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This article was written by Bill Laboon, Head of Technical Education and Community at the Web3 Foundation! Mainly shared:
Polkadot and Kusama's Crowdloans are a secure mechanism for participating in auctions
Shared how Crowdloans works from a technical point of view
Remind everyone that the auction mechanism that directly participates in the transfer of DOT/KSM has certain risks
The following is the full text.
Parachains are different types of Layer1 blockchains that run in parallel on the Polkadot and Kusama networks. Parachains connect to Polkadot or Kusama by leasing parachain slots on the Relay Chain. In addition to the public welfare parachains that are beneficial to the entire ecosystem, projects that want to obtain parachain slots need to participate in the slot auction. Parachain supporters and potential users can contribute their DOT or KSM (respectively) through the crowdloan mechanism to help the parachain team get a slot
Crowdloan is a secure participation mechanism
Crowdloan is an on-chain way to help parachain teams raise the locked tokens needed to participate in parachain slot auctions. This mechanism ensures that tokens used for crowdloan are only used for a specific purpose, namely to win parachain slots. Parachain projects themselves do not receive or control these tokens, nor can they be transferred, pledged, participate in governance, or use them to perform any other function. Token holders will eventually be able to get back the tokens used to participate in the crowdloan. Therefore, participating users have no risk of KSM or DOT being appropriated by the project or used for any other purpose.
How does the Crowdloan process work?
In crowdloan, backer-contributed DOTs or KSMs are managed using an automated process written into the network code. From a technical point of view, DOT or KSM is allocated to parachain auctions externally by the chain's runtime logic using "crowdloan.contribute". This is a special type of transaction that allows token holders to contribute to a crowdloan without transferring or relinquishing custody of their tokens to any third party.
After the parachain's lease period ends, or some potential parachains do not win slots within a specified time period, the runtime will return DOTs or KSMs to their owners. For most of the participants, this looks like an automatic process. Behind the scenes, any user can initiate the refund process by calling the crowdloan's external "crowdloan.refund" and paying the transaction fee. We incentivize owners of parachain projects to do this, as it also returns their deposits as quickly as possible.
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From a technical point of view, participating in crowdloans always involves using "crowdloan.contribute" externally. If you are participating through Polkadot-JS, after you enter the amount and select "contribute", but before signing and submitting the transaction, you will see "crowdloan.contribute" in the upper right corner of the screen. For a tutorial on participating in crowdloan using Polkadot-JS, see the video here.
If you use a different wallet or platform, be sure to do your own research and make sure you are participating in a legitimate crowdloan.
Risk of transferring DOT or KSM
Instead of simply using the crowdloan module, some parachain projects use additional mechanisms to win parachain auctions, including sending KSM directly to accounts owned by the parachain project. Note that raising tokens in this way is not considered a crowdloan. Because by definition, crowdloan is using the crowdloan module and its related functions.
While there are valid reasons to use these alternative methods to raise auction-bound tokens, one should be aware that there are certain risks associated with participating in this mechanism.
Using an external transfer, that is, transferring DOT or KSM to an address, means that the tokens have been sent irrevocably. Whoever has the receiving address can send tokens back, keep them, or do anything else with those tokens, since they are now the owners of those tokens and the decision is entirely in their hands. If you decide to participate in an auction mechanism that requires the transfer of DOT or KSM to an address, you should research and trust the project thoroughly and be aware of the risks involved.
The current situation
At the time of writing, the first five auctions have been completed on Kusama, and the network has since been suspended for stability testing. The next round of auctions will begin on September 1. "Kusama is about to enter the second round of auctions, how far is Polkadot's auction?" "
You can follow auctions and crowdloan status on Kusama here (https://kusama.network/auctions/) and on Kusama's Twitter page.
Once all external audits are complete, the auction and crowdloan can begin on Polkadot!
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