We launched Parachain Bonds — an innovative DeFi instrument that helps individual users participate in Kusama and Polkadot Slot Auctions and make profits in the process. We keep getting a lot of interest in this product — and a lot of questions! — so we prepared this article breaking down the entire thing.
If you are a Staker, Lender or Trader looking to make more money in DeFi, this article is for you.
So what is Polkadot, once again?
Polkadot is a cutting-edge network that enables users to launch and operate their own blockchains. These Polkadot-hosted blockchains are known as ‘Parachains’. Polkadot’s design enables projects to perform transactions privately, in a very fast (1000 transactions/second) and secure way.
Are Kusama and Polkadot the same thing? I’m confused!
Kusama is a “sandbox” for projects to test their parachains before releasing them on Polkadot. In a way, it’s a testnet for Polkadot that mimics its design. Right now, auctions are happening on Kusama. We don’t know when the auctions will start on Polkadot yet.
Why do they need auctions?
Currently, there are almost 400 projects building on Polkadot, but the network can only support several projects at a time. To ensure fairness, Polkadot has introduced the auction model. Winning projects can lease a slot on the main chain for up to 2 years at a time.
So Parachain Slot Auctions are for projects, and not for individual users?
That’s right, parachain slot auctions are for projects in the polkadot ecosystem that want to launch on the connect its main network. To win a slot, they need to stake the highest number of DOT or KSM tokens depending on the lease period.
How do I fit in this equation?
Due to the high demand for a mainnet slot, projects need to stake millions of dollars worth of tokens to win. Most of them can’t afford it by themselves, so they conduct crowdloans and ask their communities to contribute the tokens to help them win.
Why should I give my tokens to a project?
First of all, it’s low risk: if the project you chose doesn’t win, you get your tokens back right away. If it wins, you will get your tokens back once a project’s slot expires (6–24 months). You will also receive a reward in the form of the tokens of the projects you decide to support.
The five winning Kusama projects so far (Karura, Moonriver, Shiden, Khala, Bifrost) have all rewarded participants with a hefty percentage of their token supply that spanned around 16% to 34% depending on the amount of KSM loaned and number of participants.
Staking for 2 years is quite a big commitment.
We know, right? That’s one of the reasons why we designed parachain bonds. You can make your stake instantly liquid and maximize your rewards if you support a parachain via Ankr StakeFi.
Alright, so what is a parachain bond?
A parachain bond is essentially a token that represents your stake in a parachain slot auction. Once your candidate wins, you get $KSM/ $DOT tokens in your wallet that equal the number of tokens you staked.
How does liquid staking work?
Liquid staking is becoming a very popular way to support Proof-of-Stake chains while keeping the value of your tokens fluid and ready to earn in more places. Parachain bonds from Ankr StakeFi free up the value of your staked assets by giving you synthetic tokens you can use to earn on other DeFi platforms.
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