What is Polkadot Crowdloan?

Polkadot Crowdloan is the act of staking Polkadot (DOT) tokens to endorse particular projects in the Polkadot Slot Auction, allowing participants to earn rewards from the supported projects.

Polkadot (DOT) is an open-source protocol facilitating the exchange of data and applications among diverse blockchains. Within the Polkadot ecosystem, it features two distinct types of blockchains: the main chain known as the Relay Chain and parallel blockchains individually termed parachains. The Relay Chain acts as the central hub, linking various parachains. Much like Ethereum Plasma chains, parachains have the capability to process transactions autonomously from the Relay Chain, a feature that significantly enhances blockchain scalability.

To establish a connection between parachains and the Relay Chain, parachain projects must secure a parachain slot through the Parachain Slot Auction. The auction process involves projects bidding for a slot by staking DOT, Polkadot’s native token. The projects with the highest DOT stakes can secure a Polkadot parachain, leasing the slot for a period ranging from 12 to 96 weeks.

To bolster their DOT token holdings for bidding, parachain teams leverage Polkadot Crowdloan, engaging the community for DOT contributions. Crowdloan operates as a crowdsourcing mechanism, enabling participants to endorse specific parachain projects by staking DOT. Participants in a crowdloan campaign stand to receive rewards from the supported project, which may manifest as tokens. Following participation, the staked DOT becomes locked in the project’s slot auction bid. If the project secures the bid, it can lease a slot to connect its parachain to the Relay Chain. DOT tokens obtained from the crowdloan remain locked within the parachain slot for the entire lease period, spanning from 12 to 96 weeks.

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