Polkadot Treasury Facing Fiscal Shortfall Amid Rising Costs and Stalled Growth

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The latest financial statement from the Polkadot Treasury for the initial half of 2024 is sounding alarm bells among industry insiders, hinting at a potential fiscal shortfall in the near future. The announcements within the document illustrate how the management of its diverse and intricate wealth, spread over numerous chains, is proving to be a formidable task.

DeFi Ignas, a respected decentralized finance researcher, has scrutinized the document in depth. He has pointed out a problematic aspect: the Treasury’s monetary runway is becoming alarmingly short. Based on the current consumption rate of $87 million per half-year, the assets are predicted to be depleted within the coming two years.

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The spending outlined by Polkadot in the first six months of 2024 is cause for concern. The company spent $37 million on a broad outreach program designed to attract new customers, developers, and commercial partnerships. A substantial $10 million was invested in ads and sponsorships, with another $4.4 million and $4 million allocated to influencers and digital ads respectively. Concerningly, this level of investment has yet to yield significant results, given Polkadot’s lower than expected presence on social media platforms, including Platform X.

In total, the treasury expended $86 million in the previous half of the year, overseeing assets valued at $245 million, with $188 million in liquid form. The burn rate suggests that the risk of bankruptcy by the Treasury within two years is a real threat.

The token supply of Polkadot experiences a 10% growth annually, which fuels primarily staking rewards, with network security costs impacted significantly by a $10 billion market cap, resulting in $1 billion payout to stakers per annum. The current fiscal woes of the Treasury are being further compounded by the rejection of a proposal aimed at reducing inflation by a majority of the stakeholders (57%).

The report divulges that Polkadot’s chief source of revenue remains marginal. As the previous year ended, Polkadot had mustered up 300,000 DOT via fees during a brief inscription campaign. Under normalcy, this fee revenue averages out to about 20,000 DOT per quarter.

Costs, however, surged with a worrisome 2.4x increase compared to the latter half of 2023. The inflated spending can be attributed to high-reaching proposals and sheer extent of requests. In tandem with the hike in spending, the average price of DOT rose as well, which resulted in more value per DOT, creating more questions surrounding the Treasury’s expenditures.

In an effort to mitigate these challenges, Polkadot is transitioning to a more structured method. Executive entities, embodied by bounties and collectives, are surfacing to take on departmental functions within the ecosystem, including security, data research, network operation, core functionality development, marketing, and business development activities. With these new bodies assuming operational issues and day-to-day responsibilities, OpenGov stakeholders can concentrate on crucial decision-making.

The Polkadot Treasury suggests that delegating additional responsibility to these executive bodies will yield the best results. Performance will be closely scrutinized, and budgets are set to be negotiated based on the results achieved.

At the closing of this report, DOT is trading at $6.35, which signals a near 4% recovery in price within the past 24 hours. However, the 17th largest cryptocurrency by market cap is still down by 10% in comparison to the previous month. As the fiscal and governance issues at Polkadot evolve, all eyes in the crypto-landscape will be trained closely on how Polkadot and its treasury navigate these troubled waters.