Published
2 years ago on
January 04, 2022
Table of Contents
The Polkadot ecosystem has attracted tons of attention, and billions of dollars, due to its support of parachains. Each individual project has a native chain tied to the main Polkadot blockchain, providing better scaling, efficiency, and security. In addition, users who participate in the crowdloan allocations for projects pursuing a parachain slot can earn extra tokens with the rewards offered by Parallel Finance.
Polkadot Crowdloans Explained
The purpose of crowdloans in the Polkadot ecosystem is to let users participate actively in helping projects secure a parachain slot. Only 100 parachain slots will be made available, yet more than 100 projects are trying to secure a spot. Crowdloans will, after users carefully research projects and teams, allow those users to contribute funds to a parachain auction. Contributing liquidity to a project's parachain auction slot will yield rewards from the project team, usually through its native token.
It is a simple yet powerful way for teams to build their communities and secure extra funding. As there are only so few parachain slots, every auction will see four or five teams compete for one slot. The project with the highest bid wins, making crowdloans essential for many developer groups. Moreover, the ones providing liquidity receive rewards for doing so, creating a financial incentive to participate in these offerings.
Participating in crowdloans is relatively straightforward. However, tokens cannot be locked - staking, vesting, or governance-wise - as they will be moved into a module-controlled account generated uniquely for the crowdloan campaign a user wants to support. Users can reclaim their initial contribution if campaigns are unsuccessful or successful. There will be a retirement phase at the end of the lease in the latter case.
Enhancing Crowdloan Rewards With Parallel Finance
The system outlined above works well, as users have a low-risk opportunity to use their DOT and earn additional tokens from projects they wish to support. However, Parallel Finance shows there is a way to enhance the potential rewards further crowdloan participants can unlock. The decentralized money market protocol offers numerous solutions, including Auction Loans - a borrowing interface for parachain auctions with incentives for users - and Parashares.
The Parashares solution is intricate. When users use Parallel to engage with crowdloans, they receive a token to redeem DOT or KSM locked in the selected parachain. However, that token can be borrowed or lent, ensuring users benefit from continual liquidity despite locking up tokens. They can then use that liquidity through the broader DeFi ecosystem to unlock extra rewards, liquidity, and incentives.
Moreover, Parallel Finance is the first - and so far, only - provider of a crowdloan product that aggregates all active projects and streamlines the contribution process. As a result, it is a viable solution for those who own DOT but have yet to explore crowdloan opportunities and the associated rewards. Additionally, the platform provides a double yield for those who stake DOT or KSM through its simultaneous lending and staking functionality.
Closing Thoughts
There is a lot to be excited about in the Polkadot ecosystem. Parachains and crowdloans offer existing DOT and KSM holders new opportunities to earn a yield. However, platforms like Parallel show there are extra incentives to unlock while engaging in these activities without any visible downsides or drawbacks.
Moreover, users can remain liquid and explore new opportunities while supporting parachain projects, enhancing the appeal of crowdloans even further. Liquidity is crucial in the ever-changing world of cryptocurrency, blockchain, and decentralized finance.
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.
