The recent report from the Polkadot Treasury for the first half of 2024 has highlighted concerns over an impending funding crisis. The report reveals that the Treasury’s assets, spread across multiple chains, have become increasingly challenging to manage effectively. DeFi Ignas, a decentralized finance researcher, analyzed the report and pointed out the Treasury’s limited runway of approximately two years at the current burn rate of $87 million every six months. This raises questions about the sustainability of Polkadot’s financial management practices.
Expenditure Analysis
During the first half of 2024, Polkadot’s expenditures paint a worrying picture. The Treasury allocated $37 million to an extensive outreach program aimed at attracting new users, developers, and businesses. Additionally, $10 million was spent on ads and sponsorships, $4.4 million on influencers, and $4 million on digital ads. Despite these significant expenditures, Polkadot’s visibility on social media platforms, including “Platform X,” remained notably low. This raises concerns about the effectiveness of the Treasury’s marketing strategies and the allocation of resources.
Financial Sustainability Concerns
The report indicates that the Treasury spent a total of $86 million in the past six months while managing $245 million in assets, with $188 million in liquid form. The burn rate suggests that the Treasury may face bankruptcy in less than two years if current spending trends continue. Polkadot’s token supply experiences a 10% annual growth, primarily driven by staking rewards. With a $10 billion market cap, stakers receive $1 billion per year, significantly impacting network security costs. However, a proposal to reduce inflation was rejected by 57% of stakeholders, further exacerbating the Treasury’s financial challenges.
The report highlights 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 notes a 2.4x increase in DOT spending compared to the previous period. Ambitious proposals and larger ask sizes contributed to this significant spending surge. While the average DOT price has risen, concerns about the Treasury’s spending habits are growing within the ecosystem.
Structural Transformation Initiatives
To address the financial challenges, Polkadot is transitioning 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 towards success. The blockchain’s treasury proposes delegating more responsibility to these executive bodies to improve governance and decision-making processes.
By leveraging these executive bodies, Polkadot can outsource operational issues and mundane tasks, allowing stakeholders to focus on critical decision-making. The effectiveness and performance of the executive bodies are evaluated, and budget allocations are negotiated with stakeholders based on results. Collectives, similar to subDAOs, have OpenGov capabilities and sub-treasuries to facilitate their work. This shift towards a more structured and transparent governance model aims to improve the efficiency and sustainability of Polkadot’s financial management practices.
The Polkadot Treasury report raises valid concerns about the funding crisis looming over the project. By addressing these challenges through structural transformation initiatives and improved governance structures, Polkadot can navigate towards a more sustainable and secure financial future.