Phala IPO Strategy on Polkadot Parachain Slots Auction

To be a parachain of Kusama/Polkadot, Phala is planning to win a position in the first batch of parachain slots. Given all the information that is published by Polkadot official, Phala drafted an IPO PHA airdrop program. But some of the confusion that are too hard to decide only based on our understandings. Hereby we create the post, and hope you can leave your precious comments below to help Phala community to get it through. :)

Phala IPO (Initial Parachain Offerings) Strategy in General

For a parachain to be added to Polkadot it must inhabit one of the available parachain slots. A parachain slot is a scarce resource on Polkadot and only a limited amount will be available. As parachains ramp up there may only be a few slots that are unlocked every few months. The goal is to eventually have 100 parachain slots available on Polkadot (these will be split between parachains and the parathread pool). If a parachain wants to have guarenteed block inclusion at every Relay Chain block, it must acquire a parachain slot.

The parachain slots of Polkadot will be sold according to an unpermissioned Candle auction that has been slightly modified to be secure on a blockchain.-- Polkadot Wiki

  1. There will be 2 rounds of PHA IPO. First for Kusama slot, the second for Polkadot slot, which means Phala will first be a Kusama parachain for the first year before running as a Polkadot parachain.
  2. You will receive PHA return as the rewards of locking your DOT to help Phala to rent the slot from the airdrop prize pool especially allocated for IPO:
    • Kusama IPO prize pool: 0.5%~1% of total supply
    • Polkadot IPO prize pool: 3%~5% of total supply

Here are the core uncertain parts (detailed items will be exlained below), and we sincerely hope you can leave your comments below and share your suggestions:

  • Should there be a setting of maximum amount of DOT supporting Phala slot?
  • Should there be a release limit like linearly release or partial release for PHA receivers after the IPO ends?
  • In what proportion should decentralized funds (say, normal holders) and centralized funds (say, from CEXs) join and cooperate?

Highlights of Polkadot Parachain Slots Auction

How the slot rent works

Each parachain slot has a maximum duration of 2 years. Each 6 month interval in the slot is divided into its own lease period. More than one continuous period is a range.

1 period = 6 months
1 range = 1~4 periods = 6 ~ 24 months

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What kind of auction Polkadot applies

Candle Auction.

How candle auction is realized

A random number, which is based on the VRF used by Polkadot, is determined at each block. Additionally, each auction will have a threshold that starts at 0 and increases to 1. The random number produced by the VRF is examined next to the threshold to determine if that block is the end of the auction. Additionally, the VRF will pick a block from the last epoch to take the state of bids from (to mitigate some types of attacks from malicious validators).

The winner selection algorithm will pick bids that may be non-overlapping in order to maximize the amount of DOT held over the entire 2-year lease duration of the parachain slot. This means that the highest bidder for any given slot lease period might not always win (see the example below). – Polkadot Wiki

How to participate

…Bidders will submit a configuration of bids specifying the DOT amount they are willing to bond and for which ranges. The slot ranges may be any continuous range of the periods 1 - 4.

…The important concept to understand from this example is that bidders may submit different configurations at different prices (bond_amounts). However, only one of these bids would be eligible to win exclusive of the others. – Polkadot Wiki

And Phala community will update a tutorial of how to bid parachain slots THE MOMENT we get to know. Stay tuned. :)

How many slots there are

Number of slots available in the first round of auction: uncertain. But it will probably be a number under 10.

In A Word

  • Both parachain-to-bes and users can bid for the slots. Users can choose which projects they suppport, how much and how long they want to lock their DOTs up for the slots.
  • The earlier, the better (as the candle auction might be ended at any moment).

References:

The Unsettled Items

In this section, we list six parts of Phala IPO strategies which are not settled yet. It’s hard decisions, thus we post them out for public comments. Feel free to leave your comments and reasons below this post. :)

I. The maximum of participated DOTs

Option 1: Set

  • each participant will share a certain amount of the prize pool for sure;

Option 2: Not set

  • Phala might fail to be a parachain if there were another project which offered a bidding higher than the maximum.

II、Release Mechanics

Option 1: Set a release mechanics (which means you will have to wait for some time after IPO to claim your PHA)

  • pros: a gentle release mechanism would be much more helpful to maintain the price fluctuation of PHA market;
  • cons: projects without such design might be more popular and attracted more bidders.

Option 2: No such design

  • pros: more bidders (larger possibility to win the slot)
  • cons: not good for PHA price after IPO ends

III. Pre-settle or after-settle

As IPO airdrop rewards will be distributed right after the parachain auction ends, here comes a question that the PHA market might be dramatically influenced by the sudden release of such a huge amount of PHA. And here are two approaches:

Option 1: set the price of settling before the auction

  • pros: one can learn about his PHA return before he locks his DOTs, which could be more inspiring and encouraing.
  • cons: if the settling price were too low, Phala will have to pay an immense amount of PHA for the IPO. And that hurts community in the long run. Besides, the smaller the ratio “PHA/DOT” is, the less possibility that DOT holders believe the return of PHA can bring.

Option 2: set the price after the auction ends

  • pros: with more elements under control, it would be helpful building a stronger community in the long run.
  • cons: with uncertain return rate, it might attract less DOT holders.

IV. Distribution Mechanics

Option 1: No racing. Averagely distribute PHA according to the ratio of “your DOT/the total amount of DOT locked for Phala”.

Option 2: Set a race with an algorithm that the earlier you lock DOT for Phala, the more PHA you will receive.

V. What if Phala did not win the slot

Option 1: Distribute PHA rewards only after Phala won the slot

Option 2: Participants can still receive ?% of the total prize pool even if Phala didn’t win the prize pool.

  • pros: more attractive and encouraging
  • cons: quite costly if Phala failed for many times.

VI. Configuration of DOT-raising

Option 1: mainly from centralized supporters (say, CEX)

  • pros: with more guarantee and stability to get the slot
  • cons: centralization and opportunism

Option 2: mainly from decentralized suppoters (say, community holders)

  • pros: decentralization and community cohesiveness
  • cons: uncertainty of holders’ choices and the amount of DOTs that can be raised



That’s for all the intractable parts. If you have any idea or any plan or any suggestion, please leave your post below, and your words today might be a glorious stroke in Phala’s future. :)






Get Connected

2 Likes

Hi team , looking forward to this event. best wishes

1 Like

I like this set, think its optimal:
I. The maximum of participated DOTs
Option 1: Set
each participant will share a certain amount of the prize pool for sure;
II、Release Mechanics
Option 1: Set a release mechanics (which means you will have to wait for some time after IPO to claim your PHA)
III. Pre-settle or after-settle
Option 1: set the price of settling before the auction
IV. Distribution Mechanics
Option 2: Set a race with an algorithm that the earlier you lock DOT for Phala, the more PHA you will receive.
V. What if Phala did not win the slot
Option 2: Participants can still receive ?% of the total prize pool even if Phala didn’t win the prize pool.
VI. Configuration of DOT-raising
Option 2: mainly from decentralized suppoters (say, community holders)
PS nice review of IPO by the way

2 Likes

Good job on putting this together and asking for feedback. Here’s my 2 plancks!

Maximum of participated DOTs per user

  • Option 2: Not Set
  • Explanation: I understand the rationale behind the limit, but there is no way to prevent a whale from spreading out funds across a bunch of accounts and contributing that way. You could require all the contributors to do KYC and add in limits that way, or you could ask them to set identities on chain and have them verified, which would significantly slow down whales (and make a certain registrar much richer), but I don’t think it’s worth bothering with this early on. Besides, your concern is valid - other chains bidding for the slot will just remove the limit and win, and the game will only get dirtier after the first few rounds.

Release Mechanics

  • Option 1: Vesting
  • Explanation: avoid the post-IPO dump. You don’t want to $zec your project.

Pre-settle or After-settle

  • undecided
  • Explanation: I can see the appeal of both options. On one hand, the staking returns of DOT/KSM are really good, so the PHA payout would have to exceed that - not an easy task! Defining the price early would help there. But defining it early would also do weird things to the market, especially considering the previous section about vesting. I guess it also depends a lot on whether there is going to be a private or pre-sale, which would put those who lock tokens for the auction at a disadvantage, as their reward PHA would by definition already be more expensive than the pre-sale PHA, causing a dump in the reward’s price post auction. I would say, define price before if no pre sale or private sale, or after if there is a pre sale or private sale.

Distribution

  • Option 2: race
  • Explanation: encourage early participation to get a feel for how the auction is going ASAP. Time is important in candle auctions, so the sooner we know how many people are on board, the better.

What if Phala did not win

  • Option 1: no pha
  • Explanation: an IPO is an investment in the eyes of the tokenholders, and should be treated as such. There is a chance that it does not work out, but there is also a chance it works out like crazy. So I think the loss of a few weeks of staking profits is adequate and appropriate to the level of risk. Failure airdrops should not be a thing, especially since it might misalign some incentives (i.e. whale backs two projects, one to fail and one to win, to get failure airdrop from one and windrop from other).

Configuration of DOT raising

  • Option 2: decentralized
  • Explanation: stay in the community. Focus on UX of the process and even the less technical users will be able to participate easily. Do not give more power to the exchanges than they already have. There are a lot of users interested in participating in this, and exchanges will likely jump on board anyway - do not favor them.
2 Likes

Thank you for the feedback with details!

Happy to see these plans emerge! After one year I assume hot-swappable consensus will be complete so Phala can change from Kusama consensus to Polkadot consensus, but just make sure you keep an eye on development there!

1 Like