Deploy idle Treasury Capital into DOT, vDOT liquidity; buy BTC, ETH; mint HOLLAR

Governance
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In the Polkadot Growth Strategy under Program 5 Economy, I gathered some suggestions of how to deploy idle capital from the Treausury. I want to start into this discussion here.

The 2024 Polkadot Treasury Report shows ~23m DOT-equivalent cash. Today, 15.6m DOT sit in the Treasury main account and 4.3m USD in the AssetHub Treasury account. In total, there are ~20m DOT sitting idle today. Last year, the Treasury spent ~20m DOT. Treasury income through inflation is now fixed at 18m DOT. Taking these facts together shows that the Treasury could deploy a significant portion to provide liquidity into the economy and diversify exchange rate risk. These funds could later be pulled again into cash when they are needed.

This thread gathers some of these ideas. I will make an assumption that of the 20m DOT reserves about 10m DOT can be deployed. Please be advised that none of these are spends. Things like liquidity incentives should be discussed in other threads.

Liquidity Provision

This chapter covers idea to increase liquidity in the ecosystem, which can lead to more economic activity and higher capital efficiency, making the Polkadot DeFi ecosystem more attractive. Since the ecosystem TVL of Polkadot is on the order of magnitude of ~100m USD, and other ecosystems like Solana and Ethereum have ~60 to 600 of that size, there is a lot to catch up on.

vDOT

vDOT is seeing increased usage in the ecosystem. It is a liquid staked product that gives users exposure to DOT staking yield while avoiding the complexities of staking themselves.

With bridges now open, vDOT is expanding to other ecosystems. vDOT was recently approved in OpenGov as one of the tokens to be incentivized in the DeFi singularity program. Hydration added vDOT to its money markets, where it is used in popular strategies like vDOT:DOT looping.

Currently, the Treasury has deployed 500k DOT intot vDOT via Ref 432.

Polkadot could provision 1m additional DOT into vDOT and vDOT-based liquidity (vDOT:DOT pool) on Bifrost and other DeFi platforms in Polkadot.

HOLLAR

Hydration is planning to launch a Polkadot-native stablecoin called HOLLAR. Launching a stablecoin is very dependent on its liquidity and the Polkadot Treasury could have a positive impact here.

The Treasur could deploy 1m DOT to mint HOLLAR at conservative LTV ratios. The HOLLAR could then be deployed as liquidity.

gigaDOT

Hydration will soon launch a product called gigaDOT, which is a token that combines aDOT (DOT provided into the money market) and vDOT to facilitate the yield-bearing properties of both and increase to overall liquidity in the market. This would be another worthwhile option to explore.

DOT liquidity provision into Omnipool and moneymarket

Other options of course include providing DOT into the omnipool to increase overall spot market liquidity or into the money market to bring down borrow rates.

clean-ups

A few past Treasury deployments might need a cleanup or improvement

  • Bifrost repayment: Maybe it is more practical for the Treasur to trustlessly mint its own vDOT instead of loaning it to Bifrost? This is dependent on how streamlined the process already is, but might be worth a consideration to transition to a more trustless approach.
  • Centrifuge loan: Centrifuge loaned 1.5m USD in stables, but from what I understand they haven’t been deployed yet. Recently a WFC asked for clarifications before continuing the process. The funds sit with the PCF, but transferring them back to the Treasury might become neccessary if the discussion doesn’t develop in a positive direction.
  • Currently stablecoin acquisition campaign 2 swaps DOT for stables. One idea is to convert the DOT into aDOT, so that the DOT can stay liquid in the money market while it is being swapped for stables. This would increase liquidity and give a small yield to the Treasury.

Diversification

BTC

It has been suggested that the Treasury acquires Bitcoin. Two specific tokens that have been discussed are tBTC and LBTC

The Treasury could allocate 1m DOT to acquire Bitcoin.

ETH and strategic Ethereum tokens

There are numerous integrations against Ethereum in the works in Polkadot and Polkadot could show its affinity and partial alignment with Ethereum by acquiring ETH and tokens that could create strategic alliances with Polkadot projects (e.g. established and stable DeFi projects on Ethereum)

The Treasury could acquire 500k DOT in ETH and potentially other tokens if there is consensus.

Stables

The current stablecoin acquisition campaigns are coming to their end soon. New campaigns should be initiated, since the Treasury is spending stables at comparable pace.

Suggestions:

  • 2.5m DOT in USDT
  • 2.5m DOT in USDC

Totals

10m DOT:

  • 1m vDOT
  • 1m HOLLAR
  • 1m Hydration liquidity and/or gigaDOT
  • 1m wETH and strategic Ethereum tokens
  • 1m tBTC, lBTC
  • 2.5m USDT
  • 2.5m USDC

Discussion

This is a conversation starter. It is ideas, intended to have a more holistic discussion about how the Treasury can deploy idle capital. Please share your thoughts.

Stellaswap has also reached out to me and wants to be included in the conversation. I have not yet heard specific ideas though.

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5 Likes
2

I don’t think iBTC should be used as that project is essentially dead, even Hydration has been pivoting away from it.

All of these positions should be put into the Omnipool or lending market instead of simply sitting there, as IL is so incredibly small in the Omnipool and is offset by H2O. The liquidity/TVL boost definitely offsets any loss.

I might even go so far as to say that all of the USDT/C should be used to mint HOLLAR.

4 Likes
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Holding some BTC could provide hedging benefits and serve as a long-term reserve for stability.

However, ETH is a direct competitor to Polkadot. Holding ETH in the treasury would send a confusing signal. It could imply that Polkadot sees Ethereum as a better store of value than DOT itself.

2 Likes
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I agree + at the moment polkadot has more asymmetry than ethereum, maybe in the near future it will be ok to add ethereum with DCA

A point

We need DCA In all these purchases of treasury assets

  • BTC (BTC has to be bough ASAP)
  • MYTH (MYTH was at US$0.11)
  • ETH (I wouldn’t swap DOT for ETH now)
5

Hi @alice_und_bob
Thank you for posting this important post.
Just some little clarification:

  1. Centrifuge has NEVER been the recipient of 3.0M->1.5M USDC.
    This is literally written in Ref #1122.
    image
  2. PCF received 1.5M USDC on September 28th, 2024. Since that date, nothing has been deployed in Anemoy Pool (T-Bills on Centrifuge).
  3. As far as I know, the KYB process was completed.

What has changed so far?

Meanwhile, 1.5M USDC is still staked in PCF wallet; the Anemoy pool has been assigned an AA+f / S1+ fund credit quality rating from [S&P Global Ratings].The second highest rating that S&P awards. In addition, with an “Aa” rating from Moody’s and an “A+” rating from Particula.

P.S. Maker (SKY) announced yesterday that Centrifuge is one of the winners of 1B$, and Centrifuge’s JTRSY, a T-bill fund in partnership with asset managers Anemoy and Janus Henderson, is set to receive $200 million.

Is there any other way how Polkadot Community can invest and hold BTC token?
I guess that rejecting the idea of investing in BTC is not what the Polkadot Community wanted ( Check wish for change )

What are your thoughts about Solana?

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I agree, competitor or not, ETH doesnt belong in the DOT treasury. BTC is fine. Monero would be aswell. I prefer to stay in our own ecosystem if we want to accumulate anything but Bitcoin.

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Reporting in with early feedback from TG and Twitter:

Clarification

  • the intended timeframe for this program is one year. It would not be single buys, but rather dollar cost averaging. With DCA schedules timed accordingly over a year.
  • The Treasury would keep ownership of the assets
  • The Treasury should imo provide the assets as liquidity into the domestic on-chain economy.

Feedback/Suggestions

  • some community members worry about the sell pressure.
    • Stables: Personally, I think the Treasury can hold the stables it needs to satisfy demand from proposers; but agents should also definitely not pressure proposers to request stables and force sell pressure that might not be called for.
    • Crypto: For crypto, I think the whole dynamic is different. If DOT were to go down compared to the other asset, the Treasury could sell the other asset to add increased buy pressure to DOT. If DOT were to go up against the other asset, it would be an exchange rate loss for the Treasury, but DOT holders would still be in a better situation afterwards.
  • some community members have expressed that they don’t want the Treasury to invest in ETH as a perceived competitor.
  • some community members have suggested that the Treasury buys Polkadot ecosystem tokens
    • while I too would like to see that, I think it is a dangerous slope to go down, since it would lead to huge infighting about which tokens to buy. I think this would do more harm than good.
  • a few people have mentioned that they wouldn’t want to buy Interlay iBTC. That was not suggested above. The text above suggests LBTC Lombard Bitcoin, but I previously wrote it as “lBTC”, which could be misread. I clarified by capitalizing the L.
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This is a great discussion on putting idle Treasury capital to work, and I fully support the idea of diversifying assets to strengthen Polkadot’s position. Increasing liquidity through vDOT, stablecoins, and strategic acquisitions like BTC and ETH makes sense. It aligns with making Polkadot more robust while also integrating with the broader crypto ecosystem.

I also recognize that Ethereum is a competitor in some ways, but if we truly embrace chain agnosticism, we should encourage seamless asset flow between ecosystems. Holding some ETH in the Treasury isn’t just about diversification—it’s a symbolic nod to Gavin Wood’s role as both Ethereum’s co-founder and Polkadot’s founder. A small ETH allocation would not only honor Polkadot’s origins but could also encourage Ethereum to reciprocate by holding DOT. This mutual recognition could foster collaboration rather than rivalry, reinforcing the idea that both ecosystems can benefit from interoperability.

Would love to hear thoughts on how this might influence Ethereum’s perception of Polkadot and whether it could lead to more strategic alignments.

1 Like
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Let the treasury hold a diversified portfolio of assets, this is an excellent discussion, and I fully support @alice_und_bob. As for some people mentioning that ETH is a competitor of Polkadot, and therefore should not hold ETH, I believe this is a bit biased. I think the assets of the treasury are somewhat akin to a “national strategic reserve” in the form of digital currency. In addition to BTC, a small amount of ETH is certainly acceptable.

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Hey everyone, Sap from Threshold here. It’s exciting to see the Polkadot community considering tBTC as a treasury asset. There’s a lot of potential for collaboration between our ecosystems, and we’d love to explore ways we can help support both this initiative and broader BTC use cases on Polkadot. If there’s anything we can do, just let us know.

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StellaSwap here. Yes, we want to be included in the conversation as it’s ironic that we’re discussing an ecosystem-wide growth strategy of DeFi and there’s no mention of StellaSwap, which has been a key protocol across various objective metrics since the start. We’re the 1st DEX in the ecosystem to surpass $2B in cumulative trade volume and am one of the top contributors of TVL + user activity in the ecosystem, and we’ve managed to synergize with key players outside of Polkadot for greater DeFi visibility (OKX, Beefy, TheGraph, Axelar/Squid etc.).

Recommendations on Possible Allocation on StellaSwap

  • Liquidity Provision: Stables USDC-USDT pool for spot market liq on SS, deepening stable liquidity. LP would be held under Treasury. Greater stable liquidity would be extremely helpful in powering our Cross-chain swaps, which is currently the easiest way to transfer funds from DeFi to Polkadot; 1-click, sub 1-min transfers and low-slippage. With greater market depth, slippage could be further reduced to nothing, which would enhance capital inflows to DOT ecosystem. (On our stable pool, IL isn’t a concern due to it being correlated. Also, fees would more than easily be a comfortable buffer.

  • stDOT: Our DOT-LSD, stDOT, could also be used for greater exposure to the DOT ecosystem. $5.7M of DOT has been staked to our stDOT, with a spot liquidity of over $2M in our stDOT-DOT pool. It’s also listed in several major aggregators like OKX DeFi and Beefy.

We’re open to any other strategies that can further ecosystem growth of Polkadot.

PS. @alice_und_bob there should be a more transparent and objective process of qualification for projects across the board; for instance for a DeFi project to be included in a major ecosystem-wide growth plan, metrics should include A, B, C, D. That way, the public can be 100% confident that the process is impartial and there’s a level-playing field.