Recently, there has been a lot of fear over a piece of news about the Polkadot crypto ecosystem.
In reality, this was not a real news item, but rather information contained in the latest Polkadot Treasury Report.
Crypto News: Polkadot Treasury and the Fears Generated by the Report
The information that has generated some fear is that relating to the assets held by the Polkadot treasury, with a total value of approximately 245 million dollars.
In fact, according to some estimates, these funds could only be sufficient for another two years, if expenses were to remain as they are now.
The Polkadot Treasury Report for the first half of 2024 shows the full amount of assets under the control of the treasury for the first time.
These funds include not only DOT, but also USDT and USDC, and are stored on three different chains.
It was therefore not easy to reconstruct it from the outside, so much so that the authors of the report themselves define the Polkadot treasury as “complex and difficult to understand”. The report therefore aims to make this information known to everyone.
This is a report that for the first time has been created trying to get closer to traditional accounting reporting practices, while the previous ones focused only on direct expenses. In fact, the current report is also accompanied by a real balance sheet.
Assets held by the treasury
As of June 30, 2024, Polkadot’s treasury managed $245 million in assets, of which $188 million is liquid.
Eight million dollars of these reserves are in the form of USDT and USDC stablecoins, with an additional 2.5 million DOT (about $16 million) earmarked for the ongoing acquisition of other stablecoin tokens.
In the first half of 2024, the treasury spent $87 million, of which 13% came from executive bodies (awards and collectives).
At one point in the report they write:
“At the current pace of spending, the Treasury has about 2 years of leeway, although the volatile nature of cryptocurrency-denominated Treasuries makes it difficult to predict with confidence. This has sparked discussions ranging from a tighter budget approach to changing the system’s inflation parameters.”
Community Fears Over Latest Crypto News About Polkadot
The problem is that 2 years of leeway may be too short a time for the Polkadot crypto project to evolve, if not for its very survival.
In fact, Polkadot has not yet had the great boom that other crypto projects have had and which could allow it to attract millions of users and therefore many potential sources of income.
At that point, the fear, highlighted in the same report, is that the managers of the Polkadot project will be forced to increase the inflation of the DOT money supply to try to make up for a possible lack of funds.
The project currently spends too much and earns too little, so it is not sustainable in the long term unless something changes.
The easiest change to make would be to increase the inflation of the money supply, i.e., issue more DOTs.
DOT inflation
DOT’s circulating supply inflation rate is currently 10% per annum.
Just think that for Bitcoin it has fallen below 1% since this year, and for Ethereum it should be close to zero.
The fact is that the continuous issuance of new DOT tends to increase the selling pressure on the crypto markets, or at least keep it high without the possibility of it significantly decreasing.
If the community is forced to accept further inflation, it would be expected that the long-term trend of DOT’s market value will deteriorate.
The price of DOT
DOT, the native cryptocurrency of the Polkadot ecosystem, has slipped to 14th place overall among those with the largest market capitalization, also overtaken by Shiba Inu.
Even during 2024 the price of DOT has lost 22% so far, while for example BTC is at +48% and ETH at +50%.
Among the top 20 cryptocurrencies by capitalization, DOT does worse from this point of view only than MATIC (-41%), Cardano (-30%) and Avalanche (-27%).
In total, excluding stablecoins, there are only six of the top twenty cryptocurrencies that are currently in negative territory compared to the end of 2023.
Furthermore, DOT is still -88% from its 2021 highs, and this data seems particularly worrying in light of what emerged in the Treasury report.
Although from October 2023, the bottom of the last bear market for DOT, until mid-March 2024 it had recorded a significant +230% in price, starting from April it entered a phase of deep correction that brought it back to only +77% from the bottom.
The current price is even lower than that of November 2022, and this sounds like a powerful alarm bell.
The future
The problem should be the high inflation rate, which moreover cannot be reduced because it is needed to finance the development of the project.
Indeed, the hypothesis is that in the coming years it will even be necessary to discuss whether to further increase this inflation rate, thus causing even more problems for the price of DOT.
While the Polkadot project continues to move forward from a technological standpoint, it is suffering greatly from a financial standpoint, and has been suffering for some time now.
It also doesn’t even have a remotely interesting DeFi ecosystem, given that it has a TVL of just $70,000.
In the absence of DeFi, and with slow and ineffective marketing, it is very difficult to imagine the price of DOT recovering, with inflation so high that it effectively cannot be reduced.
Therefore, if from a technological point of view Polkadot may have a future, from a financial point of view many doubts can be raised about the stability of its cryptocurrency DOT.
