Dot Pulse #7 - Kusama Auction Nail Biters & Polkadot Governance
Learn about the latest batch of parachain auctions, how Polkadot governance works, plus some more Polkadot generosity and governance watcher! 📣
Welcome to Dot Pulse, your window into the Polkadot DeFi ecosystem.
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Following last week’s deep dive into consensus, we can move into another core aspect of Polkadot: governance.
Polkadot was designed with a very formalized governance system right from the start, and together with the parachains it is perhaps one of its most defining features. Contrast this with Ethereum, where there is no clear definition of who “rules” the protocol, so every major decision is a fairly informal and sometimes chaotic attempt at reaching unified consensus between all parties involved. In Polkadot, power clearly resides in the DOT/KSM token holders, who vote on most major decisions pertaining to the protocol’s development.
Referendums and Proposals
Polkadot governance relies on two major “chambers” of political actors: direct voting by DOT stakeholders and the Council.
Direct voting is expressed through Referendums (or “referenda” if you want to be fancy), where DOT holders express a simple Yes or No opinion on some specific proposal. These may include runtime upgrades, parameter updates, but also requests to recover lost funds.
There are several ways of creating referendums depending on who you are. The open method, available to anyone, involves creating a Proposal, which can be seconded by other accounts. Creating a proposal requires bonding an arbitrary amount of DOT/KSM, and anyone who seconds it must add the same initial amount. The proposal with the largest bond will be tabled to become a referendum, and the bond will be released.
The Polkadot/Kusama councils can also make proposals that may become referendums. These exist in a separate pool from the public proposals, and feature different voting mechanisms depending on how unanimous the council is on the issue.
Referendums are held every 7 days on Kusama and 28 days on Polkadot. After one referendum ends, the system picks another either from the public queue or from the council-led queue. The two queues are alternated, unless one is empty.
Counting Votes
Polkadot’s governance has a few additional complexities in how it counts votes and quorums.
Referendums are weighted according to a combination of the DOT bond and a conviction factor. If you are willing to keep your DOT/KSM locked for more time, your DOT will count more. The formula advances with doublings of the lock periods, which are 28 days in Polkadot and 8 for Kusama. As an example, 10 DOT locked for 4 weeks are worth 10 votes, while 10 DOT locked for 16 weeks are worth 30 votes. The conviction factor allows passionate advocates for a particular proposal to make their voices heard, so referendums can be quite dynamic!
Referendums are also a bit complex in how they define quorums and pass thresholds. Public proposals operate according to Positive Turnout Bias, which means that proposals with low turnout must have a very high proportion of Yes votes. Council-led proposals, if they were unanimously accepted by the council members, operate according to Negative Turnout Bias. This means that a proposal with low turnout must be very controversial to fail.
Finally, council proposals where the council itself wasn’t unanimous operate with a simple majority.
What is the Council, anyway?
The Polkadot and Kusama councils are on-chain groups of elected representatives. DOT/KSM holders who don’t want to vote on each issue can simply pick a few council members to take most of the decisions for them. The Council is reelected on a near-continuous basis with each term lasting just one day on Kusama and seven on Polkadot.
Besides having special powers over referendums, the Council is tasked with approving treasury spend proposals. The Polkadot treasury is continuously filled with transaction fees and some of the staking returns, and a portion of it gets periodically burned to incentivize quick spending. The treasury is designed to promote ecosystem development, including technical grants for supporting stuff like block explorers, wallets, as well as community events and content creation.
Anyone can submit a Motion to the Council to receive a treasury grant, as long as they provide 5% of the value they’re asking as a bond. The bond will be burned if the proposal fails, so you need to be very serious about making these requests!
There are a few more details involved in Polkadot governance, but now you should have all the basics covered to properly understand our Governance Watcher.
The action on this week’s slot was something else! Altair ended up winning it with 187k KSM locked, which was a major upset as by the time the auction ended they were no longer in the lead.
Why did this happen? This is the Candle Auction mechanism at play, where the winning moment is randomly decided after the actual auction has finished. The system ended up picking the moment right before Heiko had a major boost, giving Altair the slot.
Sadly for us spectators, the final slot of this batch seems to be a done deal. Parallel Heiko is sitting at 200.4k KSM, which is just about 400 KSM more than Kintsugi’s crowdloan cap. Kintsugi had a quite amazing run in the past two weeks, going up from 30k KSM to almost reaching its cap. Alas, Parallel ended up rallying more support and all but confirming this slot.
Active Crowdloans
TL;DR: Parallel Finance on Kusama (leveraged staking, lending) distributes up to 5% of max supply in the crowdloan.
TL;DR: Interlay’s Kusama deployment (trustless BTC bridge) offers 10% of supply to crowdloan participants for its more experimental chain.
Active Farms
Earn KAR by staking into the KSM/kUSD and KAR/KSM pools on Karura DEX
Yields are now get 64% APR (or 90% with loyalty bonus) for KSM/kUSD farming, or 26% (51% with loyalty) for KAR/KSM.
Moonriver’s farms are now holding a few dozen million in TVL, but most projects are Uni V2 forks. As before, the following section is not vetted. Rug risk is high, fundamentals are basically absent. Proceed at your own peril.
Earn SOLAR in a classic Pool1/Pool2 arrangement, high-risk yield holding around 800%.
Earn MOON in another Pool1/Pool2 set of farms. Yields at 700% for the Pool 2s.
A few more assorted UNI V2 token farms in this list.
This week in Polkadot land we’ve witnessed something quite unique for crypto: a team retroactively slashing their token’s valuation.
HydraDX had a Balancer LBP event in February where they distributed 5% of the HDX supply to raise initial liquidity for their platform. The team thought they’d get at most $3-5 million DAI, and instead they ended up raising $22M. This put the implied valuation of HDX tokens at over $800M, which was a problem because the team didn’t have that much of a warchest for development.
As crazy as the crypto investment atmosphere is these days, it seems that nobody wanted to fund a yet-unreleased project at $800M valuation. Accepting further investment meant accepting a lower valuation and stabbing the community in the back.
So HydraDX decided that the only sensible thing to do was to boost the LBP allocation to 15% of the total supply and retroactively increase the share of those early participants. This will have deep consequences for the protocol as now the team and investors have an equal stake to the LBP participants, so the community overall has more control than before.
The proposal hasn’t been activated yet as the team needs to test HydraDX’s governance system. It probably will pass as the team decided to abstain from this vote (so basically only the LBP community in question would be voting).
HydraDX is a multi-chain liquidity protocol aiming to increase capital efficiency for LPs. It’s designed to have an Omnipool that would hold each pair in the protocol and allow further use of the assets locked in the pools. Its canary network Basilisk has recently won a parachain slot on Kusama, and it focuses heavily on supporting new projects with Liquidity Bootstrap Pools.
TL;DR: Potential contributors will receive BNC tokens as a reward for joining the derivative mining of Heiko, Parallel Finance’s Kusama chain.
TL;DR: Bitfrost has launched vsKSM farming to provide vsKSM and vsBond holders with mining revenue.
TL;DR: Blockdaemon will support Acala’s staking derivatives for DOT and KSM.
TL;DR: The Genshiro team celebrates it’s closed beta (invite-only) and outlines what’s next for the team and users.
TL;DR: Moonbeam raised $24.5M with its open Take Flight token distribution event.
(Polkadot) Motion 114, Klever Wallet is requesting funding to expand to Polkadot.
(Polkadot) Motion 113, a relaunched proposal to fund a Polkadot book for blockchain beginners, accounting for previous feedback.
(Kusama) Motion 359, someone published a Council motion without providing any additional information, so the motion got disapproved.
All info in this newsletter is purely educational and should only be used to inform your own research. We're not offering investment advice, endorsement of any project or approach, or promise of any outcome. This is prepared using public information and couldn't possibly account for anyone's specific goals or financial situation. Be careful and keep up the honest work!
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