Author | defioasis
Editor | Colin Wu
Polkadot is an open source blockchain platform founded by Ethereum co-founder Gavin Wood and supported by the Web3 Foundation. Its design concept is to achieve seamless data and asset transfer between different blockchains through the architecture of parachains and relay chains. Polkadot launched its mainnet in 2020. Its native token DOT is used to pay transaction fees and participate in network governance, as well as play a role in network security and consensus mechanisms. DOT reached a peak market value of more than US$56 billion in November 2021 and is still one of the top 20 tokens in the Crypto industry by market value. However, there is a big gap between Polkadot's ecological construction and network activity and its market value.
Polkadot recently released its financial status for the first half of 2024, which this article will interpret.
Asset Status
Polkadot's assets can be divided into four categories:
(1) Cash and cash equivalents: 29,336,487 DOT ($187,753,510)
(2) Illiquid Escrow Supply: 1,001,533 DOT ($6,409,811)
(3) Designated assets: 7,347,953 DOT ($47,026,898)
(4) Loans receivable (loans to be collected upon maturity): 584,480 DOT ($3,740,672)
(1) Cash and cash equivalents: 29,336,487 DOT ($187,753,510)
This category actually includes three types of assets: DOT, USDC and USDT. They belong to the liquidity funds of Polkadot, spanning the Relay chain, AssetHub and Hydration. The Relay chain has 23,071,098 DOT ($147,655,027), accounting for 78.6%; DOT-AssetHub has 5,000,309 DOT ($32,001,978), accounting for 17%. This means that more than 95% of cash and cash equivalents are held in DOT assets, and stablecoins account for less than 5%, totaling US$8,096,505 (USDT+USDC). This may bring financial uncertainty risks due to factors such as price fluctuations and liquidity levels, and the DOT spent may turn into a selling pressure when facing non-deep cooperation outside the ecosystem. It is worth noting that after the Ref 457 referendum in the first quarter of this year, a portion of the Treasury liquidity funds DOT will be slowly converted into stablecoins in a high-frequency and small amount every year.
[Note: AssetHub is a module on the Polkadot network for managing and operating various assets. It has multi-asset support, asset issuance and management, cross-chain operability, security (multi-signature, permission management and audit functions), support for DEX, compatibility with smart contracts and community participation. Hydration is a mechanism for maintaining health and vitality on the Polkadot network, including upgrades and bug fixes, performance optimization and ecosystem support. ]
(2) Illiquid Escrow Supply: 1,001,533 DOT ($6,409,811)
Non-custodial liquidity supply mainly refers to Polkadot providing unilateral liquidity of 1 million DOTs to its on-chain DeFi protocol Hydration Omnipool, but the funds are still controlled by the Polkadot protocol and Polkadot's decentralized governance system OpenGov. The funds were officially allocated on June 10 this year.
It is worth mentioning that Polkadot has allocated a total of 2 million DOTs to Hydration. In addition to the 1 million DOTs that still belong to the protocol and are used for unilateral liquidity of Omnipool, another 1 million DOTs are given to users as liquidity mining rewards for the Hydration Campaign. After the liquidity injection, Hydration TVL also exceeded 50 million US dollars in one fell swoop, but the growth in trading volume is still very limited.
(3) Designated assets: 7,347,953 DOT ($47,026,898)
Designated assets refer to assets that the Polkadot Treasury has allocated for specific purposes but have not yet spent, mainly including:
① 3,555,680 DOT ($22,765,352) bounty;
② According to the Ref 457 plan, 2,303,808 DOT ($14,744,371) of liquidity in the Treasury will be continuously converted into USDT through Hydration (one transaction every 20 blocks, 100 USDT per transaction);
③ 1,000,000 DOT ($6,500,000) swapped with MyTH Swap for 20m MYTH tokens;
④ Collctive Fellowship salary 1,824,466 USDT (285,073 DOT);
⑤ Polkadot Technical Scholarship 1,301,709 USDT (203,392 DOT).
Salaries and scholarship programs are paid in USDT stablecoin.
(4) Loans receivable (loans to be collected upon maturity): 584,480 DOT ($3,740,672)
Polkadot provides one-year short-term loans for ecological applications, mainly including:
① The principal and interest payable on the 500,000 DOT loan provided to Bifrost is 534,480 DOT ($3,420,672);
② A loan of 50,000 DOT ($320,000) to Pendulum.
Bifrost is an Omnichain LST protocol with a TVL of $77 million, of which DOT assets account for 75.19% or $58 million. After Bifrost obtained a loan of 500,000 DOT, it was pledged and minted into vDOT. vDOT obtains basic income through staking and is issued through the increase of the vDOT exchange rate. In the past 90 days, the average basic income of vDOT is 17.13% annualized, and with the income of about 0.21% applied to DeFi scenarios, the expected annualized income is 17.34%. Interestingly, Bifrost's one-year loan interest is about 6.9%. It is worth noting that the yield provided by vDOT LST is almost twice the inflation rate of the network. Coupled with the sluggish network activity, there are doubts about whether the yield is sustainable.
Pendulum built Spacewalk, a cross-chain bridge connecting Polkadot and Stellar networks (audited by Certik). Pendulum obtained a 50,000 DOT loan and pledged it on Bifrost, then used vDOT as collateral to connect to the Stellar ecosystem's stablecoin. The vDOT collateral has a one-year lock-up period and will be fully returned after one year without paying interest.
Overall, the total value of Polkadot Treasury assets is 38,270,453 DOT, worth $244,930,891, of which the three categories of illiquid custody supply, designated assets and loans receivable are all illiquid assets, accounting for about 23.34%; liquid assets, namely cash and cash equivalents, are 29,336,487 DOT, worth $187,753,510, of which stablecoin assets are $8,096,505 of USDC+USDT, accounting for about 4.3%, that is, liquid stablecoin assets account for 3.3% of Polkadot Treasury assets.
Source of income
Polkadot Treasury income can be mainly divided into Polkadot network fee income, DOT token inflation income and others.
(1) Polkadot network fee income: 39,444 DOT (about US$250,000)
20% of the Polkadot network fees are allocated to block producers to incentivize them to maintain the security and efficiency of the network; the remaining 80% will go into the Polkadot Treasury, which is used to support various projects and proposals such as future development, community activities and network upgrades. Tips are optional transaction fees added by users, which are an incentive for block producers to prioritize transactions. All tips are directly allocated to block producers.
Compared with the second half of 2023, the revenue in the first half of 2024 was only 39,444 DOT (about 250,000 US dollars), a decrease of 87.4%, which is enough to reflect the desolation of the Polkadot network. In the second half of last year, the Polkadot Treasury revenue reached 313,443 DOT, which was mainly dependent on the short-term hype of inscriptions. The network still lacks the potential for sustainable growth.
(2) DOT token inflation revenue: 5,221,990 DOT (approximately US$33.19 million); net inflation revenue after token destruction is 2,715,306 DOT (approximately US$17.26 million)
DOT is an inflationary token with an inflation rate set at 10% per year. The new DOT allocation generated by inflation will be distributed to DOT token stakers (validators and nominators) and the Treasury according to the ideal staking ratio. The ideal staking ratio of the Polkadot network is 60%, which means that if 60% of DOT is staked, all inflation belongs to validators and nominators; and any deviation from the ideal staking ratio of 60%, whether positive or negative, will be allocated to the Treasury in proportion to the deviation.
The Staking Explorer data shows that the current Polkadot network staking rate is 58.18%, which is lower than the ideal staking rate. The Treasury can enjoy inflation distribution; the DOT token inflation rate is about 8.8%.
(3) Other income, including Slashes, Dust, and OpenGov Returns: 132,253 DOT (approximately US$840,000)
Most of the other income is income that cannot be accurately predicted. Slashes income means that if the validator behaves improperly in the network, the validator and its nominee will lose a certain proportion of the staked DOT, which will be transferred to the Treasury; Dust income should refer to certain funds sent to the Treasury address; OpenGov Returns income should include the return of unused governance funds and fund recovery, etc.
As a public chain token with a market value of over 8 billion US dollars, Polkadot's network fee income in half a year is only about 250,000 US dollars, accounting for about 1.37% of the total revenue, based on the 80% network fee charged. This can be said to be a collapse of fundamentals. The Treasury's income is highly dependent on the inflation of tokens, and higher inflation is actually a dilution of existing value, which will also flow into the secondary market through various Treasury expenditures.
expenditure
Polkadot's total expenditures in the first half of 2024 reached 11,327,316 DOT ($86,586,711), an increase of 124% in coin-denominated terms compared to the second half of 2023 and an increase of 225% in U-denominated terms.
By purpose, Polkadot's expenditures can be divided into 6 categories:
(1) Outreach (Marketing, BD, and Community Development): 4,941,691 DOT ($36,739,259)
(2) Development: 2,956,611 DOT ($23,133,719)
(3) Economic activities (loans, liquidity incentives, active asset swaps): 2,000,497 DOT ($15,261,619)
(4) Talent and Education (Education, Hackathon, Recruitment and Talent Incubation): 704,270 DOT ($5,526,829)
(5) Operations (network RPC and archive nodes, browsers and indexers, legal fees): 451,280 DOT ($3,797,860)
(6) Research (protocol research, reporting and analysis, UX & DX, fraud prevention and auditing): 272,967 DOT ($2,127,425)
Except for a decrease in talent and education as well as operating costs, all other expenditure categories saw significant growth, among which economic activity expenditure was a new cost category this year.
By funding account, Polkadot's expenditures can be divided into three categories: direct payments, bounty deployments, and Collectives, with bounty deployment expenditures of 1,493,132 DOT ($11,424,269), Collectives expenditures of 15,062 DOT ($102,923) and direct payment expenditures of 9,819,122 DOT ($75,059,519).
(1) Outreach: 4,941,691 DOT ($36,739,259)
Outreach is the main expense in the first half of 2024, accounting for 43.6% of the cost, a significant increase of 269% compared with the second half of last year. Outreach can be divided into five categories: advertising, events, BD, media and community building.
① Outreach expenditures - advertising: 2,908,449 DOT ($20,895,477), accounting for 58.9% of outreach expenditures and 25.7% of total expenditures
Advertising can be further segmented into sponsorship, influencer, digital advertising, physical advertising, platform integration, and generic.
● Sponsorship expenditure 1,463,622 DOT ($10,085,879):
○ In April this year, it signed a sports sponsorship agreement of 1 million DOT (6.8 million US dollars) with the Miami team in the United States where Messi is located. According to previous reports by CryptoSlate, the sponsorship will span the 2024 and 2025 seasons and display the blockchain project's brand on the training uniforms of Inter Miami.
○ Sponsored American racing driver Conor Daly with $1.9 million. Conor Daly mainly participated in the IndyCar series this year and finished tenth in the Indianapolis 500.
○ Reached a $1.3 million partnership with e-sports team HEROIC. HEROIC is a Norwegian e-sports organization founded in 2016. Its main teams include CS and PUBG.
● Influencer spending 648,391 DOT ($4,881,943)
○ Collaboration with media EVOX to promote Polkadot ($2.2 million)
■ Between February and May of this year, Polkadot and EVOX signed 6 advertising cooperation agreements, the largest of which cost 127,711 DOT ($919,618) on May 21
EVOX does not seem to be a Crypto Native media and prefers to use YouTube for video marketing. Many of these YouTube bloggers have very low numbers of followers on Twitter.
○ Partnered with marketing firm Lunar Strategy ($1.3 million)
■ Between February and May of this year, Polkadot signed 5 advertising partnerships with Lunar Strategy, the largest of which cost 78,251 DOT ($566,873) on May 21
■ The Polkadot case data displayed on the Lunar Strategy website shows that in 45 days, 180+ collaborations were carried out and 266.5 views were achieved through KOLs
According to a document signed by Lunar Strategy and Polkadot on February 9, the list of KOLs provided by Lunar Strategy includes: Crypto Banter (414.1k Followers), Crypto Lark (1.2m), Michaªl van de Poppe (721.9k), Satoshi Stacker (200.8k), Layah (672.3k), Boxmining (259.1k), That Martini Guy (575.2k), Ash Crypto (1.1m) and Wendy O (383.1k), and the fees paid are $287,000 ($267,000 + $20,000 reserved), with an average fee of $31,900 paid to each KOL, and an average fee of about $0.052 per fan reached. [Corresponding to the expenditure item on February 17 in the Polkadot document]
○ Chainwire ($490,000) and Unchained ($460,000)
● Digital advertising spending 538,706 DOT ($4,075,102)
○ CoinMarketCap ($1 million) and EVOX ($900,000)
CMC has signed a 6-month digital advertising contract with Polkadot for a discounted price of $980,000. Of the original monthly fee of $225,000, the community live broadcast event costs $100,000, including 1-2 videos/short films, and sharing on Telegram, Instagram, TikTok, and YouTube; the social media package costs $100,000, including 1 tweet, 2 TG posts (pinned for 24 hours), 5 newsletters, 1 Instagram post, 1 dedicated newsletter, 1 sponsored in-depth article, and 1 CMC community live broadcast session; management costs $25,000.
② Outreach Expenditure - Activities: 960,326 DOT ($7,927,676), 19.4% of outreach expenditures and 8.5% of total expenditures
Activities can be further divided into attending conferences and peripheral activities, hosting conferences, and gatherings.
● Expenses for attending conferences and peripheral activities 566,171 DOT ($4,468,793)
○ Polkadot Decoded China: $560,000
○ 3 {bash} parties: $540,000
○ Token2049 peripheral activities: $420,000
● Conference hosting expenses 326,507 DOT ($2,949,957)
○ Polkadot Decoded and Sub0: $2.9 million
● Party expenses: 67,648 DOT ($508,927)
③ Outreach Expenditure-BD: 503,647 DOT ($3,853,701), accounting for 10.2% of outreach expenditure and 4.4% of total expenditure
● Partnership with The Tie ($1 million): Polkadot gets speaking opportunity at institutional conference
● Avata, an integrated insurance provider ($550,000)
● Recruiting future partners through Missing Link ($540,000)
④ Outreach expenditures - Media: 442,766 DOT ($3,188,360), accounting for 9% of outreach expenditures and 3.9% of total expenditures
The largest media expenditures include Kusamarian ($530,000), a media project supporting the Polkadot ecosystem, responsible for content creation and dissemination to increase the visibility and influence of Kusama and Polkadot; and Behind the Code documentary series ($530,000).
Among the more well-known media, PolkaWorld, one of the few representatives of the Polkadot Chinese community, received 31,474 DOT ($272,566) in operating funds for the next year; Crypto media Cointelegraph received 43,946 DOT ($323,571) in funding for a one-year Polkadot brand awareness promotion campaign; Polkadot Insider, which focuses on Polkadot information, received 26,195 DOT ($199,823) in operating funds for 52 weeks.
⑤ Outreach expenditures - community building: 126,503 DOT ($874,044)
(2) Development: 2,956,611 DOT ($23,133,719)
Development costs are the second largest expense after outreach, and have increased by 27.8% compared to the second half of last year.
① Development-Polkadot protocol and SDK expenses 689,361 DOT ($5,092,912), accounting for 23.3% of development expenses and 6.1% of total expenses
● New console implementations such as Gosammer ($2.8 million)
● NFT XCM and other interoperability standards ($730,000)
● Rust Runtime Verification ($540,000)
● XCQ ($310,000)
② Development - Data services and indexing expenses 515,521 DOT ($4,048,918), accounting for 17.4% of development expenses and 4.6% of total expenses
● New integration Dune ($2.5 million)
● New integration of Token Terminal ($1.4 million)
③ Development-wallet expenditure 485,460 DOT ($3,849,432), accounting for 16.4% of development expenditure and 4.3% of total expenditure
● SubWallet ($880,000)
● Talisman ($1.4 million)
● Nova ($1.2 million)
④ Development - Investment in governance functions 233,592 DOT ($2,315,443), accounting for 7.9% of development expenditures and 2.1% of total expenditures
● Zeitgeist’s Futarchy Proposal ($1 million)
● Project Glove ($810,000)
⑤ Development-SDK expenditure 242,877 DOT ($1,716,209), accounting for 8.2% of development expenditure and 2.1% of total expenditure
● ORML/Chopsticks/Subway ($720,000)
● Apillon ($650,000)
● PAPI ($180,000)
⑥ The remaining development expenditure costs exceeding $1 million include ecosystem services, smart contracts, and software development
(3) Economic activity: 2,000,497 DOT ($15,261,619)
The expenditure of economic activities is relatively simple. Hydration and Stellaswap each received 1 million DOT for liquidity incentives, which will be distributed within one year.
(4) Talent and Education: 704,270 DOT ($5,526,829)
① Talent and Education - Training and hackathon expenses 637,612 DOT ($5,047,604), accounting for 90.5% of talent and education expenses and 5.6% of total expenses
● Polkadot Blockchain Academy ($3.1 million)
● Other hackathon series expenses ($60,000-600,000 USD)
(5) Operations: 451,280 DOT ($3,797,860)
① Operation-Governance Expenditure: 262,950 DOT ($2,489,771), accounting for 58.3% of operation expenses and 2.3% of total expenses
● Polk assembly ($1.8 million)
● OpenGov provided funding as legal packaging for a foundation in the Cayman Islands ($640,000)
② Operations - Data services and indexing expenses 45,235 DOT ($331,440)
● Indexing service Subsquid ($330,000)
● Subscan Block Explorer ($760,000)
③ Operation-RPC and node expenses 49,226 DOT ($320,856)
(6) Research: 272,967 DOT ($2,127,425)
Research expenses are the smallest cost category and can include data storage system chains ($690,000), hiring a chief information security officer ($370,000) and adding an OG Tracker to the Treasury ($210,000).
Overall, there are 9 categories with expenditures exceeding 500,000 DOTs, accounting for 63.2% of the total expenditures, of which 3 are outreach-advertising expenditures focused on marketing.
Judging from Goole Trends, there is a significant correlation between DOT price and online social search. However, after experiencing a round of gains in early March along with the strength of the market, both prices and online attention have fallen rapidly. Polkadot’s high marketing and advertising expenditures in the first half of this year have still brought results, but online activities and social activities are still sluggish, especially after signing a large contract with Messi’s Miami team in April.
cash flow
Polkadot is currently at a level where its income is not enough to cover its expenses. In the first half of 2024, the revenue was 2,887,002 DOT, while the cost of expenditure was 11,327,316 DOT, with a net loss of 8,440,314 DOT in half a year. The cash and cash equivalents of Polkadot Treasury are 29,336,487 DOT. At the current monthly loss rate of 1,406,719 DOT, the liquidity cash of Polkadot Treasury will be exhausted within 20.85 months.
What is more serious is that from the perspective of U standard, the proportion of stablecoins in the liquidity cash of Polkadot Treasury is less than 5%, which is 8,096,505 USDT+USDC (1,265,080 DOT). At this loss level, it cannot even last for a month. Although Polkadot Treasury still has a certain amount of funds on the books, its actual liquidity and payment capabilities face serious challenges in the short term, especially when the market fluctuates.
Reference Links:
https://forum.polkadot.network/t/2024-h1-polkadot-treasury-report/8862
https://x.com/Polkadot/status/1800199814237364499
https://docs.google.com/document/u/0/d/1royrbUeq8UOSvPvRCExBnKG93GWQ6Ldu8HEXMA1G5ZU/mobilebasic?_immersive_translate_auto_translate=1#heading=h.lnnmiy4rumc4
https://cryptoslate.com/polkadot-eyes-8-8-million-sponsorship-deal-with-lionel-messis-inter-miami/
