Polimec (Polkadot Liquidity Mechanism): A Fundraising Mechanism for the Polkadot Ecosystem
Polkadot is on its way to become the basis for a new crypto economy as it solves many of the problems older major blockchains like Bitcoin and Ethereum struggle with. However, Polkadot’s success depends on a strong, healthy and lively ecosystem to gain significance. To help foster building out the Polkadot Ecosystem, on the one hand, projects within the Polkaverse will need significant funding due to long runways. On the other hand, DOT holders who already invested into the project need a mechanism to re-invest their now transferable assets into promising projects.
What if we could enable DOT holders to re-invest their DOT tokens into the Polkadot ecosystem to fund projects (prospective parachains, application builders, etc.) and earn return on their investments in a sustainable and secure way?
We propose the Polkadot Liquidity Mechanism (Polimec), which is an open-source blockchain system designed to help getting liquidity into Polkadot based projects that are not yet ready to sell transferable currencies on their own technology. It is a concept like the ERC20 Smart Contract mechanism but for issuing pre-Currencies on Polkadot or Kusama as it enables Polkaverse projects to issue transferable pre-coins before go-live of their main net.
How do Polimec and KILT hang together?
Polimec utilizes the KILT Protocol issuance, proof and verification of KYC/AML Credentials. Issuers of currencies on Polimec have to make sure their first receivers are properly KYCed. They can attest this to their business partners and store the validity of the credential on the KILT Blockchain. Polimec can determine this validity via Polkadot messaging mechanisms, before an initial fund transfer is initiated. This provides a high level of security and compliance to issuers.
In addition to that, KILT will be one of the first parachains projects to issue its currency on Polimec, so that the KILT Coin will be available for transfer before the start of the KILT Main Net.
And of course: KILT and Polimec are developed by the KILT Team.
How does Polimec work?
Polimec is a dedicated blockchain, running as a Parathread to Polkadot, which can hold balances of multiple currencies directly on its runtime. It has no other functions than
- creating a new currency and its supply inside the Issuer’s Polimec balance (Issue a currency)
- transferring tokens of the currency to other balances on Polimec (Transfer)
- migrating all balances to a main net when it is ready (Migrate)
Why use Polimec instead of ERC20?
Looking at the ERC20 mechanism, it has been very successful in the past years, though it has shown several problems. With Polimec we seek to repair the main issues and establish a new, Polkadot compatible, mechanism for blockchain projects.
The most urgent problem with ERC20 based tokens is the gas price: for every transfer of an ERC20 token you need a Smart Contract, which results in a gas-fee, which can easily amount to more than $20. This makes trading of the coins in small amounts almost impossible.
Polimec does not use Smart Contracts. It holds the balances of all Polimec issued currencies directly on the Polimec blockchain. Polimec does not have a native currency, so maintainers are only rewarded in Gas fees, paid in the currency transferred. This allows very stable and relatively low gas prices and creates the advantage that no second currency is needed for transfers.
Comparing Polimec to ERC20, Polimec establishes a community of coin-issuers, therefore only people accepted by this community can issue a new currency on Polimec. And, only these issuers of Polimec currencies can become Polimec maintainers. This way they have the strongest possible incentive to maintain the network and to keep their own token alive. The issuers can also decide, if new issuers are accepted to the community, which creates a natural barrier against fraudulent or useless projects.
What benefit can Polimec bring to the Polkadot Ecosystem?
Besides issuing, transferring and migrating: will Polimec have additional features?
Polimec also supports issuers through valuable features for initial coin offerings:
- By monitoring the Polkadot Relay Chain, Polimec can associate DOT Transfers on the Polkadot network with Currency sales on Polimec and thus automatically distribute new currency to buyers.
- Currency issuers on Polimec can certify successful KYC/AML to their initial buyers on the KILT Blockchain. Polimec checks the validity of these credentials during initial distribution on the KILT Blockchain, using Polkadot Parachain communication mechanisms.
- An off-chain application will be provided, which allows the design of highly complex coin offering and distribution schemes.
For more in detail information please read our Polimec Paper.
Polimec is currently developed by BOTLabs GmbH, the creator of KILT Protocol. KILT Protocol received a grant from the Web3 Foundation for the Polimec project.