The recent report released by the Polkadot Treasury for the first half of 2024 has sparked concerns surrounding an imminent funding crisis within the ecosystem. The report sheds light on the complexity of managing the Treasury’s assets, spread across multiple chains, effectively. DeFi Ignas, a decentralized finance researcher, has delved into the report, emphasizing the 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 outreach program aimed at attracting new users, developers, and businesses accounted for $37 million. Additional expenses included $10 million on ads/sponsorships, $4.4 million on influencers, and $4 million on digital ads. Despite such expenditures, Polkadot’s visibility on social media platforms, particularly on “Platform X,” remained notably low. The Treasury managed $245 million in assets, with $188 million in liquid form, and a burn rate that indicates potential bankruptcy in less than two years.
The token supply experiences a 10% annual growth, primarily to fuel staking rewards in a market cap of $10 billion, resulting in $1 billion per year for stakers. However, a proposal to reduce inflation was rejected by 57% of stakeholders, exacerbating the Treasury’s financial challenges. Direct fee revenue for Polkadot remains marginal, with a short-lived inscription campaign in 2023-H2 generating 300,000 DOT through fees. The report highlights a 2.4x increase in DOT spending compared to the previous period, attributing it to ambitious proposals and larger ask sizes.
Restructuring for a Sustainable Future
To address these 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 oversee security, data research, development, network operation, marketing, and business development activities. The challenge now lies in rapidly establishing effective structures to guide Polkadot towards success. Delegating more responsibilities to these executive bodies, consisting of competent individuals, is seen as the solution to outsourcing operational tasks and focusing on critical decisions.
By leveraging these executive bodies, Polkadot aims to improve its overall effectiveness and performance. Budget allocations are then negotiated with OpenGov stakeholders based on the results of their evaluations. Collectives, similar to subDAOs, are equipped with OpenGov capabilities and sub-treasuries to facilitate their work. This shift towards a more structured approach aims to streamline decision-making processes and enhance operational efficiency within the ecosystem.
The impending financial crisis in Polkadot serves as a wake-up call for the ecosystem to address the challenges of managing the Treasury’s assets and expenditures effectively. With a strategic focus on restructuring and delegating responsibilities to executive bodies, Polkadot aims to navigate these financial challenges towards a more sustainable future. As the ecosystem continues to evolve and adapt, the key lies in establishing effective structures and processes to guide Polkadot towards long-term success.
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