After trending to buy token sale on Coinlist and IDO of decentralized exchanges that are cooling down due to declining profits, difficulty in joining, long locking time and too little invested amount, a new trend is brewing in the market, which is crowdloan (crowd capital) parachain on the ecosystem Polkadot/Kusama.
In this article, we will talk about the benefits of crowdloan and compare it with other forms, to see if it is a new possible investment direction in the future.
What is Crowdloan?
The term “crowdfunding” itself can be misleading, as contributors don't actually lend money or invest in projects, instead crowdloan contributions (here KSM, DOT) is locked to an account guaranteed by Polkadot/Kusama for a specified period, called the lock-up period, with KSM is 48 weeks, with DOT is about 2 years (no exact date yet). During this coin lock period, contributors will receive back a reward that is the original token of the project you contribute with an amount depending on each project. If you are a DOT/KSM hodler then this is a great way to invest in addition to staking.
While locked, these DOTs/KSMs act as collateral for parachain rentals (100 in total). Since this locked DOT/KSM cannot be staked, the opportunity cost is the 48-week staking reward, with an interest rate of around 15% annually. In return, contributors receive project reward tokens that can be many times larger.
You can calculate the opportunity cost of staking for 48 weeks and divide by the number of rewarded tokens to determine the token cost.
Eg: Project KILT Protocol pays reward at the rate of 1 KSM : 25 KILT. The current price of KSM is 300 USD, the interest rate of 15% per year is 45 USD (in the condition that the price does not change). Cost of KILT will be 45/25 = 1.8 USD.
Some projects like KILT will allow users to stake locked tokens (50%) as soon as they successfully connect to the parachain, so that staking reward will replace KSM's staking reward, meaning that the crowdloan participant has just keep KSM, get bonus tokens and also monthly staking profits based on bonus tokens. The actual cost price will be much lower than 1.8 USD.
Crowdloan What benefits?
Crowdloan is a great opportunity for investors to support a project they love and earn its tokens at the original price. In addition, it is beneficial to other parties as well.
For the Polkadot / Kusama ecosystem: In addition to locking coins for staking, locking DOT / KSM in the crowdloan will also increase scarcity, reduce inflation, and limit circulating supply. This is also a great way of marketing when projects have to constantly mention it.
For the project: Direct removal of projects with deceptive purposes or weak capabilities through community surveillance over a long period of time. The project will have to demonstrate a level of credibility in order to attract contributors. Project also cannot use that DOT / KSM number for anything, other than lying in it (it's okay to be greedy).
In order to make a profit, the team has only one way to make the product well to attract users to make their native token increase in price.
However, after overcoming the above difficulties, the team has also confirmed its position, has a file of potential customers available as soon as the product is completed and the opportunity to list on major exchanges.
For participants: Parachain competition projects are very fierce, they have to do everything to prove in the long run, can't create FOMO trending day by day like other token sale projects. Therefore, participants can rest assured a lot more than other rife ICO projects on the market.
In addition, participant coins will be returned after 48 weeks (with Kusama), so the worst cost of participating in a poor project is the loss of staking rewards, or the price of DOT / KSM falling compared to when you buy.
For a determined person hodl In the long term DOT / KSM, the negative impact will be lower.
Advantages compared to the current token sale in the market Crypto
The most recent "sure" ICO trend is of the platform Coinlist, most of the projects are profitable right after listing. But due to the large number of participants, the virtual nick registered to resell in large quantities, causing the market to crumble, investors lost at the moment, only watching to list to discharge goods, thereby affecting the reputation of the project. judgment a lot.
For buyers, the long queue on Coinlist and still fail has gradually made people uncomfortable, the platform itself also imposes many limitations such as the token lock time is too long, 1 year + 1 year linear pay . While the investment amount is too small, only $500 to $1,000. And especially more and more low-quality projects with relatively low profits, while the amount of capital called is sky-high.
What about projects? IDO The market grows a lot, every day a few token sales make it impossible for users to know how good or bad the project is, the registration whitelist is very difficult and the amount purchased is also very small, only a few hundred dollars makes it even worse. investors are slowly falling.
With crowdloan, investors are not limited to participating in their favorite projects, investment money is not lost, but only retained. Projects will usually immediately pay 30% -50% as soon as the project completes the parachain link, the rest will be linear until the end of 48 weeks.
The first 5 parachain projects on Kusama showed a positive view towards crowdloan. While these projects are often supported by listings from major exchanges such as Kucoin, Kraken nice Okex, with 2 listed projects as Karura (KAR) profit x3 and Moonriver (MOVR) profit x35.