Proof of stake is what will kill Polkadot

Ecosystem
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In this article, the reality of why DOT — despite having such good technology — is dying as a token is not being addressed. It seems there’s a taboo around talking about the price of DOT, but this is important, because this is the currency used to pay developers, for example when they complete the JAM upgrade. Therefore, if this token falls to insignificant prices, those developers will leave, and the ecosystem will also end up dying technologically.

What’s killing the ecosystem is the proof of stake system. This system, which relies on validators that must collect DOT from their nominators to be reliable, forces those nominators to constantly receive staking rewards. For example, a validator with around one million DOT distributes about 300 DOT daily in staking rewards to its nominators.

The problem is that exchanges holding users’ Polkadot funds stake those tokens and, upon receiving the rewards, immediately sell them — thus creating constant downward pressure on the price. The same happens with individual users who stake and sell their DOT. I don’t blame the exchanges or the individuals for selling, even if it drags down the price of DOT — they’re simply taking advantage of a flawed system in how transaction validation rewards are distributed.

To add more examples, it’s no coincidence that proof-of-work coins like BTC, ZEC, and XMR have performed much better than other coins. Another living proof is what we see today: while the migration is happening and cross-chain DOT transfers are paused, the price remains stable and doesn’t fall — while everything else drops by 3–4%.

And for those who argue that this happens because the network is “paused” — that’s not true, because you can still trade Polkadot inside exchanges; the only thing truly affected today is that staking withdrawals aren’t possible — and, coincidentally, the price isn’t falling.

We need change. I call on Gavin Wood to read this article — he’s the mind who can offer an alternative. We need a way for the network not to depend on stakers, only on validators — even if validators are paid in DOT and the token remains inflationary, the cost per validator would be reduced by around 90%.

This text is translated because English is not my first language

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I don’t think Proof of Stake itself is the main issue.
Rewards still seem too high, which creates sell pressure — as you mentioned — and has discouraged DOT’s use in DeFi.

It would also help if the Web3 Foundation provided more transparency around its DOT spending and employee bonus payments in DOT, since large DOT distributions could add sell pressure. Even if this isn’t the main factor, greater visibility would help build trust and give the community a clearer picture.

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May be time for people start understanding that staking and inflation have nothing to do with the price action.
Inflation if anything is alright, considering they are betting on tech to win long term.

The issue for short term gains is 1. lack of serious BD. 2. terrible dev support for tier 1 teams (serious BD would push for that anyways).

But that’s an outsiders view, might be wrong.

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@GENGE Gonzalo, I respect your opinion, but saying that inflation has nothing to do with price action is nonsense. Haven’t you seen that 100% of fiat currencies lose value because of inflation? What we’re trying to achieve with DOT is to make that inflation less noticeable through continuous capital inflows into the ecosystem — meaning, more money coming in than the amount of DOT being minted.

The real issue, however, is that as the ecosystem grows, the selling pressure from staking rewards continues to affect the market in the same way it does today. If the DOT price goes up, the dollar value of those staking rewards also increases, so the percentage-based selling pressure remains roughly the same. On top of that, you have a network that becomes more expensive to maintain as it grows. This is inefficient, because the moment the ecosystem stops expanding and simply stabilizes, the price of DOT will begin to fall.

We need a way to reduce security costs in Polkadot. For me, there are only two options: drastically reduce staking rewards to reach an inflation level close to 0% — for example, 0.2% or 0.3% — and burn all network profits, such as those coming from core sales or transaction fees, to try to achieve a zero-inflation network. The other option would be to propose an entirely different security model.”

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I understand all this, and I was being a bit reductionist in my explanation:

Sure, inflation does affect price. But the how much it afects has little to do with the price we see today.

  1. With a lower inflation the price would still be at around 6$
  2. This is also leaving aside any positive from inflation: incentives for operators, extra money to treasury which leads to extra development.

I agree price aftects price, but this is not the main issue of the price Dot has now. The issue is demand, not issuance. Inflation has already gone down, and price has since went down even more harshly. And, as said, there’s also positives to inflation, which we are just brushing off as not existent.. how much development would there be today if we had a lower inflation all this time ? how much interest in products like vDot and GDot? (the only working products in dot).

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So around three times higher than it is right now?

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Completely agree with you — without a useful ecosystem with real applications, the network itself becomes unnecessary. And to build that ecosystem, you need developers who can create the infrastructure. Those developers need to be paid, and if DOT were at $6 as you mentioned, the chances of the ecosystem succeeding would be much higher.

Let’s remember that 10 million DOT will be distributed to JAM developers — right now that’s around $25 million, but if DOT were priced at $6, that pool would be worth $60 million. On top of that, both institutional and retail investors would be more likely to hold DOT, since it wouldn’t lose value over time, which would in turn push the price even higher than $6.

What I mean is that this shows how price does matter — both for investors, whose confidence drives the price up, and for developers, who are paid in DOT. The whole system only works if your token holds real value; otherwise, investors will leave first, and later, when developers can’t be paid anymore, they’ll leave too.

I just want to help the ecosystem so it doesn’t die, and to contribute with my point of view. Thanks for debating this with me, Gonzalo.

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There’s not really much remaining in the ecosystem either. Slowly dying off. If the ETFs don’t get approved (I’m not holding out for those), chances are Polkadot will go under a dollar before the JAM update even gets released?

The “easy to use” wallet app that should’ve been out by now, is still not out. I know development takes time, but there needs to be a serious outlook for the future besides limiting the supply/inflation? No point in any of that if there’s no end product being produced from all the treasury funding?

I’m definitely interested in the tech talk, but there needs to be a serious focus on bringing in new talent, and if that’s not happening, not much good a critical update is going to bring, if no one is interested in building on the network?

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I’m the first one to criticize DOT constructively about its tokenomics and inflation, but it’s clear you have no idea what you’re talking about here. Saying that the ecosystem doesn’t have much more to offer when smart contracts for AssetHub are just 1–2 months away simply shows a lack of technical understanding. Smart contracts are exactly what made Ethereum so successful, allowing the creation of decentralized applications without too much complexity thanks to Solidity.

Polkadot was initially designed to support blockchains built on top of it, but honestly, I never really understood why Gavin didn’t implement smart contracts from the start — though it doesn’t matter anymore because it’s finally happening.

On the other hand, there’s now a complete restructuring of how Polkadot supports blockchains and how core leasing works. Now it actually makes sense, unlike before when it was limited to 100 parachains, restricting network growth, and the crowdloans that locked DOT while projects often failed to meet their goals.

Just because the price isn’t going up doesn’t mean the technology is bad — that’s why I made this thread, to focus on improving the economic aspect alongside great technology.

If you think DOT is dead or technologically useless, it’s obvious you’ve never paid $100 for a single transaction on Ethereum.

I’ll agree with you that delays on DOT are frustrating, but from what I’ve heard, Parity is making several changes to the application — plus, I imagine they needed AssetHub to launch first.

As for attracting talent, I don’t think that’s the issue. I just think Polkadot is sometimes too complex, which makes people lose interest. But according to what Gavin Wood has said recently, he’s finally understood Steve Jobs’ vision — that products need to be built for the user — and that’s exactly his mission right now.

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It’s literally eating shit right now, with Hydration being celebrated as the primary liquidity conductor on the network. I’ve been here for a long time and with the focus primarily being on being decentralization (which is awesome) and having an extremely high TPS record (which no other blockchain currently has even REMOTELY CLOSE TO?!?) is also deadly, but if there’s not much life being breathed in, it’s just going to keep plummeting. There has to be some form of marketing going on?

I’ve looked into the ETFs and the impact of those alone is abysmally low, even if approved. There’s literally no interest in the network. It’s dead on Reddit, it’s dead on X, it’s practically dead on here, and practically dead on OpenGov/SubSquare. Most of the parachains have been abandoned, have had terrible liquidity, terrible rewards, and even the biggest celebrated parachains are basically dead in the water (OriginTrail is currently the only one actually succeeding). What is there to be hopeful for? More tiny improvements that no one gives a shit about? More Treasury funding that leads to dead ends like Ink!? Completely abysmal coretime sales?

Now Proof of Personhood is finally getting pushed ahead as a proposal, months later after it was being announced, which will probably kill the remaining interest in the DAO? Absolutely terrible staking rewards in recent history. I don’t really know what there is to be hopeful for here? Pushing to crucify validators with a limited income? Man… the technology is interesting but who cares if no one uses it and the developers don’t deliver?

I’m a avid cryptography believer, especially in Satoshi’s vision of decentralized currencies, but without any value and continued losses for investors, including myself, there’s not much good to look forward to. People are more likely to hate cryptocurrencies for several more years with how hard it is being forced through legislation in the United States. I’m done putting money into a lost cause.

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Polkadot wasn’t designed to attract users, but rather blockchains. However, this will change once smart contracts are launched, since that’s when new DeFi projects will appear, competing with Hydration and bringing users.

All it really needs are smart contracts with 100% Solidity compatibility. Being a fast and secure network, $150 million have already entered Asset Hub over the last month — and the smart contracts haven’t even been released yet.

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Не согласен, так как в текущих реалиях это приводит к огромным рискам и нарушению децентрализации Диверсификация риска экосистемы и децентрализация её валидаторов!