Polkadot – Arrington XRP Capital

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 custom
blockchains that meet the needs of particular applications and users (“the Parachains”), but these chains
cooperate under one banner of shared security. They each focus on building the core competencies of
their 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 and
allowing 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 a
standing army. The Parachains can thus redeploy resources otherwise spent on L1 security into their
chain’s core competency. This shared security unlocks (1) Parachain customizability without sacrificing
security and (2) built-in interoperability between different Parachains.

Polkadot requires unique economics. The Parachains depend on Relay Chain security, but security is not
free. It is scarce. Parachains slots are therefore scarce, with an entire economic architecture built around
how developers acquire, maintain and outsource aspects of security to the L0 – again analogized to the
way 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 the
candle auction. These enable permissionless, competitive and fair allocation of resources, financed by the
network’s future users through a process known as CrowdLoans. Projects that can’t secure a Parachain
slot can still access Relay Chain security by renting it out from winning Parachain slot holders through
a 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.


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