Finance

Polkadot’s $245M treasury doesn’t have a 2-year runway, despite community concerns

Update 09:30 am UTC: This article has been revised to make clarifications regarding Polkadot’s runway.

Polkadot’s treasury holds just under $245 million worth of assets, but that doesn’t mean that its runway is limited to two years, despite concerns raised by recent reports.

Community concerns were raised following a Polkadot treasury report alleging that the project would only have two years’ worth of budget with the current spending.

“Polkadot’s Treasury is becoming more complex and harder to grasp,” its head ambassador, Tommi Enenkel, wrote in a June 28 treasury report for 2024’s first half. “Polkadot is spending directly as well as allocating value in bounties and collectives to be spent in the future.”

“At the current rate of spending, the Treasury has about two years of runway left, although the volatile nature of crypto-denominated treasuries makes it hard to predict with confidence,” Enenkel added. “This has sparked discussions ranging from a stricter budgeting approach to a change in the inflation parameters of the system.”

However, Polkadot’s treasury will not run out of funds after spending the current $245 million, since approximately 7% of the total token inflation (staking rewards) is sent to the treasury.

Polkadot doesn’t have a limited runway, since the treasury is continually replenished with new funds from staking, explained popular DOT activist Giotto de Filippi, in a message to Cointelegraph:

“The inflation in Polkadot is split between stakers and the treasury, to ensure that the treasury will always have money… So it doesn’t make sense to talk about money.”

The blockchain holds $188 million in liquid assets, primarily in its native Polkadot (DOT) token but also in stablecoins Tether (USDT) and USD Coin (USDC).

Polkadot had “a huge jump in spending” in the year’s first half. It spent $87 million in total, with over 40% — $36.7 million — spent on advertising, influencers, conferences and events.

Polkadot’s advertising-related spending. Source: Polkadot

But Enenkel said it got “more bang for the DOT” on average as the token’s price hit a 2024 peak of $11.46 in mid-March — its highest since May 2022. DOT has since fallen to $6.33 but is up nearly 11% on the week, according to CoinGecko.

Cointelegraph has approached Polkadot for comment.

Treasury spending concerns rise

Enenkel noted that “concerns in the ecosystem about the usage of the Treasury are increasing,” with its balances falling since mid-2023.

The treasury’s revenue declined 58.5% from the second half of 2023, dropping from 414,291 DOT to 171,696 DOT, which was attributed to a decline in network fees.

The treasury had over 5.2 million DOT worth of inflation-based income in the year’s first half, down from the 7.8 million DOT in the prior half-year.

Treasury balances (dark orange) have fallen since around mid-2023. Source: Polkadot

He added that the “effective deployment of Treasury capital” will likely involve creating departments “represented as bounties and collectives.”

Related: Polkadot’s new proposal to slash unstaking time to 2 days

Enenkel floated the idea of giving these “executive bodies” more responsibility and claimed they are already “increasingly forming and taking on departmental roles within the ecosystem.”

He also called to lower DOT’s “not ideal” 10% inflation rate to lower selling pressure as “a mostly DOT-denominated treasury derives its purchasing power from a solid DOT/USD exchange rate.”

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