Crowdloan Definition
A Crowdloan is a unique concept in the world of blockchain and decentralized finance (DeFi) where individuals or entities lend their cryptocurrency assets to a project in the hopes of gaining returns or rewards. The lending process is undertaken with the explicit understanding that the borrowed assets would be returned to the lenders after a specified period.
Crowdloan Key Points
- A Crowdloan embodies the true spirit of decentralization by mobilizing resources for projects in a peer-to-peer manner.
- It is a risk-assuming process that expects lenders to trust that the project team would deliver on promised returns or rewards.
- Crowdloans may come with certain rights, including project governance rights, depending on the terms of the loan.
- The funds are released to the project only upon successful completion of the loan campaign.
- Repayment terms, rates and durations for crowdloans vary from project to project.
Who Uses Crowdloan?
The Crowdloan concept is predominantly used by project developers in the blockchain and DeFi ecosystem. These projects might be new or in an expansion stage and therefore, need to raise assets to fund their initiatives. At the same time, individuals or entities looking for an investment opportunity with potentially high returns may consider lending their crypto assets via a Crowdloan.
What is the Purpose of a Crowdloan?
The main purpose of a Crowdloan is to help projects, especially blockchain and DeFi ones, raise the necessary resources they need to execute their initiatives. On the other side of the coin, it presents lenders with an opportunity to invest their assets in potentially high-reward scenarios.
When Can a Crowdloan Be Used?
A Crowdloan can be used whenever there is a need for fundraising. It can be during the initial stages of a new project, during an expansion phase, or even during a pivot. Basically, Crowdloan can be initiated any time the project needs funds to advance its agendas.
Where Can One Find a Crowdloan?
Crowdloan opportunities can be found on a variety of platforms that support Smart Contracts, as these are usually used to facilitate the entire process. Examples include but are not limited to, Ethereum, Polkadot, Kusama, and others.
Why Should One Consider Using a Crowdloan?
From the project’s perspective, a Crowdloan can be an efficient way to raise funds without giving away any equity. From the lender’s perspective, a Crowdloan can be a potentially rewarding investment opportunity.
How Does a Crowdloan Work?
In a Crowdloan, the potential lenders first express their intention to loan their assets and then lock them up in the smart contract. The project can only access these assets when the fundraising target is met (or when certain predetermined conditions are satisfied). The Crowdloan’s terms also indicate when and how the assets would be returned to the original lenders.
