The League Of Parachains: Polkadot

September 17, 2021 Ninos Mansor

Polkadot has a novel answer to the multi-chain problem analogous to coexistence between nation states within the international community. Each nation pursues its own destiny and vision for the future, yet these disparate cultures come together to form alliances, engage in trade and live in a world of diplomacy rather than warfare.

This is the idea behind the Relay Chain, Polkadot’s “Layer Zero” (L0). Developers build customblockchains that meet the needs of particular applications and users (“the Parachains”), but these chainscooperate under one banner of shared security. They each focus on building the core competencies oftheir Layer One (L1), but collectively share the security of the L0.

Polkadot’s goal is to thus become the blockchain of blockchains, separating state from application andallowing each L1 focus on its own chain’s customizability. The L1s outsource security to the mothership:each nation receives the benefits of a standing army without needing to raise, maintain and deploy astanding army. The Parachains can thus redeploy resources otherwise spent on L1 security into theirchain’s core competency. This shared security unlocks (1) Parachain customizability without sacrificingsecurity and (2) built-in interoperability between different Parachains.

Polkadot requires unique economics. The Parachains depend on Relay Chain security, but security is notfree. It is scarce. Parachains slots are therefore scarce, with an entire economic architecture built aroundhow developers acquire, maintain and outsource aspects of security to the L0 – again analogized to theway a nation would join and maintain status within a global order.

To price and allocate the scarce resource of network security, Polkadot turns to the free market: to thecandle auction. These enable permissionless, competitive and fair allocation of resources, financed by thenetwork’s future users through a process known as CrowdLoans. Projects that can’t secure a Parachainslot can still access Relay Chain security by renting it out from winning Parachain slot holders througha pay-per-use model.

In this report, we unpack the technical and philosophical foundations of Polkadot. The first section will focus on how Polkadot answers the blockchain trilemma, converging on the customizability of the Parachains. The second section will unpack the financing of Parachains through CrowdLoans, candle auctions and Parathreads. In the third and final section, we explore prominent Parachain pioneers and describe how they are leveraging Polkadot’s architecture to build their own custom blockchains.