Polkadot, a prominent blockchain platform known for its interoperability capabilities, is facing concerns about the sustainability of its treasury. A recent report revealed that the Treasury holds roughly $245 million, enough to maintain current spending for only two years.
“The complexity of the Polkadot treasury is growing,” acknowledged Tommi Enenkel, Polkadot’s head ambassador, in a report for the first half of 2024. He explained that funds are allocated not only for direct spending but also for future commitments through bounties and collectives.
The report highlights the volatility inherent in cryptocurrency treasuries, making long-term financial planning challenging. This has sparked discussions within the Polkadot community, with some advocating for stricter budgeting or adjustments to the system’s inflation rate.
The treasury’s current holdings consist primarily of $188 million in liquid assets, including Polkadot’s native token (DOT), Tether (USDT), and USD Coin (USDC). Interestingly, the first half of 2024 witnessed a significant surge in spending, with $87 million disbursed. Over 40% of this expenditure, or $36.7 million, went towards advertising, influencer marketing, conferences, and events.
However, Enenkel emphasized that this spending coincided with a period of relative strength for DOT. The token reached a 2024 peak of $11.46 in mid-March, its highest point since May 2022. While the price has since fallen to $6.33, it has shown an 11% weekly gain.
A Cause for Concern
The report underlines growing anxieties within the Polkadot ecosystem regarding treasury management. The treasury’s balance has been steadily declining since mid-2023. This decrease is attributed to a 58.5% drop in revenue, falling from 414,291 DOT to 171,696 DOT, a consequence of declining network fees.
Furthermore, the treasury’s inflation-based income has also dipped. The first half of 2024 saw an inflow of over 5.2 million DOT compared to the previous half-year’s 7.8 million DOT.
Enenkel proposes the creation of “departments represented as bounties and collectives” for a more efficient allocation of treasury funds. He suggests granting these entities greater responsibility, acknowledging their growing influence within the Polkadot ecosystem. Additionally, he advocates for lowering DOT’s current inflation rate of 10%, which he considers “not ideal.” This, he argues, would mitigate selling pressure and bolster the treasury’s purchasing power by maintaining a stable DOT/USD exchange rate.
Polkadot’s financial situation presents a challenge that requires careful consideration and potentially decisive action from the community. The coming months will likely witness debates and proposals aimed at securing the project’s long-term financial health.