Crowdloans are the means by which aspiring Polkadot and Kusama projects finance their bids for parachain slots. Because leasing a parachain requires locking up large amounts of DOT and KSM tokens, crowdloans allow projects to crowdsource DOT and KSM collateral from backers in exchange for incentives.
Parachains that wish to obtain a parachain slot on the Relay Chain will typically compete in parachain auctions. These auctions require large amounts of Kusama (KSM) or Polkadot (DOT) tokens to be locked up for a specific period of time.
However, not every project hoping to become a Parachain will have enough DOT on hand to prevail in an auction. Fortunately, there’s a way for these projects to tap into their communities in order to obtain the DOT required to win an auction.
This is where crowdloans come into play. Any project that is participating in a parachain auction can launch a crowdloan campaign for a parachain slot by depositing a specified number of KSM or DOT tokens.
Contending projects will use decentralized crowdloans to leverage the power of their growing communities. Community members can lock up their KSM or DOT tokens with their projects of choice, often through a dashboard created by the project launching the crowdloan. Other ways of contributing can be through direct on-chain transactions or through custodian platforms like Binance or Kraken.
The benefits for community members to lock up KSM or DOT tokens with aspiring parachain projects are two-fold:
- Parachain projects often proportionately reward any supporting community members who lock up their tokens with the project. In many cases, early contributors are eligible to receive even higher rewards.
- By supporting the best projects, community members effectively pick and choose parachains that they believe will add value to the Kusama and Polkadot ecosystems.
From the project’s perspective, crowdloans are not only a means for financing its bid for a parachain slot–the project that submits the highest bid wins the parachain slot for that cycle–but also a way of establishing a strong community early on in the project.
ICE and SNOW will each conduct crowdloan campaigns in order to secure Polkadot and Kusama parchain slots, respectively. ICE will seek a parachain slot on the Polkadot Relay Chain, requiring the community to lock up DOT tokens, while SNOW will seek a parachain slot on the Kusama Relay Chain–requiring the community to lock up KSM tokens.
Teams that wish to conduct crowdloans are able to set a few variables, such as how long the lease they’re bidding on will last, which lets their potential supporters know whether they’ll be seeking a longer or shorter parachain lease. They can set a cap on the amount of crowdloan funds they are seeking to raise. Finally, they can set the auction duration so supporters know how long they may need to lock their tokens.
The crowdloan campaign for SNOW to join the Kusama ecosystem will take place ahead of ICE’s campaign to secure a Polkadot parachain slot. By contributing $KSM tokens to SNOW’s crowdloan campaign, contributors will be backing the first parachain to join the Kusama ecosystem as an extension layer of an existing layer one blockchain protocol (ICON).
Both ICE and SNOW will be optimized to be the best cross-chain application layer using ICON’s interoperability technology, Blockchain Transmission Protocol (BTP). This means that ICE and SNOW will be bridging the Polkadot and Kusama ecosystems not only to ICON, but also to ICON’s partner networks including Binance Smart Chain, NEAR, and Harmony amongst others.
More details regarding the SNOW crowdloan, such as how token rewards will be allocated, will be shared soon. To stay up to date with the latest news, follow ICE and SNOW on Twitter and join the ICE and SNOW channels on the ICON Discord.
For more detailed information about crowdloans in general, be sure to visit Polkadot’s official documentation.