CMCGlossary: Crowdloan✨ The practice of new projects to raise funds through DOT or KSM tokens for slots on Kusama or Polkadot network. 👉 Details:
Crowdloans are a part of Polkadot's substrate framework and allow the development ofBefore any parachain slot auction takes place, there is a specific timeline dedicated to the crowdloan. This is where teams can borrow $DOT from members of the community for auctions. As a user, you do not give your $DOT to the team, instead, you give them to theAfter gathering funds, the project submits a bid that uses the $DOT received from the crowdloan.
For ICOs, the concept of crowdloan is a game-changer. Investors must be rewarded for bonding tokens on behalf of the teams. The project's native coin has proven to be the most popular reward so far. As a result, investors can lock their $DOT in a 2-year parachain lease on behalf of Acala and earn $ACA tokens.
Projects usually have no motivation to seek a crowdloan unless they are certain that they can harness it to generate an economic return because the tokens used for crowdloaning parachain auctions are never in their possession. Unlike the traditional way of exchanging tokens for new project tokens, the crowdloan technique protects investors’ money while providing them an opportunity to earn additional tokens on a potential project.
No matter what happens to the project, investors can always recover the $DOTs after the parachain lease expires. As a result, investors may join in any crowdloan with confidence, knowing that their primary tokens are safe and not dependent on the success of the project.
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