Polkadot reveals 'initial parachain offerings' to counter traditional IPOs

Referred to as an initial parachain offering, or IPO, this framework comes from Web3 Foundation's flagship project, Polkadot.

Peter Mauric, head of public affairs at Parity Technologies - a blockchain company building the foundations for Web 3.0 - told Cointelegraph that an IPO allows emerging projects to obtain a parachain slot on the Polkadot network.

"Polkadot is a protocol of protocols where the Relay Chain provides layer-zero security and interoperability, and all the parachains attached operate as sovereign layer-one blockchains. We have seen many thousands of exciting projects launch implementations as smart contracts on protocols like Ethereum, and any of those and more will find life as a Polkadot parachain a much more efficient, powerful and optimized developer and user experience."

In order for a parachain to be added to Polkadot, it must secure an available parachain slot.

Polkadot's goal is to have 100 parachain slots available on its network.

Polkadot's native token, Dot, is also required to bond a parachain to take advantage of the network's scalability, security, interoperability and governance functionality.

Parachain teams will need to acquire parachain slots through a permissionless auction process.

While teams could buy Dot on the open market, Mauric mentioned that most parachain projects will undergo an IPO to participate in these auctions, allowing teams to accept Dot loans from any Dot holder.

If the project is able to secure enough contributions to win the auction, then the Dot loans will be returned to the contributors at the end of the parachain lease period.

Terry Rossi, head of investments at Blockchange Ventures - a venture capital firm investing in early-stage blockchain companies - told Cointelegraph that initial parachain offerings are also a better funding model compared to previous frameworks because IPO funds are held in a dedicated account on-chain: "Funds are required to be used for a parachain bond, so the model brings more transparency and accountability to the projects than was possible in prior models, such as ICOs.".