What is Polkadot?

Polkadot’s team

The major organization behind Polkadot is the Web3 Foundation. Also founded by Gavin Wood, Web3 Foundation focuses on developing, deploying, and maintaining Web3.0 technologies and communities. The Web3 Foundation will provide funding for high-quality projects in the Polkadot ecosystem to promote ecological construction. Moreover, the technology company Parity serves as the main technical team of Polkadot. It has developed the framework currently adopted by Polkadot, Substrate.

Also as one of the early developers of Ethereum, Gavin Wood knows well the advantages and disadvantages of Ethereum and uses innovative architecture in Polkadot to make up for the shortcomings of Ethereum in terms of scalability. The following figure demonstrates the six innovations of Polkadot:

Source: polkadot.network

Tokens and Mechanisms

DOT is the token native to Polkadot, with an initial total issuance of 10 million. Polkadot adopts a unique NPoS (Nominee Proof of Stake) consensus mechanism. In this mechanism, each nominee stakes their own DOT and elects one or more validators they trust, who are responsible for generating new blocks, reaching consensus, verifying parallel chains, etc. After that, both validators and nominators can get rewards according to their equity. Validators have the right to adjust the way of dividends.

Graphic: Three major uses of DOT

The initial total issuance of DOT tokens was low. Polkadot implemented a 100-fold split and opened the transfer function at the same time on August 21, 2020. Therefore, the total number of Polkadot tokens has now topped 1 billion. The price of DOT after the split was relatively low, but gradually rose in the subsequent market cycle and reached a high point twice in the Kusama/Polkadot slot auctions.

Graphic: Coinmarketcap

When it comes to code, Polkadot is mainly developed based on Rust, and Polkadot is also one of the largest code bases in Rust. In addition, Polkadot has developed Substrate, a modular blockchain framework. Developers who use this framework can develop their own blockchains with less coding and testing, and the developed blockchains can be directly linked to Polkadot. Meanwhile, the Substrate framework has also achieved on-chain upgrades, and major Substrate-based blockchains can be upgraded without implementing a hard fork.

Testnet: Kusama

Before Polkadot was officially launched, related functions were tested on Kusama, Polkadot’s Canary Network. There is a saying that goes about canary: a canary in the coal mine, because it is said that in the coal mines of the early 20th century, miners often took a canary with them when they went down. The canaries were very sensitive to harmful substances in the air. They inhaled and consumed a lot of air. This offered miners a way to judge whether there was dangerous gas in the mine, especially carbon monoxide, by observing whether the canary was poisoned. Therefore, the “canary in the mine” can be regarded as “an early warning sign of imminent danger”. To this, the “canary test” is also named in the development of the project, and all operations that will be run on Polkadot will also be pre-run on Kusama.

Kusama is very similar to Polkadot in code and it is also developed based on the Substrate structure. Similar to DOT, KSM is a native token to Kusama. Compared to Polkadot, Kusama achieved better transaction performance and throughput at the cost of security. Even after Polkadot’s official launch, the Kusama network will keep serving as a “light version of Polkadot” to provide a real testing environment for the mainnet and major projects. Meanwhile, Kusama has established an ecosystem that is independent of Polkadot. It will provide differentiated services that are different from the Polkadot mainnet by virtue of its lightweight advantages.

Source: Coinmarketcap

Polkadot’s Value and Prospects

Polkadot mainly focused on solving the scalability and isolation of previous blockchains. Ethereum has only one main chain, and all Ethereum applications are running on it. However, with the growth of the entire ecosystem, the low performance of Ethereum (only about 15TPS) is not enough. CryptoKitties alone accounted for over 20% of the traffic of the entire Ethereum, and even made the entire network congested for a time when the project was blooming.

Polkadot, on the other hand, abandoned the single main chain, but implemented the structure of Relay Chain plus parachains. The relay chain is Layer 0, and the major parachains are Layer 1. The parachains are “connected” to the relay chain through slots. After the relay chain is fully connected, a new relay chain can be built, thereby realizing infinite sharding and unlimited scalability. What’s more, Polkadot achieved different functions through different parallel chains. It is linked to other major public chains. By doing so, Polkadot is expected to cover the entire blockchain industry, and truly become the center of the internet.

Graphic: Basic Structure of Polkadot

What is a Polkadot slot

Slot refers to Polkadot Parachain Slot. It is the interface between the Polkadot relay chain and the parallel chain. Technically, the Polkadot network is connected to other blockchain projects through multiple parachains, which will increase the throughput of transactions. The Polkadot main chain serves as the relay chain of the system. It helps verify parachains, provides consensus and ensures security. The parachain needs a “slot” to access the Polkadot relay chain.

The parachain slot is the core of the Polkadot network. It demonstrates the greatest value of the Polkadot project. However, the resources of the Polkadot network are limited. As a result, the relay chain cannot maintain the shared security of a large number of parallel chains, and the number of slots that can access the Polkadot main network is also rather limited. In July 2020, Gavin Wood said in China that the number of parachains supported by Polkadot is about 100, that is, the upper limit of the number of slots is about 100. Whereas, it is also possible for the officials to increase the number of slots through technical upgrading such as secondary relay chains in the future.

Polkadot slots are distributed through auctions in order to distribute scarce network resources fairly. The project team needs to lock the tokens in the network by crowdloaning. They determine the auction winner in the form of a candle auction based on the staking amount of each project. In the Crowdloan, each project participant in the auction collects tokens and stakes them on the Polkadot relay chain. If the project auction fails, these tokens will be returned to the user immediately; if the project auction is successful, these tokens will be staked until the end of the slot lease period. Generally, users can get their own native token as compensation because then they lose the opportunity cost of holding these tokens.

Polkadot Auction

What is auctioned in Kusama and Polkadot slot auctions is actually the right to use the slot for a certain period of time (ranging from half a year to two years). During the slot auction, each participant needs to stake and lock KSM/DOT. The bid price is based on the amount of pledged KSM/DOT. The combination that provides the optimal amount of stake will win the auction. After the auction, the KSM/DOT staked by the winner will remain locked during the slot lease period and cannot be withdrawn. The KSM/DOT pledged by the projects that did not win the slot will be unlocked and returned after the auction comes to an end. Therefore, the “bid price” of the bidding parties is actually the opportunity cost of staking KSM/DOT.

For example:

We divide the two-year lease term into four stages. Bidder A, Bidder B, and Bidder C all participated in the auction:

Bidder A wants a two-year lease term, and the bid is 65 DOT per half year;

Bidder B wants to rent for the first year, that is, the first two lease stages, and the bid is 100 DOT every six months;

Bidder C wants to rent for the second year, that is, the latter two lease stages, and the bid is 40 DOT every six months.

Then, there are two plans for a full two-year lease period: Bidder A alone rents for two years, and the total rent is 260 DOT; Bidder B and Bidder C rent for two years, and the total rent is 280 DOT. According to the optimal staking amount rule, Polkadot will determine that Bidder B and Bidder C are the winners.

Both Kusama and Polkadot slot auctions adopt a unique format - candle auction, which originated in the United Kingdom. During the candle auction, a candle is lit and the time when the candle flame is extinguished is regarded as the time when the bidding ends. The candles will go out unpredictably. Therefore, no one is able to know for sure when the bidding will end. This form of auction prevents participants from sniping bids before the auction ends, and can ultimately offer a more reasonable price.

This kind of candle auction is improved in the Kusama/Polkadot slot auction: The auction time will be divided into a safe period and a random period. The safe period lasts for 2 days, during which each project is free to bid; while the random period lasts for 5 days during which the system will randomly select a time point, and the auction result is determined by using the KSM/DOT staked by each project at that moment.

Graphic: parachains.info

On December 16, 2021, the first round of five Polkadot slot auctions came to an end. Acala Network, Moonbeam Network, Astar Network, Parallel Finance, and Clover Finance won the first five Polkadot slots respectively. In the early morning of December 18, the first batch of five Polkadot parachains was officially listed on the Polkadot network. The lease period of these projects will last until October 20, 2023.

As of October 2022, 4 rounds of Polkadot slot auctions have come to an end, and the fifth round of auctions bidding for #26~32 slots is in progress.

Polkadot Ecosystem

Generally, the most influential projects with the strongest community consensus and the most abundant funds are the first to win the slots. As a result, the early auction winners, to a great extent, can represent the growth of hundreds of projects in the entire Polkadot ecosystem. These projects usually go faster in development, and at the same time have richer technical experience and stronger community consensus. We will briefly introduce some typical projects under the Polkadot ecosystem by taking the five parachains that won the first round of slot auctions as examples.

Acala: DeFi Hub

Acala, the “all-in-one DeFi hub” on Polkadot, is the project that won the first Polkadot slot. Its pioneer project Karura on Kusama also competes for the first slot on KSM and has become a big winner over other projects. Acala (Karura) has won high awareness in the Polkadot ecosystem. Therefore, it is not surprising that it won the first round of Polkadot slot auctions.

Committed to helping Polkadot’s parallel chains to exchange tokens and build a complete decentralized financial application system, Acala is the most important DeFi project in the Polkadot ecosystem. As a Layer 1 smart contract platform, Acala uses the new Acala EVM, which is well-compatible with Ethereum. The main services that are offered by Acala include Decentralized Stablecoin (aUSD), DOT Liquidity Collateral (LDOT) and EVM+.

Acala’s official website: https://acala.network/

Acala White Paper: https://github.com/AcalaNetwork/Acala-white-paper/blob/master/Acala_Token_Economy_Paper.pdf

In the slot auction, Acala obtained 32.51 million DOTs from 25,000 contributors, nearly doubling the number of participants compared to that of Karura when it participated in the auction.

Moonbeam: Ethereum Bridge

Moonbeam was the second project to win a Polkadot slot, and Moonriver was the lead net on Kusama. Moonriver has also won a second Kusama slot. What is worth mentioning is that Moonbeam finally won the most DOT in the first round of auctions because of Moonriver’s good performance on Kusama.

Moonbeam advertises that it is compatible with Ethereum smart contracts to the greatest extent, which allows developers to insert the Solidity contract program on Ethereum into the Moonbeam chain with only minimal changes, thus connecting with the entire Polkadot ecosystem and other Polkadot parallel chains. For example, Sushiswap announced in October 2020 that it would open a branch on Moonbeam. The fact that the Polkadot and Kusama networks do not natively support smart contracts makes the importance of Moonbeam self-evident. On October 27, 2022, Polkadot’s native USDT is also to be officially launched on Moonbeam.

Moonbeam’ official website: https://moonbeam.network

In the slot auction, Acala received 35.76 million DOTs from 48,000 contributors in the crowdloan, far more participants than other projects.

Astar: A multi-chain dAPP platform

Astar, previously called Plasm, is the third project to win a Polkadot slot. Its leading net, Shiden, has also won the third Kusama slot. As another smart contract platform in the Polkadot ecosystem, Astar is able to offer solutions including Layer 2, WebAssembly (WASM), and EVM. It is known to all that EVM is a smart contract platform based on the Ethereum Solidity language. Relatively, the WebAssembly instruction set is of higher performance, while the WASM, also based on this and though not widely used as EVM, is also a more advanced smart contract platform. Astar supports both EVM and WASM smart contract solutions. Accordingly, Astar will provide multiple applications such as DeFi and NFTs. Moreover, Astar also supports lots of Layer 2 ecosystems including OVM (Optimistic Virtual Machine).

Astar’s official website: https://astar.network

Astar White Paper: https://github.com/PlasmNetwork/plasmdocs/blob/master/wp/en.pdf

In the slot auction, Aster received over 10.33 million DOTs from 27,170 contributors in the crowdloan.

Parallel: Decentralized Lending Protocol

Parallel is the fourth project to win a Polkadot slot, while its leading net, Heiko, has won the fifth Kusama slot in the second round. Parallel is more advanced in ordinary DeFi services and provides many new services including Leveraged Staking (leverage staking), Auction Lending (auction loan), and Insured Staking. It allows depositors to lend out funds while staking to earn double returns, which can significantly make funds more efficient and bring in more returns.

Parallel Offical Website: https://parallel.fi

Parallel White Paper: https://docs.parallel.fi/white-paper

In the slot auction, Parallel received 10.75 million DOTs from 4,009 contributors in the crowdloan.

Clover: Smart Contract Platform

As the fifth project to win a Polkadot slot, Clover has the lead network Sakura on Kusama. Sakura is the only project of the five projects in the first round of the Polkadot slot that didn’t win the first two rounds of Kusama. Also, Sakura has recently won his own Kusama slot.

Clover is also a smart contract platform in the Polkadot ecosystem. It helps public chain projects such as Ethereum/BSC to migrate to the Polkadot network more easily. Clover has good compatibility and supports both EVM and Wasm. The project also has a developer incentive mechanism, under which a part of the Clover EVM handling fees will be allocated to smart contract owners.

Clover Official Website: https://clover.finance

Clover White Paper: https://clover.finance/whitepaper.pdf

In the slot auction, Clover received 10.33 million DOTs from 5,465 contributors in the crowdloan.

Conclusion

Polkadot, a star project, has a grand vision and is even called “cross-chain heroes” together with Cosmos. With the gradual advancement of the Ethereum upgrade, though Polkadot’s performance and architectural advantages have suffered a lot, Polkadot remains one of the most powerful competitors in terms of public chain infrastructure.

Polkadot has officially released the latest development roadmap of the project in recent days. The plan covers multiple topics ranging from parachain scalability, parachain development, relay chain governance, cross-chain communication, public welfare parachains, to bridging with other ecosystems, and staking. A number of major upgrades, including Asynchronous Backing and Parathread, will be gradually deployed on the Polkadot mainnet after they are tested on Kusama. Then, the TPS of the Polkadot network is expected to reach between 100,000 and 1,000,000 while ensuring security.