Polkadot is one of the most popular blockchains these days, and at the time of writing, it ranks 9th among digital currencies in terms of market size. The blockchain’s digital currency, called DOT, trades at $ 12 and has reached a price cap of $ 47. In a short period of time, this Blockchain was able to open its place among the top currencies of the market and reach a total of 10 valuable Blockchainks in the market. Polkadot is part of the third generation blockchain and calls itself the “blockchain blockchain”.
In separate articles, Arzdigital has reviewed this popular Blockchain in a basic as well as specialized way. In this article, with the help of an article from the cryptocurrency site, we are going to examine “tockenomics” or the token economy of Polkadot and explain the role of its official currency, Dot, in this Blockchain. Follow us in the rest of the article.
Polkadot is actually a platform and infrastructure on which any computer program can run. The platform forms an ecosystem that both complements the existing decentralized software infrastructure and provides new opportunities for more than 400 projects while developing Smart Contracts, Oracles, NFTs, Decentralized Agencies (DAOs). (Bridge), Privacy, Gaming, Internet of Things (IoT), Decentralized Exchange (DEX) and other defy solutions are on this platform.
The POTCAD token (DOT) token is at the heart of PoolCadat’s growing ecosystem, and its function goes beyond paying for and facilitating various network operations. Now let’s take a look at the nature of Token.com and see how it can be used in this blockchain blockchain?
What is dot?
.Dot is the main digital currency of the Polkadot network and its smallest unit is called Planck. In the Polkadot ecosystem, unlike ecosystems such as Bitcoin, which have a fixed supply monetary policy (for example, 21 million units in Bitcoin), the supply of dot-dot tokens is inflationary. This means that the total volume of existing tokens is constantly growing and new tokens are constantly marketed based on a specific pattern. While the current number of Polkadot token units is about one billion, the inflation system, whose rate is dynamically adjusted based on user participation rates, is designed to encourage users to increase network participation.
In addition to its ancillary functions as a portable token, Token.com has several other key applications throughout the Polkadot ecosystem. These tokens are used to participate in governance (through voting) to shareholding, parachain auctions and “collective loans”. In the following, we intend to examine each of these four uses of token dot separately.
Dat as a governance token
Blockchain Polkadot allows Token.com holders to participate in the administration of the network by voting; That is, to participate in actions such as setting commissions, parachute connections and updates, as well as in electing the Council and the Technical Committee.
Active Token.com holders can publish their plans to improve the Polkadot network on this network. All they have to do is attach a certain amount of their tokens to their proposal for a certain period of time and let others vote for it. Token.com holders can also vote on other people’s proposals. In each voting cycle, the projects that receive the highest level of support by connecting dot tokens to that plan (deposit tokens to that plan) are selected as the first plan. Once the proposals have been put to a vote, the tokens attached to them will be removed. That is why we say that .tok is a sovereign token and it is used for network decisions.
Sovereignty in Polkadot is related to the concept of democracy and can be seen as a democratic state. The council in Polkadot is an intra-chain body whose members are selected by token holders and is responsible for determining proposals for implementation; That is, it specifies which plan should be implemented. The council also manages the network treasury, which collects network fees, and represents the holders of inactive tokens in the Polkadot ecosystem. The technical committee is also composed of development teams that implement the approved proposals.
Each proposal is put to a referendum so that all dot holders can make a final decision based on the weight of their stock.
Dot in the stock proof process
The consensus mechanism is a way to maintain network security and verify transactions in a decentralized manner. As a clear example, the bitcoin consensus algorithm is proof of work or extraction.
Polkadot uses a consensus mechanism for its security called the NPoS. Token.com is used to facilitate this mechanism, which is designed to ensure and maximize the security of the Pulkadat chain and in which validators and selectors (Nominators) play a role.
Those who are interested in maintaining the network can dedicate their dot tokens to the network and receive between 4 and 20% annual reward for this work. Validator rewards are paid equally to all creditors, regardless of the amount of dot shares credited. This allows the set of credentials to be distributed more proportionately.
Other dot owners are encouraged to participate in the Polkadot network as a nominator. The task of the selectors is to contribute to the security of the network in exchange for a share of the share rewards by sharing their dot asset assets and selecting a maximum of 16 credentials that they consider to be the best performing. After deducting the payments related to the credentials, the shareholding bonus will be distributed among all the shareholders in proportion to the amount of the stock.
Dot Sharing also acts as a defense and deterrent against malicious attacks. Validators are punished and deducted from their assets if they engage in malicious behavior such as offline or running manipulated software, which is called slashing. In this case, both the validator and the selector will lose a percentage of their deposited or equity dot. The deleted dot is deposited in the treasury and used based on the decision of the decentralized governance process.
Dot for auction of parachute slots
Parachutes are independent parts of the Polkadot network that allow transactions to be processed in parallel. If we consider Pulcadat as a galaxy, every parachute is a planet on this galaxy. There may be different rules for each parachute.
Parachutes often take the form of a completely independent china block by renting one of the rare dedicated relay chains to the Relay Chain.
In order for a parachute project to connect to the Polkadot network, it must participate in an intra-chain candle auction without the need for a license. In this auction, the highest bidder rents the dedicated slot for a certain period of time. Prospective bidders submit their bid for the auction using .Dot and the winner of the auction locks his dot for the duration of the lease. The amount will be refunded whenever the lease expires and the parachute is removed.
Dot for parachin collective loans
Polkadot also allows teams to raise the capital they need as a decentralized collective investment from the .dot community. This distributes and adjusts the risk, reduces costs and makes the bids received for the slots more competitive.
In this case, the participating community also has an interest in this and can decentralize the parachute by giving its tokens in the form of airdrop to those who want to help increase the security of the slot by depositing their data.
Anyone can start a crowdfunding campaign for a parachute slot. If the campaign fails to receive a slot in the initial attempts, it can continue for several more auctions without the need to launch a new campaign.
Each crowdfunding campaign has a list, and dot holders can only submit one special transaction to which they refer to participate. If a crowdfunding campaign succeeds in a slot auction, participants’ data will be locked for the duration of the lease and returned to them upon expiration of the lease.
Dot owners can be motivated to do so by gaining the support of their favorite projects and earning a reward from a parachute. This bonus is likely to be higher than the share bonus and the token holder also has ultimate control over it.
In conducting auctions, in order to support bids and win slots, it is necessary to provide a large volume of .ot and take it out of the market. But with the launch of Karura, the first parachute auction on the Kusama Polkadot Canary Network, which has so far raised $ 200 million in Kuzama digital currency (KSM) in the crowdfunding process, it looks like demand for auctions There will also be a Polkadot parachute.
This is where game theory comes into play. Users can easily get a share reward by choosing a share method, with less risk than participating in a collective loan. Therefore, parachute projects should motivate users enough to persuade them to lock their data in their favor for the duration of a slot instead of a share.
But the Polkadot ecosystem is a dynamic ecosystem, and user actions affect other users and reinforce a behavioral cycle. If the participants are motivated enough to take their data out of stock and put it in collective loans, less dot will be locked in the stock. When equity data decreases, the annual dividend increases to compensate for this deficit. This will increase the demand for .ot and increase the price of this digital currency.
But this means that the payment of rewards for participation in collective loans will also increase and create more demand for .ot, and this cycle will continue in the same way. Thus, as the market continually balances the incentives to participate in collective lending and shareholding rewards, there is a great deal of competition for .ot among participants.
Blockchain for all Blockchainks
Polkadot focuses the interests of .Du owners on its architecture and aims to develop a protocol that helps create Web3. Web3 is where, instead of companies, users are in control of everything.
Connecting an interactive multi-chain network while maintaining an egalitarian governance model that draws its strength from the dot makes the decentralized scalability ecosystem that it needs to achieve its slogan of “blockchain blockchain.”