Crowdloanemerge as a transformative practice in the crypto world, offering a distinctive approach for new projects to secure funds through DOT or KSM tokens for slots on the Kusama or Polkadot network.
Understanding Crowdloan
In the cryptocurrency domain, Initial Coin Offerings (ICOs) have traditionally served as a funding method for projects in their initial stages. However, the ICO model lacks a guarantee of success, relying on factors such as team credibility, whitepapers, and community support. Polkadot addresses this limitation with the introduction of crowdloan.
Crowdloans an integral part of Polkadot's substrate framework, facilitating the development of parachains by generating $DOT and earning a coveted spot in parachain auctions. Unlike ICOs, where investors directly contribute to the project, crowdloans involve users lending $DOT to the relay chain for the project.
The Crowdloan Process
Before a parachain slot auction, there is a dedicated timeline for the crowdloan, where teams can borrow $DOT from the community for auctions. Once funds are gathered, the project submits a bid using the received $DOT. If successful in securing a parachain slot, investors' $DOT is locked for the term determined by the parachain lease, usually ranging from six months to a maximum of two years. At the lease's conclusion, the $DOT is returned to investors, with the team never gaining possession of investors' $DOT/$KSM during this process.
For ICOs, the crowdloan concept proves revolutionary, as investors are rewarded for bonding tokens on behalf of the teams. The project's native coin typically serves as the most popular reward. Investors can lock their $DOT in a two-year parachain lease on behalf of projects like Acala and earn $ACA tokens.
Protecting Investors' Interests
The crowdloan technique protects investors' funds and provides an opportunity to earn additional tokens without the risk associated with traditional token exchanges for new project tokens. Regardless of the project's success, investors can always recover their $DOT after the parachain lease expires. This confidence-boosting aspect ensures that investors can participate in any crowdloan with assurance, knowing their primary tokens remain safe, independent of the project's outcome.
Quality Assurance and Project Screening
Crowdloan Introduce a fascinating addition to the blockchain sector, assisting teams in securing parachain spaces. Furthermore, the platform ensures that invested tokens are safeguarded, as projects never gain access to them. This protective measure contributes to screening the quality of teams seeking crowdloan, fostering a more robust and secure funding environment.
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In conclusion
Crowdloans Represent a novel and empowering avenue in the blockchain sector, redefining how new projects secure funding and ensuring the protection of investors' interests.
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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