Polkadot Treasury Faces Impending Funding Crisis: Limited To 24 Months Before Exhaustion

The recent report released by the Polkadot Treasury for the first half of 2024 has raised concerns over an impending funding crisis. The report indicates that the Treasury’s assets, spread across multiple chains, have become increasingly complex and challenging to manage effectively. 

Decentralized finance (DeFi) researcher DeFi Ignas has analyzed the report, highlighting the Treasury’s limited runway of approximately two years at the current burn rate of $87 million every six months.

Polkadot’s expenditure during the first half of 2024 paints a worrying picture. An extensive outreach program accounted for $37 million, aiming to attract new users, developers, and businesses. 

Additional expenses included $10 million on ads/sponsorships, $4.4 million on influencers, and $4 million on digital ads. Surprisingly, despite such expenditures, Polkadot’s visibility on social media platforms, including “Platform X,” remained notably low. 

The Treasury spent a total of $86 million in the past six months, managing $245 million (38 million DOT) in assets, with $188 million (29 million DOT) in liquid form. The burn rate indicates that the Treasury may face bankruptcy in less than two years.

Polkadot’s token supply experiences a 10% annual growth, primarily fueling staking rewards. With a $10 billion market cap, stakers receive $1 billion per year, which significantly affects network security costs. 

However, a proposal to reduce inflation was rejected by 57% of the stakeholders, further compounding the Treasury’s financial challenges.

The report reveals that direct fee revenue remains marginal for Polkadot. In 2023-H2, Polkadot generated 300,000 DOT through fees during a short-lived inscription campaign. Under regular conditions, fee revenue stabilizes at around 20,000 DOT per quarter. 

On the expense side, the report highlights a 2.4x increase in DOT spending compared to 2023-H2. Ambitious proposals and larger ask sizes contributed to this significant spending surge. 

Although the average DOT price rose, resulting in more value per DOT, concerns about the Treasury’s usage are mounting within the ecosystem.

To address these challenges, Polkadot is moving towards a more structured approach. Executive bodies, such as bounties and collectives, are emerging to assume departmental roles within the ecosystem. 

These bodies are responsible for security, data research, core functionality development, network operation, marketing, and business development activities. The key question now is how to establish effective structures quickly to guide Polkadot toward success.

The solution, according to the blockchain’s treasury, is to delegate more responsibility to these executive bodies. These bodies are made up of competent individuals who evaluate new proposals and deliver value. Collectives, similar to subDAOs, have OpenGov capabilities and sub-treasuries to facilitate their work. 

By leveraging these executive bodies, Polkadot can outsource operational issues and mundane tasks, allowing OpenGov stakeholders to focus on making critical decisions. 

The effectiveness and performance of the executive bodies are evaluated, and budget allocations are negotiated with OpenGov based on the results.

At the time of writing, DOT is trading at $6.35, representing a price recovery of nearly 4% in the 24-hour time frame. However, the 17th largest cryptocurrency by market cap is still down 10% over the past month. 

Featured image from DALL-E, chart from TradingView.com