The crowdloan is a means for parachain teams to raise the token bond needed to participate in a parachain slot auction on the Ethereum blockchain. This technique assures that tokens given to a crowd loan are only for the purpose of intention. Which is to win a parachain spot. The parachain project does not receive or control these coins. The project cannot use them to transmit, stake, participate in governance, or perform any other function. The tokens used to contribute to a crowd loan will always return to the original token holder. As a result, the participating user faces no risk of their KSM or DOT being stolen by the projector used for any other purpose.
How does the crowd loan system work?
An automated method built into the network’s code controls the DOT or KSM of supporters in a crowdloan. In technical words, the crowdloan. Contribute extrinsic is used by the chain’s runtime logic. The purpose is to assign the DOT or KSM to the auction for the parachain. This one-of-a-kind transaction enables token holders to contribute to a crowdloan without giving up control of their tokens to a third party.
The DOT or KSM returns to their owners by the runtime once the parachain lease period expires or the potential parachain fails to win a slot within a set period. For the most part, this will appear to be a seamless operation. Behind the scenes, any user who calls the crowdloan.refund API for that crowdloan and pays the transaction charge can start the refund process.
Using the crowdloan.contribute extrinsic is always a requirement while engaging in crowdloans from a technical standpoint. This will appear in the upper right corner of the screen after inputting the amount, selecting contribute, and before signing and submitting the transaction if you are using Polkadot-JS. For a step-by-step tutorial on using Polkadot-JS to participate in a crowdloan, go here.
If using a different wallet or platform, make sure to research and ensure the crowdloan is authentic.
Transferring DOT or KSM carries several dangers.
Rather than relying solely on the crowdloan module, several parachain projects are employing, or have already hired, alternative means to source parachain bids, such as paying KSM directly to the parachain project’s accounts. It’s important to note that this isn’t a crowdloan because a crowdloan, by definition, employs the crowdloan pallet and its accompanying capabilities.
Although there are valid reasons to employ these alternative methods of raising an auction bond, one should be aware that participating in such a process carries some dangers.
The first set of five auctions was on Kusama as of this writing. A halt followed it to allow for network optimizations. On September 1st, the next round of auctions will begin.
Polkadot can start auctions and crowd loans after completing a full external audit.
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