Overview of Polkadot and Kusama
At its core Polkadot is a network of networks connecting several use case specific customized blockchain (parachains) built with a framework called substrate. Polkadot aims to create a big ecosystem of interconnected blockchains which inherit Polkadot’s relay chain network security. In fact, plug and play security is an interesting and kind of underrated aspect of Polkadot. Parachain development teams don’t have to actually go out and recruit a whole set of tens or hundreds of validators to secure the network. By doing a parachain auction and actually connecting to polkadot’s network, the parachain will automatically benefit from the security offered by Polkadot validators.
Kusama on the other hand is Polkadot’s canary network, and is based on the same code. Kusama is kind of Polkadot’s experimental wild cousin network. Whenever there is an improvement on the code base (upgrade, new features …) it is firstly implemented on Polkadot’s Testnet (Roccoco), then applied to Kusama before eventually landing on Polkadot. Similarly Karura and Acala follow the same dynamic as Kusama and Polkadot where Karura is Acala’s canary network.
Kusama and Polkadot are the infrastructure layers on which Karura and Acala will be respectively built.
Overview of Acala /Karura
Unlike most projects that are not built with specialization in mind; Polkadot and Kusama ecosystems allow the deployment of not only highly customizable but also specialized parachains that serve one particular domain or a particular use case. This is the case for Karura and Acala that are going to be respectively launched as defi hubs and stable coin platforms on Kusama and Polkadot networks.
The Acala/Karura network in a nutshell is built in with a set of financial core primitives; at its centerpiece Acala’s / Karura’s multi collateral stable coin (aUSD/KaUSD) which has a Cross-chain capability and can be transferred across other parachains in Polkadot and Kusama networks . Karura and Acala also comes with a built-in decentralized exchange, a liquid DOT / KSM staking derivative (LDOT/LKSM) which attenuates the opportunity cost problem (staking vs loan) and allows to earn staking rewards while using KSM or DOT as a loan collateral and last but not least a decentralized sovereign wealth fund.
Besides Acala / Karura are also platforms, thanks to the built-in EVM capability which means that smart contract could be deployed on top of Acala and Karura. More in-depth information about Acala’s EVM can be found here.
Karura launch process
Once Kusama enables the auction process (crowdloan module) development teams can start competing for a slot to launch their parachain. The Crowdloan module is run on-chain for a period of time before the parachain auction happens.
During this time anyone holding KSM can participate in the Crowdloan and support their favorite parachain to help them secure a slot.
The market mechanism used by Polkadot/Kusama for parachain slots lease is called candle auction and is a variant of open auctions. In contrast with open auctions where the highest bidder wins the auction at its conclusion, candle auctions have a random end time and can suddenly terminate; the highest standing bidder wins it. Polkadot parachain auctions differ slightly from a normal candle auction as the opening period is known and the randomly selected end period is only determined at the end of the original opening period.
Let’s say an auction runs for 240 hours (10 days). At the end of those 10 days a random time is picked. Let’s say 96th hour (4th day). The auction ends then on the 4th day and the parachain slot winner is the highest bidder on that time.
If Acala wins the auction, Karura will be launched and rewards (KAR) distributed to crowdloan participants, while the KSM locked in the crowdloan module will be unlocked and released back to the crowdloan participants after a certain period of time when the parachain lease ends ( probably 1 year).
If it is not the case, all the KSM locked in the crowdloan module will be automatically refunded.
In the first case scenario, the network will be launched as the Karura genesis is going to be confirmed in the Kusama chain and start running, council members will be appointed and initial collator nodes will help operate the chain.
The Karura token (KAR) distribution will be processed in batches to all the crowloan participants and all vesting periods will be recorded on-chain. so everybody will be able to know how much KAR he gets and how long the rest of the coins are going be vested and locked up from the crowdloan.
Once Karura goes live, features such as enabling KSM and renBTC stablecoin collaterals, the minting and circulation of Karura stablecoin KaUSD , liquid staking LKSM and a liquidity program will be enabled gradually.
Karura Auction Economics
- 100M total supply - fixed and deflationary.
One of the reasons why most projects use an inflationary model is because they have to keep supplying the token in order to incentivize people to stake and keep the network secure. In Karura’s case; Kusama shared security is used so the inflationary model is not needed to sustain the network.
- 11% of total KAR supply as paradrop Reward from crowdloan participants
- Assuming 12 month lease period (TBD) at least 12 KAR per KSM
- 30% of the paradrop reward from the crowdloan will be immediately liquid and will be transferable on launch. The rest of the reward will be vested throughout the lease period and going to be released gradually.
Acala and Karura seem to be top notch projects that are apparently set to be one of the first parachains to plug respectively into Polkadot and Kusama networks. Acala and Karura networks are not only regular DEFI hubs; they are also platforms with built in EVM that can support smart contracts and that offer endless possibilities. Developers will be able to program more products on top of Acala/Karura such as but not limited to lending protocols, prediction markets or staking derivative products.
Keep in mind that this is not a fundraising event as the project does not get any of the funding from the crowdloan event, they basically just get a chance to join the network and launch their project. In fact, Karura’s and Acala’s launch follows a much more ethical model than what we have previously seen with ICOs. In this model; because the team is not raising money from community members, they are held accountable for delivering their product as they need to add value to their network.