Parachain auctions are fuelling Polkadot’s price run – here’s why they’re a big deal
Parachain auctions are a cornerstone of the Polkadot (DOT) ecosystem and reduce the circulating supply of DOT coins – potentially boosting price.
- The price of Polkadot’s native DOT coin has increased by 69% in the month leading up to the first parachain auction, set to commence on Thursday.
- 11 parachain auctions will run from November 11, 2021, to March 10, 2022, reducing the circulating supply of DOT with each auction as projects stake DOT to secure a slot.
- Parachains are designed to help improve the operational efficiency of the Polkadot network as well as enhance its cross-chain interoperability.
Polkadot (DOT) hit an all-time high value of $51.47 earlier this month, and the currency has maintained its positive price action ever since. This positive action is largely due to the fact that over the next 7 days, a number of projects will be participating in Polkadot’s first parachain auction. At press time, DOT is trading at a price point of $47.88.
Pundits believe that the upcoming auctions will help put positive pressure on the price of the digital asset, with investors scampering to acquire DOT tokens as a means of contributing to various crowd-loan projects. This will effectively reduce the total supply of tokens in circulation. Furthermore, with 11 sets of parachain auctions set to take place over the next four odd months, the value of DOT will most likely increase as long as participation in auctions continues.
What are parachain auctions?
Parachains are essentially sub-chains that operate within the larger Polkadot network, allowing developers greater control over transaction speeds, consensus rules and scalability. They are a bit like the “layer-2” system on Ethereum, except that they are a native feature of Polkadot, where the main Polkadot blockchain is used for final settlement and security. The catch, though, is that there are a limited number of parachains available – so projects must compete through a candle auction system.
Parachains help improve the overall scalability of the Polkadot network and allow projects to tap into other networks and blockchains, instead of being restricted to a single chain. They do this by enabling cross-chain communication, which enables a Polkadot-based blockchain to transact with other chains such as Ethereum or Polygon.
The idea of cross-chain interoperability is one that has gained a lot of momentum recently, with a growing list of projects looking to build technical bridges to help spur cross-chain interactions. This feature has helped attract a growing number of institutional funds to invest in the Polkadot ecosystem.
The first set of parachain auctions are set to commence on November 11 and will go on for one week. Following that, there will be ten other auctions that will take place until March 10.
Why do they matter?
While most other blockchains are designed to help developers devise decentralized applications via smart contracts, using parachains, devs can gain complete control over the underlying Polkadot network. This operational design helps provide parachain auction winners the ability to optimize their projects for pretty much any use case that they may see fit.
Since parachains are designed to serve as custom, independent, project-specific blockchains, they can be easily integrated into Polkadot’s core framework. This is why DOT can facilitate seamless transactions — such as sending and receiving assets, seamless smart contract executions, etc. — between its different parachains.
What lies ahead?
Over the last 30 days, DOTs value has increased from around $30 to over $50, representing a gain of 47%. And with the upcoming parachain auctions having already generated a significant amount of market interest, it will be interesting to see how the currency’s ongoing momentum continues to play out.
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Disclosure: The author owns a range of cryptocurrencies at the time of writing