DOT gains as Polkadot parachains auction reduce token supply

Polkadot (DOT/USD) has been making major gains over the past few weeks due to the highly anticipated parachains auction launch. The first stage of the parachain auction is happening this week, with several contenders already set to participate.

The high market anticipation regarding this launch has increased buying pressure for the DOT token, which reached an all-time of $54 last week.

Polkadot parachains auction

Eleven sets of parachain auctions are set to run weekly from November 11, 2021, to March 10, 2022. There is a high chance that the price of DOT will continue increasing with the demand for these parachain auction slots.

A parachain is a single blockchain existing on the Polkadot network. Through parachain auctions, DOT developers can register their projects on the parachain and receive crown loans to help fund their projects. However, for these projects to run on the individual blockchain, they need to be approved by the Polkadot Council.

The increased buying pressure for DOT tokens is not just coming from traders but also from users who want to contribute to crowdloans. This process is expected to remove the circulating supply of DOT tokens over the next two years.

The Polkadot parachain auction will be done in a similar manner to the previous auctions done on its canary network, Kusama. On Kusama, several projects have already secured parachain slots for 2022, including Karura and Moonriver (MOVR).

Kusama parachains auction was a success

The Kusama parachains auction started featuring mid this year. The parachains auction commenced at a time when the broader market was experiencing a dip. However, the process enabled Kusama to make major gains. The KSM token moved from lows of $148 to its current high of around $450.

The same gains are expected with Polkadot because KSM made an uptrend as more coins were removed from the circulating supply.

Data from CoinGecko shows that DOT is trading at around $50 at the time of writing. Over the past month, the altcoin has rallied by around 47%, largely caused by anticipation for the parachains auction. A high of $54 was created on November 4.