If Polkadot is a network state, is the DOT economy experiencing stagflation?

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This comment from @Krayt78 sparked a thought:

An economy flourishes when capital flows freely. Where people invest in businesses, spend money and invest with confidence. It boils down to the fact that one man’s expense is another one’s income.

Similarly, an economy collapses when capital dries up, people hoard money, banks tighten lending, investments stall and jobs disappear.

If we think of Polkadot as a network state, the latter feels like the current state of our economy.

I’m trying to figure out potential solutions to this by drawing parallels to the real world.

If we think of the DOT Treasury as a kind of stimulus… what should its role be? It can’t just be a funding pot. It has to spur economic activity.

One immediate idea that came to mind:

  • Protocol-level lending markets with baseline DOT interest rates?

Also, when internal demand is weak, exporting becomes critical.

In other words: find external buyers for what the network uniquely produces.

What does Polkadot uniquely produce that the outside world might want? Can we package, price, and sell it?

I understand that we want to be selling cores, but I struggle to see how that would spur the DOT economy itself — for it brings revenue to system-level providers (i.e. the Relay Chain, coretime sellers), but by itself, it doesn’t create a full economic loop for DOT.

So, what would actually spur the DOT economy?

Simply put, I think we need more DOT denominated markets and products that create fundamental demand for DOT.

  1. Apps built on coretime should create DOT-based demand
  • In-app fees paid in DOT
  • DOT used for staking, collateral, access, or governance

  1. Lending, prediction markets, bounties, DAOs — where risk and reward are in DOT

  2. If a Polkadot product serves external users or ecosystems, price it in DOT

One open question:

How do we incentivize builders to create value for DOT, instead of launching their own tokens?

Right now, most local tokens don’t hold long-term value anyway and the ones that do fragment liquidity, dilute attention, and stall network-wide economic growth.

What would it look like to design around DOT as the center of economic gravity?

Curious to hear what others think.

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My understanding is that DOT is the dollar of this virtual country. It is a good idea to use dot for pricing and payment, but it does not mean that the development team does not need tokens. Tokens can be regarded as stocks, financing methods and assets. There is no conflict between creating value for DOT and issuing tokens. On the contrary, there are big problems. If tokens are not issued, the economic model maybe cannot be established. Not every team is willing to become an employee of OpenGov.

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but it does not mean that the development team does not need tokens

I’m not suggesting that we shouldn’t be paying development teams or shouldn’t be offering tokens to them. Nor am i saying that there’s any conflict between creating value for DOT and issuing tokens.

I’m presenting some of my thoughts and asking for inputs on what the community thinks could spur the DOT economy given the capital flow within Polkadot is looking stalled.

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Polkadot is not like Ethereum’s EVM platform, which is a unified large market. Parachain is difficult to enter and unattractive for third-party developers. It is difficult to build a large number of applications based on the parachain-centric model, and DOT capital naturally has no liquidity. Of course, this is my personal opinion. My expectation for Polkadot is that the Hub can be launched as soon as possible. Capital incentives are usually short-term. Only when the infrastructure is perfect enough and the entry threshold is low enough, a large number of commercial applications will appear. They do not serve the Polkadot ecosystem. They have their own business purposes and communities. A sufficiently open market can build a huge ecosystem.

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Imagine the currency you use in your daily activities had an inflation rate of 8-10% per year.

Would you like to hold it or sell it for a currency with an inflation rate of 0-2%?

The problem of DOT is DOT. The same goes for KSM.

Unless this parameter hasn’t been changed, everything else will be futile. That’s how a destructive force inflation really is!

Remember what happened during the times of the covid crisis. The governments and central banks injected billions of (insert any currency) into the economy while simultanously raising interest rates of said currencies. The result was crippling inflation. The exact same happens with DOT and KSM.

That’s why a sharp change of course needs to happen here: A proposal which not only limits inflation to 0 - 2% max, but also limits staking interest rates.

This would encourage new capital to enter the space and the currencies would get stronger. It would also lead to a much better performance.

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Consumer-based apps, solving a user need than showcasing what chain it’s built on.

some good ideas I came across recently UX wise.

{E5297E28-F099-40E3-9A04-78A919788133}
{E5297E28-F099-40E3-9A04-78A919788133}476×308 14.8 KB

https://x.com/0xNairolf/status/1924707366546637263

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Hyperliquid ecosystem is also a good case study, which now accounts for 70% of all DeFi perps volume (having done $1.5T total) and $1.4B in TVL. It started off as a smart contract based dApp on Arbitrum now they have their own ecosystem.

https://x.com/BanklessHQ/status/1928454516002963810