parachain Auction, your contributed DOT will be unlocked after up to 2 years.
If the Project loses, your contributed DOT will be unlocked in a few days.
In both cases, you get 100% of your DOT back!
So, the only cost you have is the opportunity cost while your DOTs are locked.
Now let's see the 3 ways on how to contribute to Crowloans on Polkadot Parachain Slot Auctions.
Polkadot Parachains Auctions via Crowdloan on Exchanges
This is the most straightforward way to contribute to Crowdloans.
If you have an account on Binance, Kraken, or KuCoin, you can use it to participate in the Crowdloans for Polkadot Parachains Auctions.
Kraken and KuCoin already provided this feature for Kusama Parachain Slot Auctions.
Binance is still implementing it.
✅ Advantages of Exchanges for Crowdloan on Polkadot Parachains Auctions
It's the easiest way to participate on Crowdloan: A good interface and no need for an address on the Blockchain.
They'll likely enable you to participate only in the best-selected projects.
❌ Disadvantages of Exchanges for Crowdloan on Polkadot Parachains Auctions
They'll have custody of your tokens for the whole period (up to 2 years).
You may not receive all the rewards, like NFT and bonus.
They will likely charge Fees for being the middleman.
Polkadot Parachains Auctions via Crowdloan on Project's website
All the best Parachain projects have websites (for example, Acala and Moonbeam).
When it's time for Parachain Auctions, they'll provide a dedicated Crowdloan webpage.
On this webpage, you'll be able to simulate your rewards and connect the Polkadot.js extension to sign the Crowdloan function.
This means that you'll have custody of your tokens (DOT + rewards) since you are using an account in the Blockchain instead of an exchange.
Also on this webpage:
You'll be able to use referral codes and do other tricks to receive bonuses on the rewards.
Subscribe, and I'll notify you about them when it's time.
✅ Advantages of Project's website for participating in Crowdloan on Polkadot's Parachains Auctions
Still easy to use! Good interface and works with Polkadot.js extension.
You have custody of your tokens (the locked DOT and Parachain rewards)
You'll get the best bonus and rewards opportunities.
❌ Disadvantages of Project's website for participating in Crowdloan on Polkadot's Parachains Auctions
Risk of Scams: The Crowdloan function is safe, but scammers may require other functions to be signed. You must pay attention!
Polkadot Parachains Auctions via Crowdloan Directly On-chain
You may also choose to ignore any external entities and Crowdlend directly on the Blockchain.
For this, you can use wallets like Polkadot.js, Fearless, or others.
I tested the Crowdloand function using Polkadot.js on Karura's Crowdloan at the first Parachain Slot Auction on Kusama.
But, on the Blockchain, there is no option to check the "terms and conditions" (as there is on the Project's website).
So I asked Karura's team (which is the same as Acala) about it.
The answer was:
There would be required an additional step to claim the rewards for those who participated directly on-chain.
So, in the end, I'd need to use the Project's website anyway to get the rewards.
✅ Advantages of Directly On-chain for participating in Crowdloan on Polkadot's Parachains Auctions
You have custody of your tokens (the locked DOT and Parachain rewards)
Very safe! All the path is on the Blockchain.
❌ Disadvantages of Directly On-chain for participating in Crowdloan on Polkadot's Parachains Auctions
It's even more complex to use.
You may not receive the rewards or may need to claim them with the team.
You can't insert bonus code for extra rewards.
My recommendation on the Best way to participate on Crowdloan for Polkadot Parachains Auctions
Let's get straight to the point best:
IMHO, the best way to participate on Crowndloan is by using the Project's website, but with a simple trick.
First, below are my conclusions on why I don't recommend using the other options.
Why I don't contribute on Crowdloan via Exchanges:
Although I do not like to lose custody of my tokens, I use exchanges for trade and other things.
But I'll not lock my tokens for 2 years in exchange.
Two years is an eternity on crypto's time!
Why I don't contribute on Crowdloan directly On-Chain:
I can't use codes for bonuses, and I will need an extra step to claim the rewards.
But how to deal with the disadvantage of Crowdlending on Parachains Auctions via Project's Website? How to avoid scammers?
How to avoid fake websites when you contribute to Crowdloan on Polkadot Parachain Auction?
First, you should do your own research and follow good sources. (for example, by subscribing to our blog)
Then, I recommend you use this trick for every Parachain Project website, even those you trust.
Remember: "don't trust, verify!"
So this is the trick that I did every time on Kusama Parachain Auctions:
First, on the project website, I participate in the Crowdloan with a small amount (instead of participating with a significant amount).
Then, I check the contribution at the Blockchain.
Or Polkadot.js.org > apps > Network > Parachains > Crowdloan
If the site is legitimate, you'll be able to check your contribution there: a "My contributions" label will appear on the "raised" column.
Finally, if the contribution is the same as the small amount you first contributed, everything is ok! So go ahead and participate with more DOT!
In the following weeks, I'll provide a Step-by-Step Guide on how to participate in Crowdloan on Polkadot Parachain Auctions.
I'll also cover each one of the best projects.
Make sure to subscribe for free to keep yourself updated on this remarkable moment of Polkadot!