What is a Parachain? How does Parachain work? (2022)

In this article, we will get to know more about it with the keyword: Parachain. Let’s discover why Parachains are able to exponentially scale Polkadot.

What is a Parachain?

A Parachain is an application-specific blockchain that is integrated with the Polkadot (DOT) and Kusama (KSM) networks. It is customizable and configurable for numerous applications and connects to the Relay Chain, the core of Polkadot and Kusama.

Unlike other Layer 1 blockchain platforms like Bitcoin and Ethereum, Polkadot is being built to be a Layer 0 blockchain where Layer 1 blockchains can run and communicate with each other. At the time of writing, up to 100 Parachains can be attached to the Relay Chain and the number is subject to change via voting governance. 

The Relay Chain ensures the overall security and transaction settlement of the network. In simple terms, it is responsible for executing transactions. Therefore, Parachains connecting with the Relay Chain can create a strong secure bond to validate transactions. 

The relationship between Polkadot and Kusama networks is similar to that of Bitcoin and Litecoin. They are separate chains with a similar code base. Parachains will be tested on Kusama before being implemented on Polkadot.

Each Parachain often has its sister blockchain on Kusama. For example, Acala Network (ACA) has a sister network, Karura Network (KAR). Despite running on two different Layer 0 blockchains, they have dApps of similar niches such as Lending/Borrowing, AMM, Stablecoin, etc.

Parachain Auction / Polkadot Slot Auction

The process of becoming a Parachain on Polkadot and Kusama is called Polkadot Slot Auction (or simply Parachain Auction). Each Parachain has to go through the auction process to get a slot connected to the Relay Chain. 

By doing slot auctions, Polkadot and Kusama create a competitive environment for blockchain developer teams. Only blockchains with major support can win a connecting slot on the L0 blockchains. In other words, slot winners are able to mint crypto assets and let dApps freely built on top of those blockchains. 

Parachain slots are sold in the form of the candle auction which was used to auction ships in the 16th century. To determine the slot winners, the auction team uses:

• The bid amount in DOT or KSM committed.
• The duration of the bid over time.

A Parachain candidate can win the slot auction by having a higher result of the two numbers.

As mentioned, the Relay Chain can support up to 100 Parachains and the Parachain number can be changed via on-chain voting. As a result, in the future, we might see the world of blockchains on Polkadot and possibly Kusama Network as well.

Parachains on Polkadot and Kusama

Kusama Network is like the sandbox of Polkadot, where developers can execute their ideas before launching the mainnet on Polkadot. There are around 172 Parachain projects, including launched, soon-to-launch, and under-development projects on Polkadot or Kusama Network. The number exceeds the current limit (100) of Parachains that can run on the Relay Chain. 

However, the total number of Parachains that won the Parachain slot is around 57 projects. With the speed of slot auctions, it is estimated that the number of Parachains running the mainnet will be 100 in early 2023.

Notable Parachains

Acala

Acala (ACA) is an EVM-compatible Parachain where dApps written in Solidity can migrate and run without major code changes. At the moment, it has basic components that make up the DeFi ecosystem, including an AMM DEX, the stablecoin aUSD, GameFi, etc. 

In November 2021, Acala won the Parachain Auction because there was over $1.3B of committed DOT to support the project. The total committed DOT at the time was worth around $3.5B. Acala’s major competitor was Moonbeam with $1.36B in DOT, but Acala was leading the auction over time (approx 63%). Therefore, Acala won the slot to be a Parachain.

Features of Acala:

• Transaction fees are paid with ACA.
• Voting governance for ACA holders.
• Staking ACA in Acala’s validators to earn more ACA tokens.
• ACA is used to mint the aUSD stablecoin.
• Crowdloans: Users can stake DOT to receive token rewards from the development team in the future.

Moonbeam

Moonbeam (GLMR), an EVM-compatible blockchain platform, won the second Parachain Auction in November 2021 because there were over 200,000 supporters with 35M of committed DOT. The second Parachain Auction had around 95M DOT committed and Moonbeam supporters’ proportion was around 35M (approx. 36%).

Other than officially becoming a Parachain for 96 weeks, Moonbeam partnered with Arrington Capital to launch a $100M ecosystem fund. After the launch, Moonbeam had around 100 DeFi projects in various categories, imminent to go live on the mainnet. Furthermore, Moonbeam has a sister Parachain, Moonriver, which went live on Kusama Network.

Astar

Astar Network (ASTR), formerly Plasm Network, is a blockchain hub on Polkadot that supports dApps building with EVM of Ethereum and WASM of Cosmos.

Without a doubt, this creates a competitive moat for Astar because developers on Ethereum and Cosmos are able to migrate to the ecosystem without any major changes. The adapting time would be much faster for those developers who are looking for Ethereum or Cosmos alternatives.

Like other Parachains, Astar Network on Polkadot has a sister network called Shiden Network on Kusama.

Notable features of Astar Network (ASTR):

• Multi Virtual Machine: EVM (Ethereum) and WASM (Cosmos)
• ATH TVL: $600M
• Total bridged assets from Ethereum: $250M+
• dApps Staking: Investors can earn more by making smart contracts.
• Supporting Layer 2 rollups
• On-chain governance using ASTR tokens.

Other Parachains

At the time of writing, there are over 172 Parachain projects, and around one out of three were launched on the mainnet of Polkadot and Kusama as Parachains.

You can explore the list here: https://parachains.info

FAQs about Parachain

Is a Parachain EVM-compatible?

Parachains are blockchain platforms connecting with the Relay Chain. Building the EVM features or even the WASM feature can give those blockchains a competitive edge over others since developers can embark on the Parachain ecosystem more easily. Some EVM-compatible Parachains are Acala, Moonbeam, and Astar.

What are Parachains used for?

Parachains are responsible for executing transactions, increasing the total throughput of the Layer 0 blockchains such as Polkadot or Kusama.

At the same time, the Relay Chain, the heart of Polkadot and Kusama Network, creates a solid foundation for the blockchain’s security. The combination of Parachains and the Relay Chain empowers Polkadot with security, scalability, and decentralization.

Conclusion

Parachains is the executive arm of Polkadot and Kusama Network. They bring scalability and a high level of decentralization to those two Layer 0 blockchains. In addition, Parachains are where developers can start building dApps. The Parachain selection depends on the support of the community (total committed tokens and duration). This empowers Polkadot and Kusama with Parachains backed by strong communities.