In the upcoming months the Polkadot ecosystem will likely start heating up. The project announced a $750 million ecosystem fund, and is planning to conduct parachain auctions in November. Parachains are app-specific blockchains, connected to the Polkadot main chain.

The launch of parachains means that projects that want to get a parachain slot (number of slots is limited) will start conducting Crowdloan campaigns.

As a side note, if you are not familiar with the Polkadot and its ecosystem, I highly recommend reading this newsletter. I will briefly go over all of the important concepts.

Crowdloans can be profitable. I participated in one Crowdloan back in the summer this year, when Polkadot’s test network, Kusama, conducted its parachain slot auctions.

The investment was quite successful and produced more than 10x returns. So, I am thinking of participating in Polkadot’s projects Crowdloans as well.

So in this newsletter, I will briefly go over Polkadot’s ecosystem. I will explain what parachain slot auctions are and which Crowdloans are the most interesting.

Also, I will give you guidance on how to participate in these Crowdloans and explain potential risks.

A quick Intro to Polkadot

Polkadot is a Layer 1 blockchain. The project has been developed by one of the leading figures in the Ethereum community, Gavin Wood, former Ethereum co-founder, CTO, and author of the Ethereum Yellow Paper.

The project attracted a large community of supporters and is currently ranked eighth by total capitalization across the crypto market.

Currently, Polkadot is in the process of launching Parachains. Parachains are app-specific blockchains that support certain functionalities. Technologically, Polkadot’s network consists of one main chain and many Parachains connected to it.

However, the number of Parachain slots available is limited, so projects must compete for parachain slots on the network.

Polkadot is auctioning slots. Projects have to lock DOT tokens in the system. The more tokens a project locks, the higher its chance to win a parachain slot. This process is known as the Parachain slot auction.

However, projects might not have many DOT tokens in their treasury, so they came up with a way to get help from their communities by running Crowdloan campaigns.

Crowdloan is a way for projects to borrow DOT tokens from the community for a certain period in exchange for projects’ native tokens. During upcoming Crowdloan campaigns, users will be lending their DOT tokens for a period of two years.

Where does the profit come from?

Projects native tokens that you receive for lending your DOT tokens will likely be the main source of your profits. With the hype around Polkadot and crypto right now, I expect that tokens of the most popular parachain candidates will cover your initial DOT investment.

Another positive factor is that when you lend your DOT tokens, you will receive them back in two years. So basically, you only risk that your DOT investment will depreciate over this period.

It is a valid risk. Crypto is a volatile environment, and no one knows for sure what will happen with Polkadot in two years. Your DOT investment can further increase in value or go to zero.

Crowdloans on Polkadot

But if you are willing to take the risk, you probably wonder what Crowdloan campaigns can potentially bring profits.

Here you have to look at Polkadot’s test network Kusama. Kusama has already conducted its parachain auctions. So projects that competed and won parachain slots on Kusama will likely become the winners on Polkadot.

It is important to understand that not all the parachain slot winners on Kusama produced the same profits. Yes, in dollar terms, they were all profitable due to the market growth. However, some were more profitable than others.

According to Crowdloan Rewards Ratings, the top-4 projects by profitability are Moonriver, Shiden Network, Karura, and Khala Network.

Crowdloans Reward Rating. Source: parachains.info

In dollar terms, currently, Moonriver produced the best results. For every KSM contributed (worth $378 right now) you would receive 14+ MOVR tokens, which are worth $4,466 now.

To see full information on the parachain slot winners and their profits, you can use parachains.info.

Other parachains auctions were less profitable. However, as I mentioned by participating in Crowdloan campaigns, people are not selling their DOT or KSM. Instead, they are handing over control of them for two years.

So if you are considering participating in these Crowdloans, I would encourage you to look at least at Moonriver’s sister project Moonbeam. Both projects were developed by the same team, with the same idea behind. However, Moonbeam was developed for the Polkadot network, while Moonriver for the Kusama network.

Timeline

The first batch of auctions on Polkadot will start on November 11 and last Until December 1.

Polkadot Parachain Auctions Schedule. Source: parachains.info

Several projects have already started preparing and are already accepting DOT tokens. To see the details, you have to go to parachains.info and press the “Waitlist” tab for every project out there.

Moonbeam, for example, already accepts DOT tokens, through their website.

However, one caveat here is that you don’t really know when you will receive the native tokens of the project to which you are lending your DOT. It all depends on how quickly Polkadot will start connecting its parachains.

The delays could happen, and depending on the market conditions, they will play in favor or against you.

How to participate in Crowdloans?

You can either do it in a decentralized or centralized fashion.

Binance recently announced that it will support Polkadot parachain auctions, which means that you will be able to do everything through the Binance interface. This also means that all the parachain slot winners will instantly be listed on Binance, which is encouraging.

If you want to participate through Binance, just wait for the next announcement from the exchange.

However, if you don’t have access to Binance, you can use Polkadot.js wallet. Buy DOT on any centralized exchange and transfer it to your wallet.

Then depending on the project, you will need to find instructions on how to send money from your wallet to a particular Crowdloan campaign.

Good explanation of how to use the Polkadot.js wallet is here.

A few final thoughts

If you are thinking of participating in one of the Crowdloans, make sure to buy DOT in advance. Many people will likely be buying it in the last minutes, closer to November 11, which means the price can skyrocket by that time.

Prepare early and have fun!