Polkadot, as a strong competitor of Ethereum, has attracted much attention since its launch. The goal is to move toward a decentralized Internet, or Web 3.0. This article will introduce in detail Polkadot’s financing process, token distribution method and its economic model, and look forward to its future development.
Polkadot’s financing history
First round of crowdfunding: initial launch of Polkadot
In 2016, Gavin Wood, co-founder of Ethereum and founder of the Web3 Foundation, launched the Polkadot project. In October 2017, the Polkadot project manager Web3 Foundation conducted its first crowdfunding through a Dutch auction, selling 5 million Polkadot native tokens DOT and raising more than 480,000 Ethereum (approximately US$144 million at the time) ). Unfortunately, however, in November 2017, a serious security vulnerability occurred in the Parity multi-signature wallet, resulting in the freezing of more than 510,000 Ethereum and other token assets, including more than 300,000 Ethereum belonging to the Web3 Foundation.
Second round of private placement: Polkadot’s subsequent development
Despite the setback in the first crowdfunding campaign, the Polkadot team did not give up. In June 2019, Polkadot completed a new round of financing by selling tokens DOT. The Web3 Foundation sold 5% of the total DOT tokens to institutional investors, and Polkadot was valued at approximately US$1.2 billion in this round of financing, with the average price of each DOT being approximately US$120. In this round of financing, blockchain investment institution IOSG Ventures and investment fund Fundamental Labs jointly participated in the investment. The three institutions invested more than 10 million US dollars in Polkadot.
The third round of financing: Polkadot’s further growth
Polkadot will launch its third round of financing at 11 a.m. on July 24, Beijing time, providing a quota of 300,000 DOTs. Among them, the single price in the first 72 hours was US$120, and then the unit price became US$145. DOT purchased from the public offering needs to be locked for 5 months, but the lock-up period can be used for staking and voting.
Polkadot’s token distribution method and economic model
Initial issuance and distribution of DOT
According to Polkadot’s original plan, the initial total issuance of DOT was 10 million. After 5 million tokens are issued in the first round of financing, of the remaining 5 million, 3 million will be reserved for the Web3 Foundation (to be retained or distributed at its sole discretion), and the remaining 2 million DOT before "Genesis" will be Sold or otherwise distributed. In addition to the 800,000 DOTs that have been allocated or will be allocated to investors in the second and third rounds of financing, there are still 1.2 million DOTs that have not yet been allocated.
DOT’s inflation model
The total supply of DOT is not fixed and has no upper limit. According to the Polkadot Wiki, DOT uses an inflation model to issue new tokens to validators and nominators for rewards. The inflation rate in the first year is 10%. The inflation rate of validator node token generation is related to the pledged rate, and the rest will flow to the Treasury (Treasury). The Web3 Foundation aims to stake approximately 50% of DOT tokens to the Nominated Proof-of-Stake (NPoS) consensus system.
Polkadot’s Treasury Fund Use
The use of Treasury funds is ultimately controlled by DOT holders through a referendum. The Treasury raises funds by transferring some of the validator rewards (from inflation), a small portion of transaction fees, and slashing penalties (fines paid by malicious or incompetent validators). These funds are used for the smooth functioning of the system and the wider ecosystem (marketing, community events and collaborations).
Polkadot’s future prospects
Polkadot's goal is to realize a decentralized Internet, namely Web 3.0. Its unique token economic model and inflation mechanism aim to achieve consensus security and token liquidity by reasonably guiding the number of token pledges. Polkadot's NPoS consensus algorithm allows validators and nominators to receive rewards, thereby motivating more people to participate in Polkadot's ecosystem.
Polkadot’s technical advantages
Polkadot’s technical advantage lies in its cross-chain interoperability. Polkadot enables seamless communication and data exchange between different blockchains through its unique relay chain and parallel chain architecture. This feature gives Polkadot huge potential in decentralized application (DApp) development and deployment.
Polkadot’s community and ecosystem
Polkadot’s community and ecosystem are also growing. Polkadot’s test network Kusama provides developers with an experimental environment where they can test and optimize their applications before the mainline goes live. In addition, Polkadot has also attracted a large number of developers and users to participate through various incentive mechanisms.
Polkadot’s future challenges
Although Polkadot has significant advantages in technology and ecosystem, it still faces many challenges in the future. First, Polkadot needs to solve security and scalability issues to ensure the stability and efficient operation of its network. Secondly, Polkadot needs to continue to expand its community and ecosystem to attract more developers and users to participate. Finally, Polkadot needs to respond to competition from other blockchain projects, such as Ethereum 2.0, Cardano, etc.
Conclusion: Polkadot, as a strong competitor to Ethereum, has made significant achievements since its launch. Its unique token economic model and inflation mechanism, as well as cross-chain interoperability, give Polkadot huge potential in the blockchain field. Although there are still many challenges ahead, Polkadot's community and ecosystem are growing, and its future development is worth looking forward to.