The recent report The Polkadot Treasury’s H1 2024 budget report has raised concerns about a looming funding crunch. The report indicates that the Treasury’s assets, spread across multiple chains, have become increasingly complex and difficult to manage effectively.
Decentralized finance (DeFi) researcher Ignas analyzed the report, highlighting the Treasury’s limited timeframe of approximately two years, with the current consumption rate of US$87 million every six months.
Funding concerns rise for Polkadot
Polkadot’s spending during the first half of 2024 paints a worrying picture. An extensive outreach program was responsible for US$37 million, with the aim of attracting new users, developers and businesses.
Additional expenses included $10 million in advertising/sponsorships, $4.4 million in influencers, and $4 million in digital ads. Surprisingly, despite such expenses, Polkadot’s visibility on social media platforms, including “Platform X,” remained remarkably low.
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The Treasury spent a total of $86 million over the past six months, managing $245 million (38 million DOT) in assets, with $188 million (29 million DOT) in liquid form. The rate of burn indicates that the Treasury could face bankruptcy in less than two years.
Polkadot’s token supply is experiencing 10% annual growth, fueled primarily by staking rewards. With a market cap of $10 billion, stakers receive $1 billion annually, which significantly impacts network security costs.
However, a proposal to reduce inflation was rejected by 57% of stakeholders, further worsening the Treasury’s financial challenges.
New governance model
The report reveals that direct fee revenue remains marginal for Polkadot. In the second half of 2023, Polkadot generated 300,000 DOT through fees during a short-lived subscription campaign. Under normal conditions, fee revenue stabilizes at around 20,000 DOT per quarter.
On the expenditure side, the report highlights a 2.4x increase in DOT spending compared to 2023-S2. Ambitious proposals and larger requests contributed to this significant increase in spending.
Although the average DOT Price increased, resulting in more value per DOT, concerns about Treasury usage are rising within the ecosystem.
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To address these challenges, Polkadot is taking a more structured approach. Executive bodies such as bounties and collectives are emerging to take on departmental functions within the ecosystem.
These bodies are responsible for security, data research, development of basic functionality, network operation, marketing and business development Activities. The main question now is how to quickly establish effective structures to guide Polkadot towards success.
The solution, according to the blockchain treasury, is to delegate more responsibilities to these executive bodies. These bodies are made up of competent individuals who evaluate new proposals and add value. The 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 critical decision-making.
The effectiveness and performance of executive bodies are assessed and budget allocations are negotiated with OpenGov based on the results.
At the time of writing, POINT is trading at $6.35, representing a price recovery of nearly 4% in the 24-hour period. However, the 17th-largest cryptocurrency by market cap is still down 10% over the past month.
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