2 days ago
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Recently, various fears have spread due to a news regarding the Polkadot crypto ecosystem.
In reality, it was not a real news item, but information contained in the latest Polkadot Treasury Report.
Crypto news: the treasury of Polkadot and the fears generated by the report
The information that has generated some fear is related to the assets held by the treasury of Polkadot, with a total value of approximately 245 million dollars.
In fact, according to some estimates, these funds might be sufficient only for another two years, if expenses were to remain as they are currently.
The Polkadot Treasury Report of the first half of 2024 shows for the first time the entire amount of assets under the control of the treasury.
These funds include not only DOT, but also USDT and USDC, and are held 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 Polkadot’s treasury as “complex and difficult to understand”. The report therefore aims to make this information known to everyone.
It is a report created for the first time trying to approach traditional accounting reporting practices, while previous ones focused only on direct expenses. In fact, the current report is also accompanied by a true and proper balance sheet.
The assets held by the treasury
As of June 30, 2024, the treasury of Polkadot managed 245 million dollars in assets, of which 188 million are liquid.
Eight million dollars of these reserves are in the form of stablecoin USDT and USDC, with an additional 2.5 million DOT (approximately 16 million dollars) allocated for the continuous acquisition of other stablecoin tokens.
In the first half of 2024, the treasury spent 87 million dollars, of which 13% comes from executive bodies (awards and collectives).
At a certain point in the report they write:
“At the current spending rate, the Treasury has about 2 years of leeway, although the volatile nature of Treasury securities denominated in cryptocurrencies makes it difficult to make predictions with certainty. This has sparked discussions ranging from a more rigorous budget approach to a modification of the system’s inflation parameters.”
The fears of the community due to the latest crypto news on Polkadot
The problem is that 2 years of leeway might be too limited a time for the evolution of Polkadot’s crypto project, if not even for its very survival.
Polkadot in fact has not yet had that big boom that other crypto projects have had and that 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 may be forced to increase the inflation of the monetary mass of DOT to try to make up for a possible lack of funds.
The project in its current state spends too much and earns too little, so in the long run it is not sustainable if something does not change.
The easiest change to make would be to increase the inflation of the money supply, that is, to issue more DOT.
The inflation of DOT
Currently, the inflation rate of the circulating supply of DOT is 10% per year.
Just think that for Bitcoin starting from this year it has fallen below 1%, 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 in any case to keep it high without the possibility of it being significantly reduced.
Should the community be forced to accept a further increase in inflation, one would expect a worsening of the market value trend of DOT in the long term.
The price of DOT
DOT, or the native cryptocurrency of the Polkadot ecosystem, has slipped to the 14th overall position among those with the highest market capitalization, overtaken even by Shiba Inu.
Even during the course of 2024 the price of DOT so far has lost 22%, while for example BTC is at +48% and ETH at +50%.
Among the top 20 cryptos by market capitalization, DOT from this point of view performs worse only than MATIC (-41%), Cardano (-30%), and Avalanche (-27%).
In total, excluding stablecoins, there are only six cryptos in the top twenty that are currently in bear territory compared to the end of 2023.
Moreover, DOT is still at -88% from the highs of 2021, and this data seems particularly concerning in light of what has emerged in the treasury report.
Although from October 2023, which was 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 precisely the high rate of inflation, 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 may even be necessary to discuss whether to further increase this rate of inflation, thus causing even more problems for the price of DOT.
From a technological standpoint, the Polkadot project continues to move forward, but from a financial standpoint, it suffers a lot, and has been suffering for some time now.
Furthermore, it does not even have a minimally interesting DeFi ecosystem, given that it has a TVL of only $70,000.
In the absence of DeFi, and with slow and ineffective marketing, it is really very difficult to imagine that the price of DOT can recover, with such high inflation that it cannot actually be reduced.
Therefore, from a technological point of view, Polkadot may have a future, but from a financial point of view, many doubts can be raised about the stability of its cryptocurrency DOT.
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