Economic Reform Proposal for Polkadot: “XCV”
I bring an economic reform proposal for Polkadot. This reform will be called “XCV.”
For Polkadot to function as an efficient system and sustain itself over the next thousands of years, we need to treat the DOT token as a store of value, not as a currency.
Throughout history, all inflationary currencies have failed. Yet, we continue to make the same mistake by adding inflation to DOT.
Many believe that inflation is necessary because Polkadot uses a proof-of-stake system and stakers need to be rewarded.
But why should staking rewards come from inflation?
We’ve internalized this flawed idea because all systems implement it that way. Instead, we need to find ways to fund security without printing new tokens—the same goes for the Polkadot treasury.
To address this, I present the XCV economic model.
Core Auction Misalignment
Before explaining XCV, I want to highlight a core issue:
The current core slot auction model is fundamentally misaligned.
Everyone wants core slots to be expensive because it drives up token utility.
But when core prices rise, economic accessibility for new projects falls—we fall into the same trap as in 2021, creating a high barrier to entry for projects wanting to build on Polkadot.
Instead, core slot prices should remain stable, and DOT should derive its value from other sources.
To further protect the core system from core-slot hoarding attacks, the XCV model proposes that only blockchains—not individual users—can rent core slots.
This ensures that only serious projects that have invested in development and in connecting a real blockchain to Polkadot can access these resources.
It also prevents speculation and ensures that core slots are used for actual Web3 infrastructure and not as passive financial instruments.
Transaction Fees: The Sustainable Revenue Source
This model is based on the only truly sustainable and fair value source in blockchain: transaction fees.
Bitcoin already follows this logic: once mining ends, transaction fees will sustain miners. Satoshi anticipated this issue—so why not adopt his solution?
Polkadot validates and secures transactions across connected blockchains, but it doesn’t collect the fees from those transactions. This is a major flaw.
Take Mythical Games as an example. From February to June, they generated $5.5 million in transaction burn fees.
So, should we keep auctioning off expensive core slots and increasing barriers?
Or would it be smarter to keep core slots stable and accessible, while letting Polkadot earn its share from transaction fees?
If Polkadot had collected those $5.5 million, it would have made $1.1 million per month—far more valuable than a single core slot.
With the launch of AssetHub, the opportunity becomes even greater:
All activity on AssetHub—transfers, smart contract creation, asset issuance, and other transactions—should also contribute to sustaining the network.
These fees must not remain isolated within the parachain but instead flow back to Polkadot’s core protocol to fund security, staking rewards, and long-term sustainability.
AssetHub is part of the ecosystem infrastructure, and its economic activity should reinforce the health of the entire system.
Staking Rewards from Transaction Fees
I’d love for a developer to comment on how transaction fees (like those from Mythical) could be converted into DOT and distributed as staking rewards.
To those who argue that the fees “belong” to the app (e.g., Mythical), let’s remember:
Polkadot’s value lies in offering a decentralized transaction system and security infrastructure.
Apps should earn revenue from their own business models (e.g., in-game purchases, tokens, etc.),
but transaction fees and network commissions belong to the protocol, as they are enabled by Polkadot itself.
Dynamic Inflation Cap and Vault Mechanism
The XCV model doesn’t end there.
It also introduces a flexible inflation system, triggered only when necessary.
If transaction fees do not cover staking rewards (capped at 3%), inflation is temporarily enabled, limited to a maximum of 3%.
When transaction fee revenue exceeds that 3% threshold, inflation is deactivated.
Additionally, when transaction fees exceed the 3% reward baseline, the surplus is stored in a Vault to cover future shortfalls.
This ensures that if the system is useful and active, it becomes self-sustaining via transaction volume and value—not inflation.
Limited Supply and Inflation Reduction Path
As a final point of the model, Polkadot must have a limited maximum supply.
As the circulating supply approaches that limit, inflation must gradually decrease—from 3% toward a maximum of 1%, always striving to cover staking rewards through project revenues and the surplus reserves stored in the Vault.
While a 1% inflation rate may seem like a low incentive for validators, the size and value of the ecosystem will be so large that this small percentage will still represent millions of dollars in total staking rewards and locked value.
This incentivizes long-term security, ensures predictable monetary policy, and increases trust in DOT as a true store of value.
Conclusion
Polkadot’s annual revenue can easily surpass its current 3% inflation, even while saving surplus tokens in the Vault.
The XCV model proposes reduced short-term reliance on inflation, in exchange for long-term security and economic sustainability.
It’s a step toward ensuring that Polkadot survives and thrives well into the future.
I don’t believe this is the final or perfect model—it will likely need adjustments as the network evolves.
But it is undoubtedly a major improvement over the current system and a step in the right direction.
Translate this text for me. It was originally translated by ChatGPT since it’s not my native language, but the entire idea is my own intellectual work.