Polkadot Tokenomics - Time to Get Serious

The recent Treasury Report has made it’s way into mainstream twitter - and it’s great that we are all aware and transparent, able to adapt and become more efficient / conservative where needed with spending.

However,

One of the more overshadowed parts of this publication - an addition to the report - is the section written by @alice_und_bob titled ‘On Inflation’.

Here is the Polkadot Forum post for anyone interested in reading the full write-up.
Polkadot Treasury Report - ‘On Inflation’

For the sake of keeping it short - I would like to paraphrase the following points -
1 Billion in USD is distributed to stakers per year
High Staking Rewards put pressure on Native Defi protocols to compete
Sell pressure from stake-to-sell users can significantly outpace any selling pressure that the Treasury creates

The Treasury Report highlighted that 87M was spent over the past 6 months In Total on Polkadot initiatives. Double that and we are at 174M - a mere 17.4% of redistributed DOT from Staking.

Even if only 25% of the 1B were sold on the open market, the Treasury spending (over the year) wouldn’t amount to the same.

There is a very strong case to be made that the spending for Polkadot is actually working - offsetting this immense sell pressure from Staking Rewards and I don’t think many people are attributing any success to maintaining a Top 20 position

But how long will this position last?

Here is another reference from @lolmcshizz who puts the rewards at around 2M USD in DOT per day.

Now - there are many reasons to ensure network security is of utmost priority - but does it have to come at the cost of completely destroying the token value itself?

The truth is we are on an inflationary path that is harming the reputation of the network value - especially if we cannot sustain the selling pressure - which, as from what we can see above, comes from a much larger hand than the Treasury.

There have been some great discussions put forward, for example the Unbonding Reduction time by @jonas - which is a great starting to point to add a competitive element in regards to other protocols.

There has also been discussion of supply cap by @gavofyork as well - and if we know Gavin like we know Gavin - he’s not here to make us do anything - he is leaving it up to us to discuss, implement, stress and test this network - the way it should be done.

Finally, we have the last topic of inflation.

This is not about a ‘number go up’ only scenario - this is about taking the power back and presenting a competitive token, that is desired to own by the entirety of the digital asset market space.

A Stronger DOT will have so many positive effects.

  • Collateral - using DOT is not ideal at the moment as it simply does not hold it’s value over time. It’s only a short - medium term solution for wanting to do anything at a major level.

  • Treasury - the treasury is valued in DOT, not USD. If we want a stronger treasury, and the ability to purchase stablecoins / create a subtreasury / fund new projects. We need to have a competitive token in order to facilitate these trades. At this point we simply have too little mindshare to get new entities interested in purchasing DOT other than staking - have not seen any major entities participate in governance so that is irrelevant for now.

Predictability. There is a large argument to be made that until the token structure is decided upon, it’s far too speculative to take major positions on, even if there are great things happening on Polkadot - a major discussion point for decreased inflation and supply cap.

Finally, we are starting to see more interest in adding functionality to Polkadot itself. Many protocols have developed their own token, and that’s great for them - but if DOT is to flourish in all areas (and beyond) from mentioned above - we have to make it attractive, dynamic, worth the hold, obvious for usage and extremely competitive to take back mindshare in this market.

We should, at the very least, have existing projects on Polkadot want to use DOT / offer DOT based incentives.

It’s time to change Polkadot’s DOT token from a disposable item to one that is desired to hold, exchange, lend, borrow against, use and grow.

This will attract an immense amount of industry builders - simply just by knowing they are working to obtain a strong DOT.

Please forgive me if any of these figures are wrong, or if any of this opinion frustrates / gets anyone angry. I’ve been in this space for a long time and i’ve never seen a project with so much potential like Polkadot struggle so much due to a simple (and not so simple) change - i’ve always been under the impression that one day we will take the training wheels off and let it free.

Thanks for your time.
J.

2 Likes