The first batch of Crowdloan 100 million DOT is about to be unlocked What will happen?

At 9:47 a.m. Beijing time on October 24, Polkadot’s first parachain slots are about to expire. This means that the approximately 100 million DOTs originally locked in Crowdloan, which account for about 7.4% of the total issuance, will also be unlocked.

The first five parachains are about to be unlocked, source: Parachains.info

How will this affect the Polkadot ecosystem? How are applications in the community and ecology prepared to respond to this event?

Parachain Crowdloan Mechanism

First, let’s take a look at the mechanics of Crowdloan.

Crowdloan is an innovative way for Polkadot and Kusama to raise funds, where the Ping** Chain Project bids on parachain slots by borrowing DOT/KSM from the community.

If the project succeeds in winning the slot, it can run its own parachain on Polkadot or Kusama and offer a variety of services and features.

Users who lend DOT or KSM can get some rewards provided by the project party, such as tokens, NFTs, special rights, etc.

The peculiarity of Crowdloan is that the project party does not own or control the user’s DOT or KSM, but locks them in a smart contract until the end of the slot lease period (Polkadot lease period is generally two years). After the end of the rental period, the user’s DOT/KSM can be unlocked and regain liquidity.

In this way, the user will not lose the principal anyway, and the project party can win the parachain slot through the user’s support.

**How should Crowdloan participants operate unlocking? Where can I see my unlocked DOT? **

This has to do with the channel you chose when you originally participated in Crowdloan.

If you participate in Crowdloan through Polkadot.js or most project websites, then DOT is actually locked directly to your original Polkadot address. After the slot expires, usually the project party will initiate an unlock request, and then the user’s DOT will appear directly in the address used when participating in Crowdloan, and the user does not need to do additional operations. **If you really want to do it yourself, you can also submit an Extrinsic called crowdloan.refund in Polkadot.js, which can be found on the Polkadot Wiki page below:

If it is participated through liquidity pledge products (such as Bifrost, Acala, Parallel, etc.), then the DOT is actually pledged into the liquidity agreement and the corresponding certificate tokens are generated, which are liquid and can be traded at any time. If you still have the corresponding certificate token in your hand when the Crowdloan expires, you can unstake and redeem the original DOT in the corresponding liquidity pledge product.

If you participate through a centralized exchange (such as Binance), you need to unlock it on the corresponding page of the exchange after expiration, and the unlocked DOT will become a tradable asset in your CEX account.

In general, no matter which way users participate in Crowdloan, users can unlock this part of the DOT after expiration, and dispose of it freely, but the operation is slightly different.

**What might happen to the unlocked DOT? What is the impact? **

Possible actions that users can perform after unlocking DOT are:

• Sell: Sell DOT in exchange for other assets or cash, which may put some pressure on Polkadot’s price and market capitalization.

• Holding: If you are optimistic about the future development of Polkadot, you may continue to hold DOT, which may provide some support to Polkadot’s price and market capitalization.

Stake: Staking DOT on validator nodes for staking rewards and governance rights may increase Polkadot’s network security and decentralization, but it may also make the staking ratio too high, resulting in fewer staking rewards (the community has proposed a solution for this, see below).

• Participate in various applications in the ecosystem: Use DOT to interact with various applications in the Polkadot ecosystem, such as DeFi, NFT, games, etc., which may promote the development of Polkadot’s ecology and increase the activity of the ecosystem.

• Conduct governance votes: In OpenGov, DOT is used to vote on various governance referendums on the Polkadot network to influence important decisions such as Polkadot parameter settings, upgrade plans, treasury fund expenditures, and more, which may change governance preferences and landscapes.

Participation in other Crowdloans: Some users may choose to participate in Crowdloan again and support more valuable and creative parachain projects for more rewards and experiences, which may enhance Polkadot’s interoperability and diversity.

So what choices will users make, and what exactly happens after unlocking? No one can actually predict this, because Polkadot has never had such a large unlock in history**.

But it can be referred to that Polkadot’s previous large-amount staked unlocks, as well as Kusama’s first batch of parachain expiration, actually did not have a significant impact on the market value of the project.

How would you choose to do this?

Strategies for Polkadot Ecology

In order to cope with this unlock, what preparations did the Polkadot ecology make?

First of all, the community proposes to slightly increase the ideal pledge rate to about 60%, so that a large number of new DOT can still maintain a high staking income when entering the staking system, hoping to motivate everyone to pledge the unlocked DOT, the principle is described in “Should Polkadot adjust the ideal pledge ratio to encourage more staking?” 》。

In addition, for the Polkadot ecosystem, unlocking is also a good opportunity to attract more users to participate. Compared to when the first parachain Crowdloan was launched two years ago, the playable projects in the Polkadot ecosystem have increased a lot. Some applications in the ecosystem may launch some publicity and incentives to attract newly unlocked liquidity to their products. Bifrost, for example, launched the Bifrost Polkadot Unlock Harvest warm-up campaign.

Summary

This massive unlocking of Polkadot will bring challenges and opportunities to the entire ecosystem. Making the most of the opportunities presented by this unlock can help the Polkadot ecosystem realize more possibilities. You can keep an eye on the market dynamics, and PolkaWorld will continue to follow and report on the latest unlocked developments.