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 hasnât Phala announced a strategy for the Polkadot slot auction?
Donât 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 Phaâmilly, 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 Phalaâs ERC20 PHA token to Khlaaâs 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 teamâs mission is to build and ship it. We donât think thereâs 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 Khalaâs 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 donât 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.
Iâm 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, itâs 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 itâs 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: Kusamaâs mantra is âExpect Chaosâ. So parachains should follow the relaychain runtime upgrade. One of the most frequently upgraded features is XCM (Thanks to Parityâs nice job!).
- Reacting to the urgent relaychain change: One of the notable âchaosâ 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 doesnât 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. Itâs 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.
Letâs 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 canât afford.
Thatâs 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 doesnât 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 Basiliskâs (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!