The recent report released by the Polkadot Treasury for the first half of 2024 has sparked worries within the cryptocurrency community. The report indicates that the Treasury’s assets, spread across multiple chains, have become increasingly complex and challenging to manage effectively. This raises questions about the sustainability of Polkadot’s financial resources in the long term.
Decentralized finance (DeFi) researcher DeFi Ignas has analyzed the report, highlighting the Treasury’s limited runway of approximately two years at the current burn rate of $87 million every six months. Polkadot’s expenditure during the first half of 2024 paints a worrying picture. An extensive outreach program accounted for $37 million, aiming to attract new users, developers, and businesses. Additional expenses included $10 million on ads/sponsorships, $4.4 million on influencers, and $4 million on digital ads. Despite these hefty expenditures, Polkadot’s visibility on social media platforms remains notably low, raising concerns about the return on investment for such initiatives.
The Treasury spent a total of $86 million in the past six months, managing $245 million (38 million DOT) in assets, with $188 million (29 million DOT) in liquid form. The burn rate indicates that the Treasury may face bankruptcy in less than two years if expenditure trends continue. Polkadot’s token supply experiences a 10% annual growth, primarily fueling staking rewards. With a $10 billion market cap, stakers receive $1 billion per year, significantly impacting network security costs. However, a proposal to reduce inflation was rejected by 57% of stakeholders, further complicating the Treasury’s financial challenges.
The report reveals that direct fee revenue remains marginal for Polkadot. In 2023-H2, Polkadot generated 300,000 DOT through fees during a short-lived inscription campaign. Under regular conditions, fee revenue stabilizes at around 20,000 DOT per quarter. On the expense side, the report highlights a 2.4x increase in DOT spending compared to 2023-H2, driven by ambitious proposals and larger ask sizes. Although the average DOT price rose, concerns about the Treasury’s spending habits are growing within the ecosystem.
To address these challenges, Polkadot is transitioning towards a more structured approach. Executive bodies, such as bounties and collectives, are emerging to take on departmental roles within the ecosystem. These bodies are responsible for security, data research, core functionality development, network operation, marketing, and business development activities. The key question now is how to establish effective structures quickly to guide Polkadot towards success.
The solution, according to the blockchain’s treasury, is to delegate more responsibility to these executive bodies. Comprised of competent individuals who evaluate new proposals and deliver value, these bodies aim to streamline decision-making processes. Collectives, similar to subDAOs, have OpenGov capabilities and sub-treasuries to facilitate their work. By leveraging these executive bodies, Polkadot can outsource operational issues and mundane tasks, allowing stakeholders to focus on critical decision-making processes.
Polkadot is facing a significant challenge with its funding model and expenditure patterns. The impending funding crisis highlighted in the recent report underscores the importance of reevaluating financial strategies and allocating resources more effectively. By embracing a more structured approach and empowering executive bodies to make informed decisions, Polkadot can navigate these challenges and steer towards a more sustainable financial future. As the cryptocurrency market continues to evolve, adaptation and strategic planning will be crucial for Polkadot’s long-term success.
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