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What is Crowdloan? How to participate in a Crowdloan?
Crowdloan is a unique model for users to support and fund the parachain slots of Kusuma/ Polkadot network for projects. What is unique about this model? This is a way to airdrop tokens to people who have staked a certain asset for a certain period of time, and shown trust in your product. Currently, KSM crowdloans are happening. Polkadot crowdloans are expected to commence from October.
For any investor, KSM crowdloans are a way to stake your KSM for 48 weeks and get tokens of the project. Also, at the end of 48 weeks, you get your KSM back.
For anyone who is into the space of crypto since 2017, knows about ICO. ICOs were very popular in those days. ICOs have been replaced by IDOs now.
With ICO and IDO, you invest with either USDT, ETH, or BNB and you do not it back. You only get the new tokens. But with crowdloan, you get back your initial too.
Thousands of altcoins are launched with the help of IDOs (previously ICOs) but a lot of these projects are utter failures. This could be due to poor technology, poor marketing, scam projects and the inability of the coins to solve real-world problems. Due to these failed projects, a lot of investors lost and still lose their money while some back down from investing at all. This entire system of ICO and the consecutive failures called for a change and hence Crowdloan came into the picture.
What is Crowdloan?
For new projects, Crowdloan is a chance to gather the trust and support they need from the community. A successful crowdloan leads them to winning a parachain slot. The term “Crowdloan” does not indicate that the participant is loaning funds to the parachain, it rather means earning benefits by locking up KSM or DOT tokens.
In a Crowdloan, the user or participants contribute their KSM or DOT tokens. These tokens are locked for a certain period of time. After the lock period or during the period, the participant gets back their staked KSM. During the launch of the token, they crowdloan participants get a certain percentage of token, and the rest are vested over a period of time.
If the project fails to win in the auction, the tokens are unlocked and returned to their respective owners. This is basically a way for the users to bid KSM or DOT tokens in an auction.
Before we understand more about Crowdloan, let us understand a bit about Parachain and it’s importance.
What is a Parachain and why do we need an Auction model?
Parachains, derived from parallel chains, is a network of layer 1 blockchain running parallel to Kusama or Polkadot blockchain. Parachains are connected to Polkadot Relay Chain and are cross-chain composable. Any data or asset can be sent between parachains. They can interact with each other. This opens up a host of new use cases.
However, there can be only 100 Polkadot parachains as of now. The number can be extended later. Hence, it is important to choose the projects in a proper manner, that’s why we need an auction mechanism.
For an auction, the projects need KSM, or DOT. And for the KSM, or DOT that we need to bid in an auction is raised though crowdloan. It is not necessary for every project to raise KSM or DOT through crowdloan for securing a parachain slot.
For the projects that participate in a crowdloan, they fight against each other for the parachain slot.
Parachain slot leases are allocated via slightly modified permissionless candle auctions. More on the candle auction mechamism can be read here.
Now I think it is clear, why we need a Parachain auction and how it is related to a Crowdloan.
How does the Crowdloan model work?
Now that we have understood Parachain auction model, it will be easier for us to relate the same to Crowdloan. Since we need a permission less way to choose which project should get the Parachain slot, here comes the Crowdloan model.
As we have established earlier, Crowdloan is a practice by the new projects to gain trust and raise funds through the KSM and DOT tokens.
Via Crowdloan, the participants contribute KSM or DOT.
The tokens contributed by the users are associated with a fixed duration. This is known as parachain slot lease where the leasee gets tokens to bid and the lessor gets rewards for his contributions. These tokens are collected for an auction process. Before the auctions start, the tokens are locked in an account with a fixed duration period.
After gathering tokens from the interested participants, the project submits a bid using tokens. The tokens are duly returned to the user at the end of the lease period. The participants get rewarded, the project opts for crowdloan to be successful. It’s a win-win for both the parties.
Benefits of Crowdloan :
- Crowdloan shows the support of interested users in a project.
- The users who contribute tokens are rewarded. For a 2-year lease, one could earn tokens.
- The project can have a jump-start on either Kusuma or Polkadot
- It is a well-organised method of raising funds and gaining the trust of the users
- The distribution of tokens can be done easily for the community members and active supporters of the project
- The cost of a parachain slot is covered without having to raise a fund.
- This way the project can showcase its demand and gain more participants
How to participate in Crowdloans on Kusuma :
The users can access a Crowdloan through Polkadot.js GUI (on-chain), a custom dashboard or through a custodian like Binance or Coinlist. Basically, one can participate in Crowdloans without any KYC or restrictions but make sure to have a Polkadot account or tokens. Follow the given steps to participate in a Crowdloan :
- Visit the Polkadot.js.org
- On the homepage, select “Network”
- Click on “Parachains” from the network tab
- Navigate to the “Crowdloan” tab. You’ll see a list of upcoming auctions
- Click on “Contribute” ( You can select Altair , Sakura, etc,) on the right side of the coin for which you want to give your tokens. This you will find under ongoing crowdloans.
- A screen will pop up, select the account you would like to contribute from
- Enter the amount you want to contribute and participate with
- Click the contribute button
- Sign and submit the transaction
Also read: What is Kusuma ? KSM price prediction
Kusama Crowdloans ROI
|Project Name||Rewards/KSM||Current Price||Total Valuation|
Ongoing: Best KSM Crowdloans You Can Participate Now
|Altair (5 percent bonus)||Contribute|
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How long does the crowdloan campaigns last?
Different crowdloan projects have different expiry dates. Each Crowdloan campaign will have its own terms and conditions. The end date of a crowdloan campaign will stop the bidding process.
Is KYC required in order to participate in Crowdloan?
Technically, one can participate in any Crowdloan on Kusuma without any KYC or restriction but different Crowdloan campaigns have different terms and conditions.
Where can one get KSM tokens to participate in Crowdloan?
KSM is listed on several exchanges including Binance, CoinDCX, WazirX, etc. The users can Buy KSM tokens from the exchanges.
|Buy KSM||Register here|
|Binance||Sign up here|
|Kraken||Sign up here|
|eToro||Sign up here|
|Coinbase||Sign up here|
|Robinhood||Sign up here|
|Crypto.com||Sign up here|
|Bitfinex||Sign up here|
|CoinSwitch||Sign up here|
|Gemini||Sign up here|
|Gate.io||Sign up here|
|KuCoin||Sign up here|
Can a contribution be cancelled?
No, it is not possible to cancel a contribution that is already made. One can wait to receive back the tokens after a certain period of time.
What is the minimum amount of Contribution?
The minimum amount of contribution that should be made is 0.1 KSM. Some teams also choose to set their own minimum contribution amount.
Crowdloan is a new concept but it is surely intriguing. It is here to change the traditional way of exchanging tokens for new projects. Not only it benefits the project to raise funds but also benefits the users. The KSM crowdloan is supporting the success of Polkadot as well as being a platform for the success of upcoming projects. It is a better and less risky alternative than ICOs and aims at solving all the challenges faced by users in contributing tokens.