Understanding Polkadot Crowdloans: What Are They, How They Work, & How To Participate

Polkadot Parachain Auctions

Polkadot Crowdloans are used to increase projects’ bids in Polkadot Parachain auctions. Parachains are parallel blockchains that connect to the Polkadot Relay Chain. To connect to the Relay Chain, projects must lease a parachain slot by staking DOT tokens. Slots are offered in an auction process. Projects that stake the highest amount of DOT tokens win the opportunity to lease a slot for a defined period of time by leaving their DOTs in the staking module. Projects can acquire DOT with their own funds and stake them to bid, but there is also another option: the crowdloan. 

What is a Polkadot Crowdloan and how does it work?

A Polkadot Crowdloan is a mechanism that allows anyone to support a project’s parachain auction bid by locking DOT tokens in a crowdloan module. DOT tokens staked through crowdloans can be added to the project’s own staked DOTs to increase the total staking bid for the auction.

Parachain auctions last one week. Crowdloan campaigns also have specified start and end dates which are defined by the project. If there is a crowdloan open when an auction period closes, the DOTS staked in that crowdloan can be applied as a bid for the auction. Once a crowdloan campaign period ends, if the project has not won an auction, the staked DOTS are returned to their owners. However, if the project’s stake is sufficiently high to win a slot during the campaign period, all the DOTs in the staking module will remain locked for the entire duration of the lease. 

Why participate in a  Polkadot Crowdloan?

Projects usually offer a direct reward for participation. The most common form of reward is a payment in project tokens, often made at the end of the staking period. Crowdloan participation is also a way to signal support for a project that you believe in. Crowdloans offer projects and their supporters a way to support the Polkadot ecosystem, win a parachain slot, and start a flywheel of reciprocal support. The individual supports the project and Polkadot and the project reciprocates with project tokens, encouraging and helping the individual to participate in the project. 

How to participate in a Crowdloan?

Some projects may offer dApps(decentralised applications) DAPPs or access to centralised exchange features for participating in crowdloans, but the least expensive way will usually be to use the Polkadot.js browser extension with the Polkadot.js UI wallet. You will also need to buy some DOT, which is easy to do with fiat or crypto on Binance, Coinbase, and Kraken and you can also buy DOT with USDC on Kucoin and Bybit.

Once you have purchased DOTs and sent them to your Polkadot.js address, you can use the Polkadot.js wallet to participate in the crowdloan. Navigate from the top menu to Parachains, select Crowdloans from the second Menu Bar, then locate the project you want to support and click contribute. Your wallet can support multiple accounts, so you will need to specify the account you want to use. Then select an amount of DOT between the minimum and maximum shown on the screen. Make sure that subtracting your contribution from your total balance will leave at least 1.1 DOT in your account. You must maintain a minimum balance of 1 DOT and there will be a small transaction fee. 

It is easy to install the Polkadot.js wallet (only available for Firefox and Chrome). Once you have one of those browsers set up, just download the extension here and then follow the prompts on the screen to add an account and store the key.