Kusama (KSM) Demand Rises for Crowd Loans

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Kusama (KSM) is turning into the basis for a new crypto economic activity – buying the right to a network slot. Until recently, all networks relied on free competition for new projects. But Kusama aims to build a curated selection of projects, to avoid the chaotic competition. The auctions are expected to launch within a few days, with a tentative June 15 date based on Kusama network final voting.

This is the chief reason KSM is once again above $500 – the launch of crowd loans increases demand for KSM. The coins will be locked for various durations, further driving the scarcity.

The news drove the KSM price to $503, before a slide to $493.63. Trading volumes remain above $800M in 24 hours. KSM is also near its peak price in Satoshi terms, rising to 0.013 BTC.

Crowd Auctions and Loans Add New Kusama Use Case

The launch of crowd loans means owning KSM is a ticket to choosing one of a new array of projects. All those projects will compete to buy into a side chain slot on the Kusama network, offering the chance to perform fast parallel operations and support new DeFi projects.

The projects aim to finance the purchase of a parachain slot through crowdsourcing, in effect requiring a loan of KSM to cover the required fees. Each project will then compete with others in the form of an auction, making the projects with the biggest mass backing from their communities much more competitive.

The crowd loans were announced earlier in 2021, and served to boost the KSM price on several occasions. But the final launch arrived in June, as projects quickly started locking in liquidity. 

Almost 2 percent of all kusama $ksm circulatory supply is locked in $kar crowd loan….

— kzm (@jinkaazaama) June 9, 2021

The Kusama network will work as a testnet for the upcoming Polkadot protocol. The expectation is to have Polkadot onboard side chains in a similar manner, also organizing auctions. 

Kusama expects to add 30 winning sidechains to its network in the course of a year. Auctions will see many more projects compete. Non-winning auctions will automatically return the KSM, while a winning project will reward its backers with new tokens. 

In some ways, crowd auctions are similar to ICOs, with the added benefit of returning the initial locked liquidity. 

Polkadot Benefits from Auction News

Polkadot (DOT) also recovered overnight, getting back to $23.53. The asset is still depressed from the recent sell-off. For now, Polkadot has not announced a deadline for onboarding projects, and it is unknown how DOT tokens will be used in the future. 

The final list of projects to run on Kusama and possibly connect to the Polkadot ecosystem is constantly growing. Each project will run a so-called parachain, while aiming to accomplish its goals on issuing tokens and creating economic relationships. 

Where to Get KSM and DOT

Both KSM and DOT are highly distributed among the centralized exchanges, and are especially popular in Asia. Trading on Binance is the chief source of liquidity, but the assets are also accessible for traders on Kraken. The market is thus open for EU-based traders, though with a lower liquidity compared to Binance International.

The Kraken exchange is also one of the hubs for parachain auctions, opening a fully verified on-ramp for the new projects. The auctions are open to verified accounts from all markets with the exception of the US, Canada, Japan and Australia. The exact status of parachain projects is unknown, and there is no estimate if their native tokens will be considered a form of security. 

The first batch of projects to be supported by Kraken include Karura, Shiden, Moonriver and Crust Shadow. The projects offer DeFi and side chain functionalities, incentivizing supporters with rewards based on future activity. Potential buyers are also warned of scammers asking for auction support, so the best approach is to use approved channels for investing.

Are Crowd Auctions Risky

Participating in a crowd auction for a parachain project means locking in KSM or DOT, depending on the project’s requirements. The risk is to be unable to trade the tokens for a predetermined period, potentially missing out on price gains. To send KSM into an auction, the coins must also be removed from staking, thus foregoing a simpler source of passive income.

If a project wins a parachain auction, it may promise varying rewards, with their own price risk as the token starts trading. But even losing projects can hold onto the deposited KSM for a new round of auctions. If a project wins a parachain slot auction, the KSM may be locked for a period of up to 48 weeks before the owner has the right to receive the asset back.

Parachain slots are scarce, with about 30 expected in the next year and a total of 100 over time. However, the Kusama platform may allow voting to change the number of slots. There is also a general vetting process, but choosing a candidate for a parachain slot is a matter of personal research.

It is also uncertain how the KSM and DOT prices will move despite the auctions. For KSM, just about 1M tokens is locked before the new projects open for auctions. The asset has a generally low supply of about 8.5M tokens in circulation.

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