Polkadot's first-half financial report sparked controversy: $87 million in spending accounted for nearly half of the total, with revenue of only $1.1 million

Author: Nancy, PANews

Polkadot’s financial report releases have always sparked controversy, and this time is no exception. Recently, Polkadot’s Treasury financial report for the first half of 2024 released on the official governance forum has caused complaints from investors. Although the official claimed that the treasury’s funds are sufficient to support two years, the large expenditure of up to $87 million still aroused doubts in the community.

Expenditure in the first half of the year exceeded the total of the past two years, with promotion expenses accounting for 42%

According to the Polkadot balance sheet released by the Polkadot community, Treasury manages assets worth up to $245 million (38 million DOTs). The Polkadot block browser shows that as of July 2, Treasury holds more than 36.5 million DOTs, down nearly 22.5% from its historical peak.

Among them, US$188 million (29 million DOTs) are liquid assets, including US$8 million in stablecoins USDT and USDC, mainly distributed on Relaychain, AssetHub and Hydration; US$47 million (7.3 million DOTs) are designated assets used by the Ministry of Finance for specific purposes; US$6.4 million (1 million DOTs) are dedicated to Omnipool (Hydration's flagship AMM); US$3.7 million (580,000 DOTs) in loans receivable provide a one-year loan for DeFi ecosystem projects.

The report points out that the Polkadot Treasury has an excellent balance sheet and ample surplus compared to traditional entities. In terms of fund expenditure, the Polkadot Treasury spent $87 million (11 million DOTs) in the first half of 2024 alone, far exceeding the total expenditure of $46 million in 2022 and 2023.

In terms of specific expenditure categories, it is mainly used in six categories: promotion (42.4%), development (26.7%), economy (17.6%), talent and education (6.4%), operation (4.4%) and research (2.5%).

Among them, promotion expenses were US$37 million, mainly for advertising and media, online and offline community building activities and large-scale conferences, etc. Advertising expenses were US$21 million (including sponsorship fees of US$10 million, marketing and public relations companies of US$4.9 million, and digital advertising of US$4 million) and event expenses were US$7.9 million (including US$4.5 million for various activities, US$3.9 million for business development, and US$3.2 million for media production);

Development expenditures of $23 million, including $5.1 million for Polkadot protocol and SDK feature development, $4.1 million for data services and indexing, $3.9 million flowing into SubWallet, Talisman, and Nova wallets, and $2.3 million for governance investment;

The economic expenditure is US$15 million, and the 1 million DOTs each obtained by DEX Hydration and Stellaswap will be distributed within one year;

Talent and education spending: $5.5 million for Polkadot Blockchain Academy, hackathons, etc.

Operating expenses of $3.8 million, covering governance and legal packaging, etc.

$2.1 million was spent on research.

The report states that at the current spending rate, the Polkadot Treasury has about two years of funds in reserve. However, DOT accounts for 76.7% of the Polkadot Treasury, and its volatility also means that this forecast is uncertain.

The community criticized the large-scale marketing, and many data showed a downward trend

Once the above financial report was released, it immediately aroused criticism from the Polkadot community.

Some community members believe that Polkadot has spent so much on marketing but has not achieved significant results. For example, @trading_axe posted that Polkadot seems to provide KOLs with $300,000 per month in marketing expenses, but no substantive or valuable content has been published. This marketing model itself has flaws. In addition to some accounts with more than 100,000 followers, which does not mean they have active fans, many KOLs do not post because they are optimistic about the project, but more for income.

Ignas, co-founder of Pink Brains, also said that Polkadot spent $37 million to promote and attract new users, developers and enterprises, but it is still little known on platforms such as X. For example, Polkadot sponsored IndyCar driver Conor Daly with $1.9 million, and the American football club Inter Miami CF signed a sports sponsorship agreement worth $6.8 million.

Polkadot Sponsors IndyCar Driver Conor Daly for $1.9 Million

Ignas believes that at Polkadot's current rate of burning money, it will face bankruptcy in less than two years. According to data released by Polkadot, its revenue in the first half of this year was only 171,000 DOTs (currently worth more than $1.093 million), which is completely unable to cover expenses, accounting for only 1.5% of the expenditure amount. And according to Dune data, since July 2023, the inflow of funds to the Treasury has begun to show negative growth, and it has shown an expanding trend this year, with an outflow of more than 10.91 million DOTs in the second quarter alone.

In addition to the problem of capital expenditure, Polkadot is currently facing multiple challenges. For example, the high inflation rate is believed to hinder the development of Polkadot. Ignas pointed out that the supply of DOT tokens is increasing at a rate of 10% per year, and most of the inflation tokens are used to fund staking rewards. If calculated based on a market value of US$10 billion, US$1 billion will flow to pledgers every year, which is an expensive cost for Polkadot network security. However, Polkadot's proposal to reduce inflation was rejected. In April of this year, the Polkadot community initiated a vote on the #706Reduce Inflation" proposal to fix the total supply of DOT at 2.1 billion, but the proposal was mostly rejected.

From the data, Polkadot's transaction activity has also declined this year. Dune data shows that Polkadot's monthly transaction volume in June reached 16.97 million, which is only 51.8% of the beginning of this year. The number of monthly active accounts also fell by 53.2% from 516,000 at the beginning of the year to 241,000 today. Of course, this may be related to the decline in the popularity of inscriptions before.

In general, Polkadot's financial report exposes its chaotic financial expenditure and inefficiency, and highlights the importance of introducing accountability.