What is Polkadot?

A big roadblock faced by blockchain technology is that different chains cannot directly communicate with one another. Although it is possible to bridge one blockchain with another, connecting hundreds, or even thousands, of blockchains together remains a challenge.

 Enter Polkadot, a next-generation layer 1 blockchain protocol that markets itself as a layer 0. 

 If you’re not already familiar, layer 1 blockchains (e.g., Ethereum) have their own blockchain security mechanism that allows projects to be built on top of them. The projects built on top are ‘layer 2s’ and are dubbed a part of layer 1’s ecosystem. 

 Where Polkadot differs is that you can use its security system to build your own layer 1 ecosystem, hence the ‘layer 0’ title.

In simple terms, Polkadot’s infrastructure is made up of a relay chain (i.e., the main network where transactions are finalised) and parachains (i.e., the layer 1s that use the relay chain’s computing resources to confirm transactions). 

Currently, there are 100 parachain slots on Polkadot. Similar to most other blockchains, Polkadot has its own native network token, ‘DOT’. 

The idea is that information can easily be exchanged between the relay chain and the parachains, meaning that Polkadot facilitates the connection of multiple chains into one universal, interoperable network.

These parachains can be designed to suit specific project needs and upgraded with little to no hassle, making Polkadot a system that can cater to individual coders, small businesses, and large corporations.

What is a Parachain Auction?

Each project that intends to build on Polkadot will need its own parachain slot. Polkadot came up with the parachain auction system as a way of fairly allocating these limited slots.

In these auctions, the project that raises the most DOT wins the slot. As a means of discouraging last minute bids, parachain auctions are operated using a ‘candle auction’ system. During candle auctions, the time at which the winner is decided is determined using a random, retroactively applied computer-generated time. 

Projects can bid for their parachain slots in two ways:

1. Projects can use a single account to bid their own DOT.

2. ‘Crowdloans’ can be used by projects to raise DOT from the community. Crowdloan campaigns enable individual users to support potential parachain projects through staking (i.e. locking up) DOT tokens. If a project wins a parachain slot, then a staker’s DOT will be locked up for the duration of the slot lease (between 12 to 96 weeks). In return for their stake, users will earn rewards. These rewards vary from project to project but are usually in the form of the parachain’s token. Each project will also decide its vesting period (i.e., when rewards are distributed), but generally speaking, 20-30% of rewards will be distributed to stakers once the parachain launches. If a project loses a parachain auction, the DOT tokens will be returned to stakers.

Ways to take part in a Crowdloan

There are three main ways to take part in Crowdloans:

Centralised exchanges: e.g. Binance, KuCoin and Kraken. Centralised exchanges are easy to use and have a lower minimum DOT contribution than the official app; however, if a project you supported wins, your DOT will be locked to this third party for the lease duration. 

Polkadot’s official app: All projects can be managed via a single app, but it is slightly less straightforward to use compared to centralised exchanges.

A Project’s Website: e.g. Moonbeam and Acala. You’ll often gain additional rewards by contributing through a project’s website (e.g. NFTs on Acala). The downsides are that these websites aren’t as integrated as exchanges or the official app, and you have to be extra cautious of scams.

This tutorial will go through how to take part in a parachain auction using each of these methods.

 

Tutorial

 1. Centralised Exchange: Binance

Start by heading to Binance’s website, https://www.binance.com/ or downloading their mobile app.

If you don’t already have an account with Binance, you will need to set one up. To do this, click ‘register now’ and follow the prompts to create and verify your account. We’ll be bringing out a full tutorial on how to use Binance in the coming weeks, so be sure to keep an eye out.

Next, you will need to fund your account with some DOT. There’s a number of ways you can do this. You can easily buy DOT on Binance using a credit card or peer-to-peer payment methods like Revolut. 

If you already have some DOT in another wallet, then you can send it to your Binance account. To do this, you will need to copy your Binance address, which can be found by navigating to ‘Wallet’ > ‘Overview’ > ‘Deposit’ > ‘Crypto Deposit’. 

On this page, you will need to select the token you wish to deposit as well as the network you’re using (in this case it will be DOT). You’ll then be able to see your wallet’s address for this token. Copy and paste this address into the wallet or platform that you are sending the tokens from.

Once you have some DOT in your Binance account, click ‘Earn’ followed by ‘Binance Earn’ at the top of your account’s homepage.

Towards the bottom of the following page, click on ‘DOT Slot Auction’.

Here, you will see the full list of parachain projects that you can support via Binance.

Simply click ‘vote’ beside the project that you want to support. On the following screen, enter in the amount of DOT you want to invest. Binance allows you to stake as little as 0.1 DOT.

Once you click 'confirm', the transaction will be finalised!

Note that Binance offers a seven day ‘warm up pool’. If users contribute to projects during this period, they will earn yield at a specified annual rate (i.e., APY). This yield is rewarded hourly, so the sooner users stake, the more they will earn.

If the project you support wins the parachain auction, Binance will give you 100% of your Crowdloan staking rewards. Binance also offers a liquid DOT solution called ‘bDOT’. In other words, you will be issued bDOT at a 1:1 ratio to your DOT. You can then earn additional yield by staking the bDOT tokens. Note that bDOT is not worth the same as DOT, so bDOT staking is not as profitable as DOT staking.

Our Top Picks:

DOGWIFHAT

120,650%

SPX6900

17,000%

POPCAT

66,567%

PENDLE

5,002%

SOLANA

2,500%

HYPE

1,740%

Don’t miss our next 100X

Trusted by 230K+ investors

Get started

2. Polkadot App

 To take part in a Crowdloan via the Polkadot app, you will need to download and set up a supported wallet. For this tutorial, we’re going to go with the Polkadot wallet.  

First, head to Polkadot.js.org.

Click ‘extension’ and from here you’ll be able to install the wallet extension for Chrome or Firefox, we’re going to go with Chrome.

Once your wallet is downloaded, you can pin it to your browser.

Next, you’ll need to create an account for your wallet. To do this, click on the wallet icon in your browser. In the pop up screen that appears, click the ‘+’ icon.

You will then be presented with your 12-word mnemonic seed.

It is extremely important to store this phrase safely and securely. If you lose access to your wallet, you’ll need this seed phrase to regain access. If someone gets a hold of your seed phrase, they’ll be able to access your wallet’s funds. It is advised that you make at least two physical copies of your recovery phrase (i.e. do not store it online or on a hackable device) and that you store these copies somewhere very safe (e.g. in a safe).

 Once you have done this, click ‘next step’. On the following page, you’ll need to enter a name and password for your account. After this, the account should be visible on your wallet’s homepage.

Next, you will need to send some DOT tokens to your Polkadot wallet. To do this, you will need to copy your wallet’s address, which can be done by clicking the icon outlined in red below.

Once you have done this, navigate back to the ‘polkadot.js.org’ home page and this time click on ‘apps wallet (ipfs)’.

At the top of this page, click ‘network’ followed by ‘parachains’ followed by the ‘Crowdloan’ tab. 

Here, you will be able to see all of the crowdloans that are currently  available. Simply click the ‘contribute’ button beside the project you want to support. 

If you have multiple accounts on your Polkadot wallet, you’ll first need to select which account you want to contribute DOT from.

Unlike Binance, the Polkadot app has a minimum contribution of 5 DOT. Once you have entered the amount of DOT you want to contribute, click the ‘+’ icon.

 You will then have to authorise the transaction by clicking ‘sign and submit’ on the following page. You will also be prompted to confirm the transaction in your Polkadot wallet extension as well.

 A green banner like the one below should appear when the transaction has been processed!

3.  Project Website: Litentry

Without getting into too much detail, Litentry is a web 3.0 infrastructure that powers different kinds of everyday app use. 

Note that we are using Litentry solely as an example of how to take part in a Crowdloan, and so it is important that you do your own research on any project you invest in.

The website Interface will vary slightly from project to project, but the process will generally be similar.

Start by heading to ‘https://crowdloan.litentry.com’ and click ‘contribute now’. 

In the pop-up screen that appears, you will need to connect your Polkadot wallet.

 

 

 

 

 

 

 

Once this is done, you can select the account you want to contribute from and enter the amount of DOT you want to stake. 

After you click ‘contribute’, you will be prompted to confirm the transaction in your wallet. Following this, your DOT will be staked!

In exchange for their stake, contributors will earn ‘LIT’, Litentry’s native token. Litentry claims that each user will be rewarded with a minimum of 2.5 LIT for each DOT. It’s also possible to earn additional LIT via referral bonuses and early-bird contributions.

Comment and share if you found this tutorial helpful! For more on Polkadot, click here. For more on the most recent parachain auction, click here

Disclaimer: THIS IS NOT FINANCIAL OR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.