Polkadot (DOT-USD) crypto just started a series of auctions for its "parachains." These auctions provide an opportunity for users to gain access to new cryptocurrencies that are not yet public.
In effect they allow users to lend money (in the form of DOT crypto tokens) to a series of new Polkadot crypto enterprises and mini-cryptos called parachains. The parachains then will use the money (DOT tokens) to lease space on the main Polkadot platform.
The loans are essentially crowdfunded loans to the parachains. But they could also be specific loans from customers of a particular parachain.
The parachains take the borrowed DOT tokens and "stake" them with Polkadot for a period of up to 2 years. The users have to keep their DOT tokens with the parachains.
The Polkadot auctions are expected to be a smash based on the success of similar auctions for Polkadot’s sister blockchain Kusama.
What Parachains Do
This all sounds a little complicated but it is part of a new way of allowing companies and tokens to go public in the Polkadot crypto universe. The parachains will use their "lease" of the main Polkadot platform to build out their use cases and their utility. Some will be games, others will be Defi (decentralized finance) apps, and others will be NFT (non-fungible tokens). Some will be a mixture of all of these uses.
Polkadot is the 8th largest cryptocurrency, according to Coinmarketcap. It has a market value of $50 billion. At $50.71 as of Nov. 6, it is up 22.5% in the past week alone as the auctions have begun.
Polkadot is known for its ability to act as a bridge across all other blockchains. This includes private, public, and permissionless networks. It is like how HTML allows sites, browsers, and servers to interact with each other.
Polkadot can support small smart contract apps on its system of parachains, often written on top of the Ethereum (ETH-USD) platform.
One very popular parachain auction is for the Acala Network. The ACA token can be seen here on Coinmarketcap.com with the crypto symbol ACA.
You can see that it is not yet public, but through these auctions, users can gain access to ACA tokens (if they provide the crowd loan). However, your money (in the form of the DOT tokens that you lend to the Acala Network) will be tied up for 2 years.
Acala is seen as becoming the Defi and liquidity hub of the Polkadot ecosystem by some analysts. It has a strong team leading it.
Another popular parachain is the Moonbeam crypto project, run by the Moonbeam Foundation. The crypto symbol is GLMR, although, again the project is not yet public.
It is a sister project to the Moonriver (MOVR-USD) token which is already public and has an $811 million market value.
Moonriver is an Ethereum-compatible, smart-contract parachain on Kusama. Moonbeam is a prelaunch network that will serve the same function as Ethereum (ETH-USD) but will have Polkadot functionality like staking and on-chain governance functions.
The crowd loans allow participants to earn GLMR tokens before the project is public, although they will have to wait two years to actually receive the tokens.
A third popular parachain project that is looking to garner crowd-funded loans is the Astar project. This is a much more technical parachain crypto project and might not have as much appeal as the other two.
How This Will Affect Polkadot Crypto
Polkadot crypto will benefit greatly from this whole loan crowdfunding process for its parachain ecosystems. It effectively will tie up a large number of DOT tokens for two years while the various parachain projects get launched on the Polkadot platform.
As a result, it will act as a sort of supply tightening mechanism in terms of the daily demand and supply tug of war inherent in the trading process for DOT tokens.
Therefore, look for DOT crypto to rise substantially over the next few months as the success of these auctions plays out.
This is not financial advice and you should not rely on my analysis to buy or sell any stock or crypto, as I am not undertaking to induce you to buy or sell securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.
This represents my analysis of Polkadot or related parachain and it is not meant to provide you with specific advice in your own situation. I do not presently own Polkadot crypto or related securities, but I may buy some of these in the coming weeks.