From reduced issuance to minimal structural DOT sell pressure
Draft for discussion — not yet a formal referendum proposal
Summary
Referendum #1710 was an important step for Polkadot: annual issuance was reduced from roughly 120M DOT to approximately 55.8M DOT, with a long-term supply cap of 2.1B DOT.
However, the underlying idea should not stop at reducing inflation.
#1710 explicitly argued that Polkadot should reduce its dependence on inflationary funding, lower unnecessary costs, and increasingly use real protocol revenue to fund staking and network security.
The reforms that followed have partially implemented this vision, but have also introduced new allocation mechanisms. In particular, Treasury burns were suspended, validators were initially protected through a 10% minimum commission, and a significant share of the DAP was later allocated to validator self-stake incentives.
This creates a risk that part of the benefit created by #1710 — less newly issued DOT and therefore less structural sell pressure — is subsequently offset through new allocation mechanisms.
This WFC therefore proposes to take the original idea behind #1710 one step further:
Reduced inflation should not simply be redistributed. It should permanently reduce structural sell pressure on DOT.
1. From lower inflation to lower sell pressure
Reducing issuance was a necessary first step.
But it only answers the question:
How much new DOT is created?
The more important follow-up question is:
How much new DOT does the protocol still need to create and distribute in order to fund validators, stakers and the ecosystem?
As real protocol revenue increasingly becomes available to fund these functions, inflationary funding should continue to decline.
The objective should therefore not be to distribute the remaining issuance as efficiently as possible.
The objective should be to reduce the need for that issuance in the first place.
2. Restore Treasury burns and limit Treasury growth
The suspension of Treasury burns was not a necessary consequence of the issuance reduction introduced by #1710, but a subsequent design decision within the DAP reforms.
A burn is fundamentally different from a Treasury allocation:
Burned DOT can never return to the market.
DOT retained in the Treasury, however, remains potential future supply. It can later be allocated through governance and, depending on its use and recipients, potentially create additional sell pressure.
This WFC therefore proposes to restore Treasury burns while establishing a mechanism that prevents the Treasury from growing without bound.
Proposed mechanism
1. Treasury ceiling: 1.5% of circulating DOT supply
The maximum long-term Treasury size would be defined as a percentage of circulating supply and therefore increase gradually as supply increases.
2. Regular burn: 0.5% of the Treasury balance per burn period
This would continuously remove a modest portion of the Treasury from supply even while the Treasury remains below its ceiling.
3. Excess above the ceiling should be additionally reduced
If the Treasury exceeds 1.5% of circulating supply, the excess should be burned over a defined period unless an explicit governance decision demonstrates a clear and justified need to retain those funds.
This creates a simple principle:
Productive spending first. Necessary reserves second. Burn the rest.
The 1.5% figure is not intended to imply that the Treasury must maintain exactly this balance. It establishes a reasonable upper bound for permanently available governance capital.
The Treasury should be large enough to reliably perform its functions and respond to exceptional circumstances. It should not, however, become an indefinitely growing pool of future spendable DOT.
The combination of a supply-adjusted ceiling and a modest regular burn ensures that:
- the Treasury remains operationally viable,
- excess funds are not accumulated indefinitely,
- DOT that is not productively required is removed from supply,
- and Treasury policy contributes to the broader objective of reducing structural DOT sell pressure.
The Treasury should be a budget — not a permanent reserve of future DOT supply.
3. Protect validators — but do not create a rent floor
A minimum validator commission can be useful to prevent a destructive race toward 0% commission.
However, a 10% minimum commission is unnecessarily high for this purpose and shifts part of the economic burden of validator financing directly onto nominators.
This WFC therefore proposes a 2% minimum validator commission.
This would:
- prevent a 0%-commission race to the bottom,
- retain a basic protection for validators,
- preserve meaningful competition between validators,
- and leave the majority of staking rewards with the capital providers securing the network.
Validators should be appropriately compensated — but their compensation should not be guaranteed through a high governance-mandated deduction from nominator rewards.
4. Real revenue instead of inflationary funding
The Revenue Pot concept behind #1710 should be pursued more consistently.
Polkadot has potential sources of real protocol revenue, including:
- Coretime,
- transaction fees,
- services,
- Hub activity,
- and other protocol-level fees.
Over time, these revenues should become the foundation for funding network security and necessary operating costs.
The DAP can be an important tool for achieving this.
However, it should not primarily serve as a mechanism for permanently reserving newly issued DOT for different stakeholder groups.
The desired direction should be:
Protocol Revenue ↑
Inflation ↓
Treasury/DAP accumulation ↓
DOT Burn ↑
Structural sell pressure ↓
5. Do not additionally subsidize validator self-stake through inflation
The introduction of a dedicated DAP allocation for validator self-stake is understandable, but it changes the original economic objective.
If validators are expected to provide more of their own capital, that capital should increasingly be supported by the economic returns generated by operating a validator.
Permanent inflationary subsidies for self-stake create an additional claim on newly issued DOT.
This WFC therefore proposes that validator self-stake incentives should primarily be funded from real protocol revenue, rather than being maintained as a permanent inflationary allocation.
6. A new optimization target for Polkadot
The most important change is therefore not any single parameter.
Polkadot should explicitly adopt the following objective for its monetary policy:
Minimize structural DOT sell pressure.
For every future change to issuance, the DAP, the Treasury or staking rewards, the following question should be asked:
Does this measure reduce the long-term need to sell newly issued DOT — or does it merely redistribute the remaining issuance?
The first outcome should be prioritized.
Proposed principles for discussion
This WFC proposes that the Polkadot community discuss the following principles as the next step in completing the monetary reform initiated by #1710:
- Restore Treasury burns and establish a Treasury ceiling of 1.5% of circulating DOT supply. In addition, 0.5% of the Treasury balance per burn period should be burned regularly, with balances above the ceiling subject to additional reduction.
- Set the minimum validator commission at 2%, preventing 0% commission without establishing a high governance-mandated rent floor for validators.
- Fund validator self-stake incentives primarily from real protocol revenue, rather than permanent inflationary allocations.
- Limit DAP and Treasury reserves to genuinely necessary levels.
- Tie further reductions in issuance to the growth of real protocol revenue.
- Make the reduction of structural DOT sell pressure an explicit overarching objective of Polkadot’s monetary policy.
Conclusion
#1710 took the right first step:
Polkadot needs significantly less newly issued DOT.
The next step should be:
Polkadot should increasingly need less of it at all.
The issuance saved through #1710 should not simply be redistributed through new mechanisms.
It should translate into lasting scarcity, stronger economic value for existing DOT, and network security increasingly funded by real protocol revenue rather than inflation.
Reduce issuance.
Replace inflation with revenue.
Burn excess supply.
Minimize structural sell pressure.