A crowd loan is a Polkadot (DOT) crowdsourcing event in Polkadot that allows the community to support project bids in upcoming parachain slot auctions. Users contribute DOT, receive rewards in project tokens and get their DOT back in two years (a standard slot lease duration).
This mechanic helps projects raise substantial capital in DOT tokens that may even exceed a few hundred million in dollar notion value.
The obvious downside for users is the need to lock their DOT for two years where they don’t have access to their liquidity during this lockup period.
In mainstream finance, there are private companies and initial public offering (IPO) lockup agreements. The lockup agreements prohibit company insiders — including employees, their friends, family and venture capitalists — from selling their shares for a set period of time. These shares are “locked up” to ensure that their owners don’t enter the public market too soon after the public offering.
To work around restrictions on lockup stocks, people could enter arrangements where they lock in their gains or even get some money in advance toward the day they can sell their holdings. Corporate lawyers started prohibiting these arrangements because they would create unnecessary market pressure and, in some cases, introduce the legal risks that lockups intend to avoid.
In another development, DeFi protocol Acala has won the first-ever Polkadot parachain auction on Thursday. The platform raised a total of 32.5 million DOT from 81,000 contributors, worth over $1.3 billion at press time.
After a tight race for Polkadot’s first parachain, DeFi platform Acala emerged as a winner, beating its competitor Moonbeam. The winner of the auction was decided through a candle auction process, which determines the highest amount of contributions in a randomly selected block from the past seven days.
Despite Moonbeam gathering more contributions overall—raising 34.4 million DOT by the end of the auction—Acala was in the lead 63% of the time. The DeFi platform raised 32 million DOT, worth around $1.2 billion, from 81,000 wallets.
While many consider this to be a historic moment both for Polkadot and Acala, this isn’t the first time the platform won an auction—in June, Acala’s sister project Kurara was the first project to win a parachain auction on Kusama, Polkadot’s so-called more chaotic cousin blockchain.
The 32 million DOT users pledged to Acala will be locked for two years, or the duration of Acala’s slot as a parachain on Polkadot. In return, those that participated in the crowdloan will receive Acala’s native ACA tokens as compensation as they wait for their DOT tokens to be returned. The platform initially launched Liquid Crowdloan Dot (IcDOT) tokens, which enabled early contributors to utilize an unlocked token that represents their contribution in DOT.