However, with the ICO approach, there is no assurance of success for the developers or the investors.
Fortunately, Polkadot and Kusama offer a special workaround for this concern: crowdloans.
What Is a Crowdloan?
A crowdloan is similar to crowdfunding.
For instance, investors contribute funds to a team building a parachain project via Polkadot or Kusama crowdloans.
However, the funds are not given to the team directly.
Nobody can jump into the contributed funds since they are locked just for theparachain slot auctions.
The winning team also rewards investors for their contributions via project tokens.
Investing in a crowdloan can have one of two outcomes.
You get all of your DOT/KSM back in both scenarios.
This is unlikewhat happens in an ICO.
What Is a Parachain Slot Auction?
Auction Duration
On Polkadot, auctions feature an open bidding period that lasts around a week.
The precise time of the auction’s close is decided retrospectively after the conclusion of the bidding period.
This discourages hurried “auction sniping” and encourages more precise price discovery.
If many parachains successfully bid on non-overlapping lease terms, they can win the same auction.
Crowdloans: How Do They Work?
Anybody with a registered parachain can launch a Polkadot/Kusama crowdloan campaign.
Here are the steps to take to participate in a crowdloan on Polkadot.js GUI:
Go toPolkadot.js.org.
Click onAdd Accountand follow the on-screen instructions until you successfully create an account.
you might now return to the homepage to participate in a crowdloan.
Choose any of the networks under the Polkadot relay chain.
In this case, we’ll selectvia parity.
After selecting the crowdloan parachain, clickNetworkfrom the homepage and click onParachains.
press theCrowdloantab, and you’ll see a list ofupcoming,ongoing, andcompletedauctions.
Choose the account you want tocontribute fromand put in your desiredcontribution amountto take part.
Contribute by clicking theContributebutton.Sign and submitthe transaction.
What Are the Benefits of a Crowdloan?
A crowdloan can be a crucial tool for projects to launch their web connection on either Kusama or Polkadot.
The benefits of Polkadot and Kusama crowdloans are numerous.
ICOs are typically for specific projects and can be in the form of coins, tokens, or shares.
Crowdloans are generally for anyone who needs funding for a project that meets certain criteria.
In this sense, there is less risk with crowdloans than with ICOs.
Investing in an ICO may offer a higher reward potential but also greater risk.
