Polkadot and its canary network Kusama are scheduled to launch parachain auctions in September which is just days away and those activities might yield some upside for DOT.

Polkadot and Kusama’s parachains are highly sought after because they act as layer-1 blockchains that operate parallel to the main network. They offer layer-1 functionalities and benefits, making them attractive to blockchain projects looking to successfully launch their decentralized offerings. Previous parachain auctions demonstrated strong demand and as such, the upcoming auctions which will take place on Kusama might have the same impact on the price of DOT.

Rather than going the route of an IDO, projects bid for parachains by staking their DOT and KSM tokens. If a project has a strong community, its community members can lend their tokens to help it bid and potentially win a slot. The tokens contributed to secure a slot are subject to a lock-up period which means they are taken out of supply. The higher the number of tokens contributed to a project at the time of the snapshot, the higher that project’s chances of success.

The mechanics of the parachain auction affect the supply and demand for DOT. More demand while reducing supply pushes up the price of the underlying asset. This is why previous parachain auctions resulted in a price uptick and if history repeats itself, then the upcoming auctions will likely have a similar effect.

DOT price analysis

DOT is currently trading at $25.92 after a 4.67% gain in the last 24 hours at the time of this press, although its price is down by 10.19% in the last 7 days. The weekly decline was a result of the marketwide correction that came after the strong bullish move that prevailed since July 21. The market currently shows signs of continued bullishness which will potentially take place in the days leading up to the parachain auctions unless another FUD-inducing event or black swan event takes place between now and then.

Source: Binance

The slight correction in DOT in the last few days has already pushed the price down enough for it to be oversold according to the RSI. However, it managed to remain above the 25-day and 99-day moving averages, supporting a bullish outlook especially with the timing of the parachain auction.

How to benefit from the parachain auctions

There are multiple ways of benefiting from Polkadot’s upcoming parachain auctions, such as buying low before a rally and selling high. However, participating in crowdloans is potentially more lucrative because winning projects airdrop tokens to those who funded them through crowd loans. Once those projects go live, their tokens can deliver potentially high returns, thus providing an incentive for people to participate in crowdloans.

Karura, a project which was one of the winning projects in a previous parachain auction received more than 500,000 KSM which was crowdfunded by the community. Note that investors receive their locked tokens as soon as the lock-up period is over. Polkadot has five parachain auctions available for its next auction, which means the demand for DOT will go up significantly and a substantial amount will be locked up. The potential impact on DOT’s price should not be ignored.