Definition
In the case of Polkadot, a crowdloan is a way to get financial support for an emerging new project to connect with the Polkadot network as a parachain.
Understanding the term
Crowdloans, unlike the official term, are different from loaning funds. When new projects need support, they announce Polkadot crowdloan campaigns. It does not involve loaning funds to the parachain, but rather locking contributions into a designated account that is sponsored by Polkadot for a particular lock period. The benefit of participating in a Polkadot crowdloan is that during the lock period, you are eligible for a reward from the project.
All of the contributions are received in the form of DOT tokens, and they are utilized as a cover cost for the new project’s parachain lease. A parachain lease is a particular amount needed for securing a parachain slot on the Polkadot network. Crowdloans are similar to fundraising methods like ICOs, IPOs, IDOs, and other public sales. Project handlers themselves are given a chance to contribute DOT to their crowdloan campaigns.
Takeaway
The best thing about proceeding with a Polkadot crowdloan is that projects are allowed to bid above the chosen crowdloan cap amount.