Parachain AuctionParachains are the last piece of core functionality to be delivered as outlined in the Polkadot whitepaper, and will allow Polkadot to realize its scalable multi-chain architecture. After a period of testing, optimization and auditing, parachains will be ready for launch on Polkadot, and can be enabled via on-chain governance. Once parachains are live, the community will determine which additional features and network upgrades should be added over time.
In order for parachain to be added to Polkadot, it must be in one of the available parachain slots. A parachain slot is a scarce resource on Polkadot and only a limited number will be available. As the number of parachutes grows, only a few slots may open up every few months. The goal is to eventually have 100 parachain slots available on Polkadot (these will be split between parachains and the parachain pool). If a parachain wants to have guaranteed block inclusion in every Relay Chain block, it must get a parachain slot.
The parachain slots will be traded according to an unpermissioned candle auction, which has been slightly modified to ensure security in the blockchain. To learn more about Candle Acutions, refer to our dedicated page.
Parachain slot auctions take advantage of Polkadot and Kusama's ability to give developers ways to create new crypto assets and decentralized applications (dapps) on top of its blockchain. For a little background, Polkadot (DOT) and Kusama (KSM) are designed around two types of blockchains:
- Relay Chain: The main network where transactions are finalized.
- Parachains: Custom blockchains anchored to the relay chain that use its computing resources to confirm that transactions are accurate.
To fairly determine which blockchains get to leverage the Kusama or Polkadot relay chains and their distributed computing power, the networks use Parachain Slot Auctions (or 'Parachain Auctions' for short).
In its current state, both the Polkadot and Kusama relay chains can support up to 100 parachains, a number that is flexible and subject to change by governance vote over time. Parachain slot auctions are used as a means to decide which parachain will be connected to the relay chain.
Of note, if a project does not need to lease a fully dedicated parachain slot, they can temporarily participate (on a block by block basis) with a parathread.
The open and transparent nature of blockchain systems opens attack vectors that are non-existent in traditional auction formats. Normal open auctions in particular can be vulnerable to auction sniping when implemented over the internet or on a blockchain.
Auction sniping takes place when the end of an auction is known and bidders are hesitant to bid their true price early, in hopes of paying less than they actually value the item.
For example, Alice may value an item at auction for 30 USD. She submits an initial bid of 10 USD in hopes of acquiring the items at a lower price. Alice's strategy is to place incrementally higher bids until her true value of 30 USD is exceeded. Another bidder Eve values the same item at 11 USD. Eve's strategy is to watch the auction and submit a bid of 11 USD at the last second. Alice will have no time to respond to this bid before the close of the auction and will lose the item. The auction mechanism is sub-optimal because it has not discovered the true price of the item and the item has not gone to the actor who valued it the most.
On blockchains this problem may be even worse, since it potentially gives the producer of the block an opportunity to snipe any auction at the last concluding block by adding it themselves and/or ignoring other bids. There is also the possibility of a malicious bidder or a block producer trying to grief honest bidders by sniping auctions.
For this reason, Vickrey auctions, a variant of second price auction in which bids are hidden and only revealed in a later phase, have emerged as a well-regarded mechanic. For example, it is implemented as the mechanism to auction human readable names on the ENS. The Candle auction is another solution that does not need the two-step commit and reveal schemes (a main component of Vickrey auctions), and for this reason allows smart contracts to participate.
Candle auctions allow everyone to always know the states of the bid, but not when the auction will be determined to have ended. This helps to ensure that bidders are willing to bid their true bids early. Otherwise, they might find themselves in the situation that the auction was determined to have ended before they even bid.
Polkadot will use a random beacon based on the VRF that's used also in other places of the protocol. The VRF will provide the base of the randomness, which will retroactively determine the end-time of the auction.
The slot durations are capped to 2 years and divided into 3-month periods ; Parachains may lease a slot for any combination of periods of the slot duration. Parachains may lease more than one slot over time, meaning that they could extend their lease to Polkadot past the maximum duration by leasing a contiguous slot.
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