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Polkadot explains in detail how the Initial Parachain offering (IPO) will work

Photo of: Dennis Ramos
by Dennis Ramos

IPOs in stock markets are pretty common but another form of IPOs might just get popularized by none other than Polkadot for the first time in the crypto space. IPO in this sense does not expand to Initial public offering, but Initial parachain Offering and Polkadot have already released an in-depth explanation of this new model and its inner workings. 

Companies usually keep hush-hush about their initial offerings, but here is Polkadot registering a first in this case. Not only is it going to explain pretty much in detail about the process and its workings, but it is also the first time it is done in public knowledge. This sounds like a commendable first considering, transparency is the key. 

The concept

The Initial Parachain offering is a rendering of Polkafot’s blockchain network which attains scalability by spreading transactions across multiple parallel blockchain shards called parachains. The slots of limited and Polkadot will aim to auction these slots for a limited period of time using non permissioned candle auction. The slots will then be auctioned on an individual basis and the cost of the lease will be directly proportional to the forces of supply and demand. 

The DOT holders can stake 50% of their slots available on the Polkadot blockchain. The network further clarified that the actual parachain cost is different from the size of the parachain bond since the bond is returned to stakers at the end of the lease period. Additionally, it revealed that the blockchain intends to support a maximum of 100 parachains on its network. Several development teams having deployed parachains on the Rococo testnet are ensuring relevant tests are conducted in place. It is expected that the target of 100 parachains on the mainnet is not far away. 

How good will it be?

The Initial Parachain offering is expected to provide an array of opportunities within the Polkadot ecosystem. Projects that want to bid for parachain slots but have no sufficient capital can execute an Initial Parachain offering by using the Substrate crowdfunding model on the network to accept DOT loans from any DOT holder. The funds would then be transferred into an account within the Polkadot Relay chain. Should the projects secure the auction, the loans are staked and returned to the contributors after the lease period. This system assures transparency and the needed trust for contributors. Polkadot is also building a sustainability model which will ensure that projects that buy parachain slots can achieve sustainability within the two year lease period. 

There is a difference between the Initial Parachain offering and the Initial coin offering. In the case of ICOs which was the mania in  2017 users send money in the form of cryptos or fiat to the internal team and get the native token of the project. But this paves the way to risks, scams, and manifested frauds that don’t make it safe. But the Initial Parachain offering lets the users get their DOT tokens back after the leasing period gets over. They will also receive rewards in the form of the project’s native token. Relatively speaking, this is indeed a fair way to raise funds and distribute tokens before their chains are launched on Polkadot.