Unleashing the potential of crowdloans

Within the substrate framework, crowdloans are a means for projects to raise the required amount of tokens to participate in a parachain slot auction, with the aim of connecting to the Kusama or Polkadot network as a parachain. Each crowdloan has different conditions and rewards, though all of them specify the duration of the crowdloan campaign, or how many auctions it will have to bid; as well as the rewards cap.

While locked, the contributed KSM/DOT tokens can be used to cover the cost of a parachain lease (the amount needed to secure a parachain slot on the Kusama or Polkadot networks), but are never directly accessible by the project parachain. If the project is unable to win an auction, the funds are returned to their owners and unlocked.

From a users’ perspective, investors do not give their DOT/KSM to the team, instead these funds are given to the protocol (relay chain) on behalf of the project. Crucially, tokens contributed to a crowdloan are only used to cover the cost of a parachain lease and to win a parachain slot. The parachain project itself does not have custody of these tokens and cannot transfer, stake, participate in governance, or perform any other functionality with them.

If the project wins the parachain slot, then the tokens are locked for the term determined by the parachain lease. These usually vary from six months to a maximum of two years. At the end of the lease the DOTs/KSMs are returned to the investors.

The design of Polkadot and Kusama allows supporters, and potential parachain users, to help parachain teams secure a slot by contributing their DOT or KSM. This mechanism further guarantees "investors" that the project will not misappropriate their KSM or DOT, or use them for any other purposes which they had not intended. Consequently, from a projects’ perspective, the only motivation for seeking a crowdloan is if they are certain that they can make a profit from the project, thereby generating an economic return.

Investors have the opportunity to receive their rewards in their Ledger hardware wallets, which is the most recommended option in terms of security.

Supporters participate with their DOT or KSM address. TThen, the rewards (parachain tokens) are automatically sent to that same address on the parachain network, not to the relay chain. This means that when you want to access your funds, you need to access to your DOT or KSM address on the parachain network.

In the past, each parachain had their own derivation path but this resulted in an incompablity when the crowdloan option was activated in the ledger app. Now, all parachains uses DOT/KSM derivation path, so holders can sign transactions without any problem. In the end you will have one same address for different parachains and in that address you can hold different tokens ( DOT/KSM and the parachains tokens). For users, the way to change the derivation path and access their DOT or KSM address on the parachain network is to:

• Enable the expert mode in the Parachain Nano app

• Press both buttons on Accounts: Legacy

• Review the configuration and approve

Take in consideration that for receiving the rewards on your Ledger,  you will have to wait for the official parachain app to be released on Ledger. Without the app, you will not be able to sign transactions with reward tokens.You can find more information in the following links:

• Learn about Slot auctions: https://wiki.polkadot.network/docs/learn-auction

• Learn about Crowdloans: https://wiki.polkadot.network/docs/learn-crowdloans

• Learn how to participate in Crowdloans:https://polkadot.network/blog/participating-in-crowdloans/