The Polkadot network has many parachains that are optimised to operate on a specific area. These areas vary between DeFi, identity, smart contracts, robotics and bridges, among many others. All these parachains were designed to interact with each other, but not all of them can obtain a “slot lease” at the same time, and certain “common good” parachains need to be allocated to their own subset of parachain slots.
The relay chain in the Polkadot network can only support a limited number of parachains, and so in most cases it employs an “on-chain auction”, whereby parachain teams bid to lock up a “bond”, which is basically the amount of DOT tokens that they will lock up for the duration of the slot lease.
The Free Rider Problem
Some of the parachains could be considered as “common goods”, and therefore may be required to have a parachain slot at all times, or at least while they are acting in the common good of the network.
An example of what can happen is quoted here:
“Take a bridge to another network as an example: every parachain team may believe that having this bridge would benefit their parachain and its users. If an individual team contributes to the bridge’s auction campaign, then they are giving up resources that they could use in their own auction. If they do not contribute, and enough others do, then they can still use the bridge. These free riders would benefit from the parachain on the backs of those who did support its slot lease. Because of the incentive to free ride, parachains that have almost universal buy-in may end up without enough DOT backing their auction bid.”
Polkadot has a governance system that can be used to register those chains that are considered as common goods, and therefore will not go through the auction process. Therefore, there may well be two categories of chains, which could be designated “system level” and “public utility” chains.
System Level and Public Utility Chains
“System level chains move functionality from the Relay Chain into parachains”, therefore applying less administrative load.
“Moving the logic from the Relay Chain to a parachain is an optimization that makes the entire network more efficient. All validators need to process all Relay Chain transactions, but split into small groups to validate parachains in parallel. By moving system level logic to a parachain, and allowing the processing to be done by a subgroup of validators instead of all, it frees capacity in the Relay Chain for its primary function: validating parachains. Adding a system level chain could make the network capable of processing several more parachains. Rather than taking a slice of a 100 parachain pie, a system level chain takes one slice and bakes a bigger pie.”
On the other hand, Public Utility Chains add value to the entire network, and therefore the governance process is used in order to evaluate this value and decide whether a parachain slot should be allotted.
General examples of such chains are those that would operate with the native token of the relay chain (DOT or KSM). These parachains could typically be bridges, DOT denominated smart contracts, or generic asset chains.
“Because public utility chains add functionality beyond the scope of the Relay Chain, we expect the network stakeholders to approve them only in rare scenarios. The vast majority of common good chains will likely be the unopinionated system level chains.”
By reserving parachain slots to common good chains, valuable parachains can be allowed to contribute to the network, that otherwise might not have been given a slot due to the free-rider problem.
“Polkadot’s governance system is on the bleeding edge of social coordination and it will be exciting to see how it helps the network evolve to meet the needs of its constituent parachains and stakeholders.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.