In-depth Analysis on Crowdloan Investment Strategy

bsfmalaysia (63)in NutBox • 3 years ago

Crowdloan is the resource allocation mechanism of Kusama/Polkadot parachain slots. This economic mechanism allows users to gain voting rights by staking main chain assets (tokens), and then earn tokens from parachain projects through voting. This mechanism is not only novel for blockchain projects but also for the blockchain communities. Whether the main chain assets at hand should be staked for voting, and who to vote for, these are considerations that all token holders have to make.

To analyze this problem, we have to analyze it from the following perspectives:

To profit through Crowdloan voting, we must consider costs and incomes, as our profit is equal to incomes minus costs.

1、Costs

When we profit from voting through Crowdloan, at least two costs are actually incurred:

a、Opportunity Costs

KSM/DOT itself is an interest-bearing asset. Under the inflation mechanism of Kusama or Polkadot, users can gain part of the newly minted tokens as long as they are staking KSSM/DOT to the nodes. According to data from stakingreward.com, the current node staking reward rate of KSM is 14.21%, and the KSM staking reward rate is 47.95%. However, we need to know that the inflation rate of Kusama and Polkadot will fluctuate, especially before and after the parachain slot auction, which will bring about large fluctuations in opportunity cost:

This graph shows the inflation rate and staking reward rate when there is no parachain. The blue line is the inflation rate, and the green line is the staking reward rate.

This graph shows the situation after the parachain is connected:

With the current staking reward rate, the future opportunity cost will exceed 20%.

b、 Liquidity Costs

All project voting involves staking tokens. Staking tokens means giving up short-term liquidity. The current parachain slot projects generally require 48 weeks of KSM staking, and nearly one year of illiquidity will bring great uncertainty to the assets. Regarding the fluctuations of cryptocurrency values, ordinary financial derivatives cannot cover such a long cycle. As for the demand for liquidity, Acala, Bifrost and Stafi all have solutions of decentralized staked-asset liquidity token (can be understood as acceptance bills or commercial bills). Through the ratio of the market value of the acceptance bill to the face value, we can determine the liquidity cost. However, it should be pointed out that the prerequisite of the three decentralized solutions above is to become a parachain. Without parachain, it will be difficult to decentralize.

In any case, the liquidity cost is also an issue that parachain slot participants need to consider. In the estimation, the liquidity cost cannot be lower than the yield of US Treasury bonds over the same period of time in any case.

2、Income

Income is considered in two situations:

a、Tokens already in Circulation

As the tokens already have a market valuation, it is easier to calculate the return on investment if the tokens are already in circulation. The only consideration is the token circulation scheme. As the number of tokens released from the parachain slot auction may be large, it will affect the price of the cryptocurrency. In addition, the release may be postponed by token staking. During this period, whether there will be private offerings or project teams lifting the ban are all factors that need to be considered.

b、Tokens not yet in Circulation

If the tokens are not yet in circulation, the whole process is more like an IPO. We need to have a deeper understanding of the project and the tokenomics.

Project：

Blockchain projects generally focus on the following three aspects:

Project Track: Where is the ceiling of the business? Who are the competitors? What is the core competitiveness of the project?
Development Status: What is the scale of core members and developers? How is the development progress? What is the speed of development?
Operation Status: How many users and fans are there, whether the users have a strong sense of belonging, and the willingness to serve the community? What is the content output of the community? Is the amount high? What is the growth of the community? Is it cohesive?

Tokenomics

If the token is not issued. The most important thing is to understand the economic mechanism of the tokens. The current tokenomic mechanisms are highly diverse, and the corresponding tokens exhibit the attributes of currencies, stocks, bonds, and even structured financial products. If you don’t understand the economic support behind the token and choose the wrong token evaluation method, then, the calculation of the return on investment will be erroneous.

c、Project Bidding Strategy

Once you have understood the potential of the project and the tokenomics, then you can evaluate the tokens. But in essence, Crowdloan aims to harvest project tokens. How to harvest and how much to harvest is related to the project's bidding strategy. The airdrop mechanisms of some projects are very complicated, and they are related to the number of participants and the time of participation. Only when you understand the project bidding strategy can you know how many tokens you will get.

Token Valuation * Tokens Harvested = Project Income.

The following is the token distribution schemes of some star projects. How many tokens out there is irrelevant, and what is relevant is the percentage of the tokens that the project can offer as incentives.

Karura:

（Karura Official Page）

Phala:

（Phala Official Page）

Bifrost:

（Bitfrost Official Page）

Crust shadow:

（Crust Official Page）

Conclusion:

We need to find the project with the highest expected return. If it is greater than 0, it is suitable to go for Crowdloan; if it is less than 0, it is better for us to remain a happy ordinary staker.