The Kusama KSM price has been rising exponentially, prompting many people to ask what is Kusama, and why the KSM price is going up.
This price hike is probably due to the upcoming Kusama parachain auctions, where investors can loan their KSM tokens to projects who want to ‘win’ a space to build on one of Kusama’s limited parachains, which, to use a bicycle analogy, are like separate spokes that are all connected to the Kusama wheel.
These projects need to gather as many KSM tokens as possible if they want to be sure of winning the upcoming auctions, which end at a randomly selected moment, meaning that participants have to make large bids early on in order to win.
This may have resulted in the KSM token been bought up in huge amounts, resulting in a scarcity of tokens on exchanges and an increasing KSM price.
But how is Kusama different from Polkadot, and how can you take part in Kusama crowdloans? Read on for an overview of this nascent crypto project.
What is Kusama - The difference between Polkadot and Kusama
Kusama and Polkadot have more similarities than differences, but there is a reason why Kusama is often referred to as ‘Polkadot’s Canary network’ or ‘Polkadot’s Wild Cousin’.
The blockchain architecture of the projects is almost-identical, but Kusama is designed to be a more experimental version of Polkadot, where developers can create any kind of projects that they dream up, and leave their community of users and followers to decide the direction of the project.
This means that Kusama can soak up the risk of early experimentation, and that projects which prove themselves to be robust can then make the step up to Polkadot, where super high levels of security are required.
Many projects that wish to launch on Polkadot will launch a similar iteration on Kusama beforehand.
For example, Polkadot’s planned MoonBeam smart contract platform, which will enable Ethereum compatibility on the network, will first launch on Kusama as MoonRiver.
Community decisions can be taken and acted on more quickly on Kusama, compared to the slower and more rigorous Polkadot, and this might lead the Kusama-based projects to move into very different territory than their Polkadot counterparts.
It’s also cheaper to ‘rent’ building space on Kusama than it is on Polkadot, so after the initial core projects are launched on the parachains, some lesser-known, startup-style projects (without the requisite capital to build on Polkadot) might be attracted to Kusama.
In this way, Kusama will become a separate blockchain in it’s own right.
How do Kusama parachains work?
Parachains are literally ‘parallel chains’ that run alongside the main Kusama relay chain.
Again, imagine a plastic comb (the kusama relay chain) that has a long row of thinner, plastic teeth (kusama parachains).
These multiple chains frequently communicate with each other, which prevents the main relay chain from becoming congested by having to handle every single transaction that comes through the network.
This architecture will help Polkadot and Kusama to scale into the future, and explains why so many developers are seeking to build on the networks.
To secure a slot on one of Kusama’s limited number of parachains, projects will have to lock up a competitive number of KSM tokens for up to 2 years, with these being returned after the designated period is up.
In the beginning, only a few projects will be chosen to build on the parachains, so they will have to bid the highest amount of KSM in auctions that will happen just before the network goes live.
Teams that are competing for a slot won’t be able to see how much other teams are bidding, and the auction will end at a random, undetermined moment.
Smaller projects that can’t afford to inhabit an entire parachain can also rent a Kusama parathread, which is basically a parachain that has been shared and broken down into smaller chains, or ‘threads’, in order to share the cost.
This is like renting a room within an apartment, instead of paying to rent the entire apartment itself.
How can I take part in Kusama crowdloans?
One way that teams can be sure of winning the candle auctions (named after historical auctions where the bidding continues only until a candle goes out) is by convincing a large pool of KSM holders to loan their tokens for the fixed lock-up period.
By participating in the crowdloan, KSM holders will be losing both their staking rewards and the opportunity to sell / trade KSM at optimal moments. Therefore, projects that wish to attract a lot of funding will have to compensate investors generously.
This compensation will likely come in the form of the projects’ respective tokens, so in this way the dynamic is similar to that of the ICO boom in 2017, where investors sent ETH to new, Ethereum-based projects in exchange for being the first to receive their tokens at launch.
The difference with Polkadot and Kusama crowdloans is that investors get their KSM / DOT back after the lock up period is finished, and there are two advantages to this.
The first is that the new projects never have access to the funds, they only win the opportunity to build on Kusama / Polkadot. This discourages lazy or scammy projects from cashing in on investors without offering any value in return.
The second advantage is that those who lend KSM and DOT get to speculate on new projects without actually having to spend any of their precious crypto.
We can’t tell you whether taking part in Kusama crowdloans is a good idea, but if you are interested, the best course of action would be to browse some of the projects that are planning on taking part in parachain auctions, and follow them on Twitter / Telegram, or sign up to their newsletter for updates.
An up-to-date list of such projects can be found on parachain.live.
Which projects will bid for a Kusama parachain?
Only a handful of projects will win a space on Kusama after the first parachain auction, but those that do build on the network first will likely establish themselves as key infrastructure players for years to come.
One potential candidate is Acala, a DeFi hub where the team are developing their own stablecoin and lending service, similar to Maker DAO on the Ethereum blockchain.
Acala will allow DOT holders to release a new token format called L-DOT from their existing DOT tokens, meaning that users can effectively speculate with their assets
without unstaking them, which also protects the stability of the Polkadot network.
The decentralised financial hub of Acala is called Karura, and this is what will inhabit the Kusama network.
Built with almost the same code as Acala, Karura (which takes its name from a Japanese Phoenix) plans to be the DeFi hub of the Kusama network, and, in true phoenix style, has the ability to constantly adapt and reinvent itself as more applications are built and linked to it by community developers.
One of the benefits of building on Kusama is interoperability, meaning that your protocol and token can be utilized by any other blockchain that connects to the Polkadot network. This is definitely a boon for Crust Network, a decentralized cloud storage network similar to the more famous Filecoin.
Cloud storage will be a vital part of Web 3.0, and being a key part of the upcoming blockchain multiverse (lots of blockchains all linked seamlessly together) is vital for projects that wish to take advantage of this.
Crust will not only allow developers to host huge amounts of data and file repositories on the network, but also to build DApps and websites without the need for a server.
The Crust team have been building since 2019, and have already launched their testnet, so they will likely be ready to compete for a parachain from the off.
Other projects vying for a spot include Shiden Network (another smart contract platform), Robonomics (bringing artificial intelligence and Internet of Things use cases to the network) and KILT, a digital identity and online accreditation solution.
Is Kusama KSM a good investment?
The Kusama blockchain should be launching any time now, but it is still not battle tested, and like most blockchain projects, is a potentially volatile investment.
Like Polkadot, Kusama aims to be a completely decentralized project, so once the parachains are launched, the future of both networks will depend entirely on the on-chain governance of their respective communities.
Judging by the success of the decentralized Ethereum blockchain, which is a hotbed of rampant innovation, the future of Kusama could be very bright, but only time will tell.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.