Don't panic! Here is the Polkadot Crowdloan strategic discussion

Gm, Phala community!

I understand you are probably feeling panic or FOMO towards the Polkadot slot auction at the moment, especially when Binance has just announced the slot auction supporting list without Phala.

But why hasn’t Phala announced a strategy for the Polkadot slot auction?

Don’t panic. Be calm, and here it is:

Background

For more than 12 months, I was among the first community members in the Polkadot ecosystem to present a strategic insight of Polkadot slot auction. I have been following the development of it very closely.

With the help of the great Pha’milly, we were among the first projects that could secure a parachain slot on the Kusama network. It shows the capability and dedication of the Phala team and the Phala community. The community will support the upcoming Polkadot slot auctions as what we have done on Kusama.

As a functional parachain on Kusama, we have already entered the playground for experimenting with our innovative ideas. Here are what we have done so far:

  • Launched the first decentralized Ethereum-Kusama bridge connecting Phala’s ERC20 PHA token to Khlaa’s native PHA token, based on ChainBridge.
  • The Secure Enclave Mining subsystem has already attracted more than 15k miners with 100k vCPUs computing resources available on the blockchain. Till now, this is the largest computation network in the Web3 space.

The fun is just getting started! We have a very dense launch plan to release the most exciting features in the next three months:

  • The cross-chain bridge hub: Open the 3rd token support in our bridge. This will bring countless assets from Ethereum, BSC, and other blockchains available to Kusama parachains via XCM.
  • Integrate $PHA to the Karura DeFi ecosystem via XCM.
  • Launch Fat Contract, the killer feature of Phala Network that enables permissionless, zero latency, and CPU-speed cloud computation with many unique capabilities like private memory, async HTTP request, wasm deployment, and more.

In other words, there are game-changing milestones in the next three months, and the Phala team’s mission is to build and ship it. We don’t think there’s anything more important than that.

Instead of having a FOMO feeling driving us into the Polkadot slot auctions at all costs, the team wants to focus on the development of Khala’s core functionalities. After all, once Khala has all the functionalities, it can be upgraded to the Phala mainnet on Polkadot easily. It follows the philosophy of Kusama as a canary network.

My proposal to the Phala community for Polkadot slots

With the first Polkadot slot auction starting from 11th Nov, and the 2nd batch starting from 23rd Dec, there are more than ten slots available in the next two months.

Auction #1: November 11 - November 18, 2021
Auction #2: November 18 - November 25, 2021
Auction #3: November 25 - December 2, 2021
Auction #4: December 2 - December 9, 2021
Auction #5: December 9 - December 16, 2021
Auction #6: December 23 - December 30, 2021
Auction #7: January 6 - January 13, 2022
Auction #8: January 20 - January 27, 2022
Auction #9: February 3 - February 10, 2022
Auction #10: February 17 - February 24, 2022
Auction #11: March 3 - March 10, 2022

We suggest that Phala should join the slot auction from the 2nd batch starting from 23rd Dec, because:

  • In my opinion the first 5 slots will be a war of attrition. We simply don’t need to FOMO into that, as the second batch of auctions will just start in 30 days.
  • The price of a slot is likely to drop significantly. Less $PHA used in the auction means we leave more wealth to the community.
  • We will get some buffer time to observe and learn from previous auctions to build a better bidding strategy.
  • The team can focus on the development of Khala Network.

I’m going to talk about the rationales in the following sections.

Reason 1: Why not get the first slots?

I understand the benefits of it.

Getting one of the top 5 slots may make the Phala brand shiny. However, it’s rational to think about the value it can bring to the project beyond branding.

We have nothing to prove by participating in the first slot auctions. By successfully securing the 4th slot on Kusama, the Phala team has shown expertise in building a parachain, and the Phala community has shown devotion to the Polkadot ecosystem.

Becoming a parachain means that we can get access to the parachain ecosystem, to build better products in the Web3 space. The application matters. In other words, focusing on the product should be the top priority of a project. The Phala team deeply believes in it. So we prefer to build and release on Kusama first and move to Polkadot as the next step once it’s ready.

With the background, directing resources to the first batch of the auctions at all costs just distracts us from our goal.

We feel lucky to join the game on Kusama early. The best thing we got is the rich experience to develop and operate a parachain. Here we can list a few:

  • Closely following the frequent upstream upgrade: Kusama’s mantra is “Expect Chaos”. So parachains should follow the relaychain runtime upgrade. One of the most frequently upgraded features is XCM (Thanks to Parity’s nice job!).
  • Reacting to the urgent relaychain change: One of the notable “chaos” was the Kusama runtime v9122 upgrade. Parachains are notified the upgrade must be done in 24 hours. So we followed the upstream, made the release, notified the community and all the downstream users quickly.
  • Fixing the SDKs: The complexity doesn’t only lie in the blockchain, but also in the clients and SDKs. Khala runs a ChainBridge and the pherry relayer. They rely on GSRPC and Subxt, the go and the rust client of Substrate correspondingly. To follow the non-backward compatible v9122 upgrade, we have fixed both clients to keep our network operable.
  • Stabilizing a 10k-node-scale p2p network: Khala is an unprecedented large-scale computing network that involves tens of thousands of nodes. Due to the inner complexity of the mining subsystem, any disruption of Khala or Kusama nodes can cause a significant impact on the end-users. It’s especially challenging after the recent upgrade which introduced the state cache problem bringing down the full network 3 times.

There are many challenges. However, it turned out we can tackle the challenges. We are lucky to get the chance to practice this on production. The work on operating Khala Network helps us to get the experience to guarantee a smooth transition to a parachain on Polkadot.

The second batch of auctions only starts with a 30-day gap. So, why not wait?

Reason 2: Monetary Concerns

In our tokenomic breakdown, we have reserved 6.9% from our token supply to Polkadot and Kusama slot auctions in total. To secure a Kusama parachain slot, we have already used 2.5%, leaving 4.4% for the Polkadot slot auction.

Let’s compare it with our competitors:

  • Acala: 14% of total supply
  • Literntry: 20% of total supply
  • Manta: 15% of total supply
  • Astar: TBA
  • Moonbeam: 10% of total supply

So, one guess is that we may need an additional 15%-20% of the total token supply to win one of the first five slots.

In contrast to paying a high cost to win a slot, in our tokenomic design, we have decided to use more tokens to reward the community and attract more miners to help grow the cloud computing resources in the network.

If we take a look at the data from Hypersphere insight and Kusama on-chain data analytics, the average locked $KSM is 2% of the total supply for top 10 parachains. We can expect a similar ratio for the Polkadot auctions. Assuming the $DOT price is $50, we can expect around $1 billion of locked tokens. With a 20% expected APY, 2 years lock that would create opportunity costs of $400 mln, because of forgone staking. If $PHA is $1, then the price for the top 5 slots would be 40% of the total supply. Which Phala Network can’t afford.

That’s why we need to wait and see what exactly happened in the top 5 slots auction.

Reason 3: Benefitting from decreasing bids

While the first and second batch of Kusama auctions locked on average almost the same number of tokens, we saw some individual slots of the second batch vastly exceed the tokens locked from the first batch. However, we believe that for the Polkadot auctions we can expect fewer tokens locked for the following reasons:

  • With the expectation of more slots to come already from the beginning, the amount of required $DOTs to win a slot will reduce per batch.
  • We can feel the FOMO of many people in the community. This will lead contributors to lock a lot of their tokens for the first few slots and then hopefully leave fewer tokens for the 2nd batch.
  • Crypto circulation markets have limits. So we can not expect all Polkadot parachains to reach market caps in the billions of USD. Some will be less than others and it will show in the outcome of the first few auctions. We can wait and learn and adjust our strategy based on the results.

Our Strategy:

We will join the 2nd batch of Polkadot auctions and open our crowdloan at December 23th

Budget to join Polkadot Crowdloan

Based on Phala tokenomic paper, 6.9% left for crowdloan. And during Kusama crowdloan, Khala reward already takes 2.5% of the total supply. So it means that 4.4% of $PHA supply is available for Polkadot crowdloan to Phala.

Unlike many other projects, most of $PHA will be minted by Secure Worker Mining and Phala doesn’t have a foundation. This is why our budget is tied up.

As for future extensions of the lease periods of the Phala parachain, the tokenomic whitepaper describes that we will take on-chain treasury funds of 20% of the minded $PHA to help win the auctions. Based on the halving schedule, it would be in total around 350 mln $PHA mint out in the first 2 years on Phala Network. 20% of 350 mln is 70 mln $PHA, so it gives us 7% of the total supply from the treasury for the first 2 years after Phala launched. We can use the treasury instantly supply to Polkadot crowdloan.

In summary, we could join with a budget from 5%-10% of total supply, as we have a long-term on-chain treasury.

Extra bonus

In addition, we will provide sweet incentives to participate in our crowdloan. A few examples are:

  • Rewarding our supporters from the Kusama crowdloan and whitelist them for additional bonuses.
  • Use referral links with extra benefits.
  • Use an adaptive reward scheme that adjusts the ratio of rewards for contribution based on the distance to winning the respective auction. That means incentives increase if we need to surpass a competitor while incentives decrease if we are in the lead. This is similar to the mechanism used by Basilisk’s (BSX) crowdloan strategy, which aimed to incentivize the minimum amount of $DOT contributions necessary to win to prevent overpaying for our slot.
  • Additional NFTs usable in the Phala World game and lands in the metaverse. We will also try to engage Phala ecosystem projects to give extra benefit to Phala crowdloan contributors!
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Hey there,

I fully support the decision or rather suggestion of going for the patience route.

I think most of of the community will agree for that too.

Being in the top 5 parachains is more of a prestigious call rather than utility. it doesnt hold any more or less value than any other parachain slot.

One might be concerned about that Phala will get into the background.
But Phala World is something i think the community will have to chew on until the auction actions begin.

Since there is a little time, i think a little preparation can be done nevertheless.
Something like surveys for pre registrans.
Other than the ksm contributer pre registrations, we could create a pre registration and survey for other participants and their contributionwill.
A rough ballpark estimate could be done, since many people will have their dot stuck in the first batches the survey could be done after the first auctions are done.

Concluding i can say you guys are doing a great job and i support the idea throughout all the way.

Thank you very much.

Kind regards

5 Likes

Thank you for your quick response and solid suggestions.
All make sense.
We are honored to have supporters like you, this is the motivation for us to build Phala every day!

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Slow and steady wins the race. The decision not to rush is good - you have a unique selling proposition others cannot match, and you are not at risk of being outpaced by a competitor. Instead, you can focus on solidifying Khala on Kusama, building a dedicated community here and maturing prototypes, and then getting to work on Polkadot. All marketing and no play makes a project dull, so stay a while, play, then move on to Polkadot’s auctions.

KSM > DOT anyway.

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Thank you, Bruno! It’s a very helpful insight for us.

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“To do a good job, an artisan needs the best tools. Good tools are prerequisite the successful execution of a job.”
“工欲善其事,必先利其器”

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Hi there!

Would it be technically possible to stay only on kusama, as kusama should get a parachain itself to polkadot or makes it no sence from your side of view?
br

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In a technical way, it’s possible.
The reason why Phala needs a Polkadot parachain is: we need to engage with the highest TVL parachains to provide web3 computation services so that Phala community can benefit from the token utility. Such as Fat Contract using with some Defi protocol…
And Polkadot’s security level is higher based on the market cap.

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Good Job MARV. An entrepreneur has to operate within his budget. Management 101.
This will sustain long-term success and not result in PHALA running out of steam early next year. GL us in the PARACHAIN!

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i feel like with the low rewards you’re alienating some newer investors and overestimating your chance to win even once of the next rounds. There will be some good projects kicked into the next batch, and nearly all of them have a better rewards scheme. So when the youtube vids start coming out about the 2nd batch of auctions, Phala will be a “good” project but the. incentive to donate while locking away your DOT for nearly 2 years will get poo poo’d hard.

I’d take a hard look at the market when the KSM crowdloan was won. the 2nd batch was way more competitive than the first round. It’s possible the hype surrounding Acala, Moonbeam, and Astar suck up the supply and these 4 and on slots come at a lesser expense.

Phala is a great project but offers little in the way of enticing people to lock up their DOT for 2 years right when the bull market may be coming to e close or at it’s height. The bonus offers as written are not very good for new investors. Playing games of more if this or less if that won’t be received well. people want it clear and simple.

Providing an early investor bonus for contributing before the end of of auction 6 would be fairly standard with other projects and provide a little bit more incentive for newer people to take part.

rewarding your backers, whether new or not should be the goal in these crowd loans. 4.4% doesn’t speak to much of how you feel about those that wish to support the project and get it on as a parachain. The optics are just horrible.

3 Likes

Thank you for your support!
My proposal is that we use the Phala future treasury income as subsidy to add up Crowdloan reward budget, the solution is not just “4.4%”:

10% of total supply could not be enough, but I think it’s a decent contribution for Polkadot.

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Thank you for your reply. I was in large part speaking to the posted rewards n the auction page showing 4.4%. I do see your proposal and anything less than 10% would not be seen as an enticing incentive.

I think you made a great decision to wait until round 2. however there will be good projects kicked into that round plus the ones already announced. I suspect some of the gaming and metaverse ones will be very hot and heavy in round 2.

Futher, there may not be a lot of DOT to go around and the competition for what is there is likely to be very contentious.

I would propose this type approach:

1: Up your percentage to what you can realistically afford to give up. However set aside a larger position for “bonuses” for early contributors. Give a sliding scale of decreasing bonuses for the auction slots. Make the difference a good drop from the first availability to the subsequent auctions. Say like a 20% down to 5% then 2.5% with 1% being the final.

Set a MIN reward based on a cap. This can be better determined watching the 3-5 slots. Certainty is a huge factor of knowing what a contributor is going to get back. Not much thought is put into that from these projects. Let us look at your project and what we’re going to receive at a minimum and decide. I think if you offer enough it will be a no-brainer and can compete with the hyped projects once more people like myself start doing some poking around at various projects.

2: Structure it so that, if you don’t hit your max spend for winning a spot, you’re not going to give the entire reward away. I say this because I’m assuming your rewards are big and juicy. You have the powder in the treasury to hand out all the rewards but if the auctions in this phase are less than maybe people are thinking you can return some of that to your coffers.

In essence people have a min and a max but you’re not advertising the max in black and white. You set it up like Manta did in which they basically state left over reward pool will not just be distributed to the contributors and it will be used for future CL’s if my memory serves.

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Good suggestion. All making sense.

  • Early contributors extra bonus
  • Min reward to fix the profit for each one
  • Use the rest of budger in prosper ways
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just for a visual. this is manta’s CL. they do actually give you a min to a max.

whatever is left over out of their cap goes back into the war chest.

My final thought is to just reiterate don’t think you can compete on the technicals of the project and it’s use case if securing a slot is your goal, make the rewards grab investors attention and hope that plus the research they may do win their stake. Phala had a lot of hype earlier in the year but that momentum is probably diminished and given way to the gaming/Meta/NFT stuff.

Heck really push that tie in to those. I’m more interested in the stuff running and contributing to meta/gaming/nft than those dedicated projects themselves. those will come and go and be much more fluid over time. Things like Phala can be part of any new project.

Keep up the good work and thanks for the interaction. just another +++ for PHA in my book. I see a lot of value and use here.

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First, thank you for the open discussion. Transparency is a key fundamental needed in these environments. Plus, no one likes it when they feel left out, so, again, thanks.

Second, for those of us who contributed to the KSM crowd loan via a CEX, it would be appreciated if those contributions could somehow count when calculating bonus rewards for those that will be contributing to the upcoming DOT auction. Not completely sure, but I think there is another project achieving this by requiring a screenshot of the contributors cex account showing the locked KSM. I’ll leave the details to your more capable hands.

Finally, I, like many others, felt somewhat disappointed with the ksm rewards (I blame MOVR for messing up the bell curve). But i think that there is something unique about Phala’s crowdloan strategy, something that, so far, I haven’t seen anyone talk about. (please correct me if I am wrong). Every other project that is participating in both parachains has created 2 separate projects, each with it’s own separate token. Phala and Khala are separate projects on different parachains, BUT they share the same pool of tokens. $phala is $khala, and vice versa. Now I’m sure that there’s something about all this that I’m getting wrong or just don’t comprehend, but I do know that in time, when the canary’s use has run it’s course, the tokens on the KSM parachain will mostly become second rate, for lack of a better term. But not the $khala tokens! Because $khala is $phala. (reminds me of patrick star ‘chum is fum’ lol) And with both phala and khala pulling tokens from the same pool, well, I honestly don’t know what that means but I feel it will have a price positive effect.

I’m sure that there is someone better qualified that can take that thought and run with it, so I will stop here.

Also, I understand the the value of the project is not the value of it’s token, that it goes deeper than that, especially for the project’s creators. With that said, I don’t think anyone here will complain if Phala’s token price moves in the upward direction.

Thanks for listening

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Thank you for the feedback!

This is a very good suggestion. We will try to engaged CEXs to support this idea.

Thanks for mention that! I still believed that only ONE $PHA strategic will make Phala Network successful in longer term. Because most of the teams haven’t consider clear that what will happened in 2 years, but we do. I’m very determine that ONE token strategy will help:

  • Keep community consensus together, not separate community passion into 2 blockchain
  • Better liquidity even when bear market come because we share the same tokenomic
  • Create a new paradigm for other chains, Phala will be the innovation creator.

Thank you!

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I know BiFrost will have one token as well. no others i can recall off the top of my head.

Maybe Kilt?

Ouu really? Interesting, I didn’t notice that. Maybe in price there were some action, but I didn’t notice lot of people were talking about it. Maybe I’m wrong. Did you really saw such hype?

But even if we don’t win DOT slot there is still strategy for parathread, right?