What is a Crowdloan?
The meaning of crowdloan refers to a decentralized finance (DeFi) mechanism for funding new blockchain projects or protocols. In particular, crowdloans are used to fund projects built on the Polkadot blockchain network.
Polkadot is a platform that enables the interoperability of different blockchain networks. In the Polkadot ecosystem, new blockchain projects can launch their own parachains, which are individual blockchains that are built on top of the Polkadot network. However, to secure a slot for a parachain, a project must first win a crowdloan.
In a crowdloan, users can contribute their cryptocurrency to a project's fundraising campaign. The funds raised are used to secure a parachain slot for the project. In exchange for their contribution, users receive a reward in the form of the project's tokens. Once the project's parachain is operational, the tokens can be used to participate in the network or can be traded on cryptocurrency exchanges.
Crowdloans are typically facilitated through a decentralized platform, such as a smart contract or a decentralized application (DApp). The platform will specify the terms and conditions of the crowdloan, including the minimum and maximum amount that can be contributed, the duration of the campaign, and the rewards that users will receive. The platform will also specify the cryptocurrency that can be used for the crowdloan, which is typically the native token of the blockchain network, such as DOT for Polkadot.
One advantage of crowdloans is that they allow new projects to raise funding in a decentralized and community-driven manner. Rather than relying on a centralized funding model, such as an initial coin offering (ICO) or venture capital funding, crowdloans allow projects to raise capital directly from their users and supporters. This can help to align the incentives of the project's developers with those of their users and can increase the sense of community ownership of the project.
Another advantage of crowdloans is that they provide users with an opportunity to earn tokens from new projects that they believe in. By contributing to a crowdloan, users can support the development of new blockchain projects and potentially benefit from their success.
However, as with any DeFi mechanism, there are risks associated with crowdloans. For example, the value of the tokens received as a reward may be volatile and subject to market fluctuations. Additionally, there is a risk that the project may not succeed, which could result in a loss of funds for contributors.
Simplified Example
A crowdloan is a bit like a group of friends getting together to buy a big present for their friend's birthday.
Imagine it's your friend's birthday, and you want to get them a really special present. But the present is really expensive, and you can't afford it on your own. So you ask your other friends if they want to help you buy the present. Everyone agrees, and you all put in a little bit of money to buy the present together. When your friend sees the present, they're really happy and grateful that you all worked together to get them something they really wanted.
A crowdloan is like that, but instead of buying a present, you're helping to fund a new project or platform. In the world of cryptocurrency, a crowdloan is when a group of people come together to support a new blockchain project. They all contribute a little bit of digital currency, and when enough people contribute, the project is able to launch. The people who contributed the digital currency are often rewarded with special tokens or coins from the new project.
Just like how your friend was happy that you and your friends worked together to get them a special present, the people behind the new blockchain project are happy that a group of people came together to help fund their project. And the people who contributed to the crowdloan are happy that they were able to support a new and exciting project and potentially earn some new tokens or coins as a reward.
History of the Term Crowdloan
The term "crowdloan" surfaced within the cryptocurrency realm during the mid-2010s, coinciding with the emergence of blockchain networks implementing Proof of Stake (PoS) mechanisms. Notably, it gained prominence in projects like Polkadot and Kusama, particularly in their efforts to facilitate the inclusion of parachains. This innovative concept allowed individuals to lend or commit their digital assets to aid new parachains seeking integration into these ecosystems.
Around 2020 and onwards, the term "crowdloan" became increasingly synonymous with the process of users contributing their tokens as collateral, actively participating in securing parachain slots, and supporting the expansion of blockchain networks.
Examples
Karura Network: Karura is a decentralized finance platform built on the Kusama network. The platform held a crowdloan to raise funds for its launch. Users were able to contribute KSM tokens in exchange for Karura tokens, which can be used on the platform for various services.
Moonriver Network: Moonriver is a blockchain network that operates on the Kusama network. The project held a crowdloan to raise funds for its launch, and users were able to contribute KSM tokens in exchange for MOVR tokens. The project successfully raised over 100,000 KSM tokens during the crowdloan, which is a significant amount of funding.
Shiden Network: Shiden is a smart contract platform built on the Kusama network. The project held a crowdloan to raise funds for its launch, and users were able to contribute KSM tokens in exchange for SDN tokens. The project successfully raised over 140,000 KSM tokens during the crowdloan, which is a testament to the project's potential and the community's belief in its success.
Related terms
Crowdfunding: Crowdfunding is a method of fundraising in which individuals or groups raise money for a project or venture by soliciting small contributions from a large number of people, typically via the internet.
Capital Fund: A capital fund is a pool of money that is collected and saved for a specific purpose, like buying a playground or investing in a business.