Crowdloan & Auction Improvements

Ecosystem
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I’m not a dev. I’m just a user. With that in mind I’m interested in various ideas on how we can evolve these processes in Polkadot.

Crowdloaning is not very popular among users.
The excitement and allure is gone.
Users are now less inclined to want to lock up their DOT for 2 years vs staking. Projects take a long time to TGE so any economic incentive is greatly diminished. Crowdloans and auctions are big utilities of the DOT token that have been greatly diminished. Users would rather stake than participate in the growth of the eco.

Could we evolve the crowdloans & auctions into staking pools? Same lock time applies but at the end of the lease the loaners get their DOT back plus their share of staking rewards. Even projects that self-fund would benefit from this mechanism. This takes away the major pain point in community involvement in auctions & strengthens the utility of DOT.

Project A opens an auction. This creates a staking pool that can either be open for users to loan to or closed. DOT contributed to this pool earns rewards to be distributed at the end of the lease.

Crowdloaning shouldn’t be a net negative investment for users. There are too many variables that are unknown and can’t be known prior to loaning your DOT to a project. I feel like users getting staking rewards on their loans would drive a return of interest to this critical process that puts too much on the ecosystem users w/ little to no guidelines for projects once they onboard.

we need to make CL’s and auctions more attractive & ensure a better user experience. If a project takes an entire lease before they TGE (hi picasson/composable) that tends to really tick people off. whether you like it or not, users are looking for returns and the opportunity cost of loaning right now is negative.

as for 2nd and 3rd order affects I can’t say for sure. My hope is this eases some of the immediate token dumps of CL rewards every project sees. Maybe they’ll be more inclined to hold knowing they’re getting a return at the end of the lease.

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Crowdloans and tokens locked for parachain slots are explicitly excluded from the rewards earned by staking.

The point is that it SHOULD be a cost to get a parachain slot. We already return all funds back to users at the end of a parachain slot, so the “cost” here is the lack of staking rewards you get for those tokens.

It should be, if you are participating in a crowdloan, that the incentives provided by the parachain team should be equal to, or higher than those earned by staking. If not, then you should simply not participate in that crowdloan.

Crowdloans are intended to be a one-off bootstrapping mechanism for exciting projects who have little to no backing to obtain a slot on their own. I suspect, most teams in the future will acquire slots on their own with their own pool of tokens, and crowdloans will be used less and less.

These protocols and designs are not about printing “free money” to people, but creating economic incentives of behavior. If you could support a crowdloan, and also get staking rewards, then everyone would just put their tokens behind every project without risk.

Crowdloans allow people to put their money where their mouth is, and help Polkadot identify and promote the best teams for the ecosystem. For doing that process, you have the potential of earning rewards. But if you support bad teams, you will end up losing money relative to the rewards of staking.

Unlike many other protocols out there today, Polkadot is not, and will not be interested in “ponzi-nomics”. It is not a sustainable or healthy way to build long term ecosystems for powering the Web3 future.

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It doesn’t make sense for funds that aren’t at stake, i.e. subject to slashing, to accrue staking rewards.

Competing incentives with staking rewards is a problem in all proof of stake networks, although less so for Polkadot because DOT isn’t widely used in DeFi contracts. In the case of crowdloans, though, this should be mostly irrelevant because the comparison isn’t on-chain lending – it’s private token sales, which typically have massively greater returns.

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and it’s a bad system in the long term. this has nothing to do with ponzi-nomics so lets just not bring that up because it’s nonsensical in this instance.

It’s a literally guessing game in the end on which teams are “good” and which are “bad” and they don’t often come to light until much later in the process.

The current set up for auctions and crowdloans many would argue is not sustainable or good for the adoption of Polkadot. To be honest this attitude in that reply is a problem.

It’s pretty arrogant to think you have solved THE healthiest way of a sustainable way to build a long term ecosystem for powering the web3 future. In many ways Polkadot is getting left behind due to a rigid maxi mindset in it’s approach.

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Participating in the crowdloan is like saying hey we want the community to back us who think we are good and deserve the slot.

As Shawn said many teams may not need crowdloan to obtain slots and crowdloan was made to support those teams in their initial phase and it wasnt meant to be money printing machine.

And for you choosing which project to support or maybe not suporting at all and just stake your DOT its on you.

You have to show why is it a bad system in the long run? and how is polkadot left behind, do any other ecosystem practice blockspace allocation effeciency?

Earning a slot must come at a cost as you are acquiring a space for your blockchain to run and to be secured other than that you must secure it by yourself which is very expensive for smaller teams even larger ones.

Secondly, Polkadot is not a company , its a protocolif you think its a bad approach you can propose your approach and see if the DOT token holder do support it. We EVOLVE TOGETHER and nothing is FINAL. And Polkadot can accomodate rapid changes in upgrading.

The best way to change the existing system is to present with the new one.

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Maybe we need to enable parathreads sooner.

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I believe that the underlying purpose of this post holds a lot of value & is something that should be focused on. At the least, it shouldn’t be dismissed so easily.

Regardless of the logic & ethos behind the design of slot auctions & their purpose, they have quickly grown to become a pain point for Polkadot adoption. I would argue that they do not cultivate a healthy environment for builders & the process also slows down the rate at which Polkadot can welcome new & exciting projects into the ecosystem. The fact that they must constantly be defended should highlight there is a problem.

There needs to be a way to efficiently allocate secure block space, which is a limited resource; however, I think the challenge of researching & devising a new system would be well worth the effort.

Currently, they are not attractive to the broader community that is being asked to lock up their DOT for 2 years. Making them more attractive forces parachains into a position of sacrificing the short to mid-term health of their token economies. We saw scenarios where projects provided high supplies of their token as rewards, and most of those projects’ tokens took amplified hits (considering the bear market). On the other hand, if a project provides lower token allocations for crowdloan rewards, you have a larger number of disinterested potential supporters.

Personally, I think the idea of incorporating staking pools into the mix isn’t something that should be so quickly dismissed. They still require individuals to lock up their DOT for 2 years, which is significant. The assumption that an individual would otherwise stake their DOT for 2 years isn’t something that can be taken for granted. The reality is that locking up their DOT for 2 years, regardless of rewards, is a big thing to ask people, especially when you consider the volatility of this industry.

I would argue that it’s not without risk because there is an opportunity cost. An individual only has X amount of DOT, which is subject to a 2-year lockup period. So, the only way that individuals can throw their DOT behind every project is if they demonstrate restraint when choosing which projects to support and/or they continue to acquire more DOT.

The reality is that the retail investor/support is either turned off by crowdloans or they simply just don’t have that much money to spare. These are rough economic times. Slot auctions are evolving into this mechanism where the masses don’t have much of a voice compared to the wealthy few.

Polkadot can grow on the backs of a wealthy few, but it will become an increasingly siloed environment. Polkadot may have billions of dollars in value backing its security, but it only takes a single entity with a fraction of that capital to completely control the fate & future makeup of this ecosystem.

I don’t believe the flaws with crowdloans & slot auctions will solve themselves as more time passes. In fact, I believe only more problems will arise in due time. I understand that a lot of hard work has gone into their design, but ignoring the problems they have realized isn’t going to help the ecosystem.

Lastly, I’ll just add that while Polkadot is an open protocol, there is little bandwidth (or direct incentive) from builders in the ecosystem outside of Parity to address this issue. It’s a major adoption pain point that should be recognized & ideally solved by Parity before being accepted & the task of fixing it is left to others. Also, the original poster started by stating that they are not a developer, so suggesting they propose the technical solution isn’t too practical. They are a member of the ecosystem voicing their concern as a user, though, and did propose something that they see as a possible solution (before being dismissed).

Whether throwing staking rewards into the mix or not is the solution shouldn’t be the primary focus here as much as it should be about the fact that the current system is a pain point for both builders in the ecosystem & everyday participants in the ecosystem. That is not good, which worries me because I genuinely care about the long-term growth of the ecosystem.

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I think people complain about crowloan just a execuse of the market price. acctually they have nothing ralationship. and agree with @lurpis parathread and blockspace idea will be beatuiful.

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This is a big issue, the OP has it right. This is something that can be researched and solved outside of Parity - not doing so demonstrates the dependency and so for the best of the whole ecosystem, parity included, this is something that needs to come from the community, with support from parity where appropriate.

The work I’ve been doing for some time on ParaNotes - involving relay / parachain swaps and derivatives alongside external capital that is drawn down on, rather than one shot invested, is where I think we can bring something new to the party, especially with the potential afforded by XCM3 (see An XCM3 experiment - Kusama treasury account taking stake in the Kabocha parachain).

Happy to discuss separately - or we can make it a part of the next chaos sessions in 2 weeks?

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It’s worth noting that the crowdloan bidder for auctions is just one bidder implementation. It is 100% possible and encouraged for teams to experiment with e.g. smart-contract based bidders deployed on one of the many smart contract chains, if they want to try different mechanisms.

We should really disentangle any issues with the crowdloan mechanisms from the auction mechanism itself, as well as the fact that there aren’t currently good ways to acquire small amounts of blockspace (see On-demand parachains and Unifying bulk and mid-term blockspace with strided regions) where people in the ecosystem have mapped out roads to improving this.

I’m personally very much against any dependence mindset on Parity and will always push back on this - it’s always very weak look. Parity is doing a lot of work, but it takes many confident agents to build a good ecosystem.

For instance, one of the side effects of Unifying bulk and mid-term blockspace with strided regions is that you can build a smart-contract bidder that buys a bulk blockspace region and then does a strided split of the region to allow multiple parachains to share a slot in equal measures. Or a parachain can acquire a bulk region of blockspace and then sell off the rights to every third block in an auction that it runs in its runtime. Etc.

These primitives are extremely powerful and are just waiting for smart people to pick them up and use them properly. Teach a man to fish…

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I don’t have all the answers but just the perspective of a user and contributor. I certainly don’t put all the weight on Parity for making changes, but I also don’t think they should throw up roadblocks.

It would be silly to think we’ve landed on the end state of how we do crowdloans/auctions on Polkadot. I think healthy discussion and a roadmap of iterative changes could be rolled out and tested on Kusama with inputs from technology experts, developers, teams, and users.

A thing we have to keep in mind is the best technology doesn’t always win. Especially true if the barrier to entry, perceived or real, is too high.

There is a common ground we can get to that doesn’t compromise the tech and core principles while incentivizing developer and user adoption/participation in the model.

we all want the best for this ecosystem for sustained growth, adoption, and health.

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I am going to assume that, end of the day, given the assumption that a slot should be something that has inherent value, we can’t use any DOTs that are used for bidding for staking as well. This will render the parachain slots devoid of value.

With that in mind, a crowdloan could in principle collate the DOTs, and give the participants two options:

  1. We stake it for you (via a pool, in a permissionless way), and at the end of the lease, you get your DOT+rewards back. These DOTs are not used for bidding, and are just showing your trust and interest in the project.
  2. Your DOTs are directly used for bidding.

This in itself is not that interesting. But, for example, a contract could try and implement a bidding strategy where the above two are mixed: continuously trying to predict the price of a slot, and based on that, parts of the collated DOTs are used for bidding, ergo not earning rewards, and parts are used for staking, earning rewards.

Of course, this would mean the bidding is more risky, as the final price for a slot cannot be know before the fact. This is also not really changing anything about the underlying economic assumption that “staking and bidding are mutually exclusive”, which was the main topic of this thread.

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Hi,
It is always important to question the status quo and seek ways to make things better and I appreciate everyone that raises their concerns in a constructive manner. After reading the thread, I have some comments:

The current mechanism for crowdloaning (but also the slot mechanism and auctions) is still in development not only technically but also socially. It is important to gather more experience with this system to learn from it and make necessary adjustments. We are on the edge of what has been done and in many ways Polkadot is redefining the interaction between users and projects. This is a difficult task and will necessarily lead to irritations. A driving factor of the mechanism is to induce users to have skin-in-the-game with projects that they are vouching for. In some cases the specific choice for one or the other project will, unfortunately, turn out not to be sub-optimal. But this fact should motivate everyone to make better decisions in the future. When we remind ourselves that the “only” thing that is lost here are the opportunity costs of the locking period x the tokens, it should still be manageable. The frustration you describe might also partly be caused by the fact that (at least for me) it “feels” like the DOTs are gone or spent. But they are guaranteed to be returned, which is something that people in other areas such as ICOs or VC could only dream of. Regarding the economic implications of slot auctions, Shawn has pointed out the crucial points. It is important to maintain the mechanism that DOTs locked in slot auctions induce economic cost. This ultimately incentivizes efficient use of the scarce resource that is a Parachain Slot.

Aside from the economic perspective, there is another perspective: the network employs nominators to actively curate and maintain the validator set. They are incentivized to keep researching their validators and sorting through them and, if necessary, replace them with better ones. Converting locked DOTs in slots to stakable DOTs would disrupt this dynamic and potentially lead to issues around managing nominations and slashing of tokens.

So, I am in favor of keeping the underlying mechanism in place while continuing to explore ways to improve it. It might be that a lot of the frustration you are describing that users have are due to the fact that (subjectively) there was some initial hype with now some “sobering” up. it’s a pendulum that naturally swings heavy at the beginning but should smoothen out over time and find it’s natural position. Hopefully the experiences gathered will teach the “crowd” to collectively make good decisions in the future. Without any opinion on any project in particular, some learnings are that users should be encouraged to perform more due diligence and let themselves be hyped less with a shiny website. Instead, reviewing more “costly” signals such as a project’s state and activity in Github is advisable.

That being said, I am sure there are plenty of pain points left for users and projects that needs to be addressed. But, I personally still believe that the underlying mechanism that Polkadot employs is a very good foundation for a healthy ecosystem in the future and we should give it some more time and keep a long-term perspective.

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Hi all,

Some of you might have seen my proposal already to address this problem, but posting it here just in case: Another proposal to fix Polkadot's crowdloan and auction system

Hope there can be a good solution to this soon, since this is a pretty urgent barrier to adoption.

Best,
Eric