The Polkadot community has recently had a heated discussion around Proposal#1542(Polkadot GIGAHydration Campaign). The proposal was put forward by the Hydration team and aims to apply for 5 million DOTs from the Polkadot Treasury for a 12-month DeFi incentive program, including:
2 million DOT for its stablecoin incentives;
2 million DOTs for liquidity provider (LP) incentives;
1 million DOTs are used to mint GIGADOT.
The goal of this proposal is to solidify Polkadot’s position in the competitive DeFi market by enhancing liquidity and user engagement. Learn more here: https://polkadot.subsquare.io/referenda/1542
PolkaWorld has compiled the current support and opposition views in the community. Let’s take a look at what happened!
Supporters' views
If we want to support DeFi platforms and bring Polkadot to the outside world, we should support the only teams that are competitive and capable of accomplishing this mission. The only teams I see with these capabilities are Hydration and Bifrost. They are small, but passionate, and continue to launch products that fit the market.
Polkadot needs successful cases to attract more users, and incentivizing liquidity can create network effects. Hydration’s last incentive plan brought successful integration to the Polkadot ecosystem. These outstanding projects should receive more resource support.
Hydration is the best parachain in almost all metrics. They have been working hard to solve the liquidity problem and continue to promote the development of the DeFi ecosystem in a harsh environment. The use value of this money is definitely higher than any other proposal in recent times.
The proposal will significantly enhance the liquidity and user adoption of the Polkadot DeFi ecosystem, and the proposal explicitly points out the TVL growth brought by past funds (from 27 million to 130 million US dollars). Promote interoperability of cross-chain assets, increase user retention, and support ecological resilience.
Calculated in terms of DOT value, the amount of this proposal is actually only 2 times higher than the last proposal of 1 million DOT in USD. And the Polkadot treasury funds are constantly increasing, so this expenditure will not deplete the treasury.
The cost-benefit ratio of the proposal is reasonable and compares appropriately to industry benchmarks such as Avalanche’s $180 million incentive plan. While 5 million DOTs is a significant expense, let’s be realistic: other ecosystems are investing at a much larger scale.
In the past, Polkadot remained neutral and did not choose a “winner”, which resulted in poor results. Hydration has done a good job in user experience, which is very important. Investing in successful projects is more valuable to the ecosystem than conservatively holding coins.
Some supportive users also suggested that Polkadot should completely acquire Hydration and Bifrost and build them into the Polkadot Hub to eliminate unnecessary competition and conflicts. Hydration is already a successful and widely loved product and should be run as a system chain and integrated with Revive and PVM.
The funds are not loans or gifts, but are used to incentivize user liquidity, which is beneficial to the entire Polkadot ecosystem. The previous incentive plan has proven effective and has increased USDT/C native liquidity and promoted ecosystem adoption. The DOT ecosystem as a whole will benefit from increased liquidity, trading volume, and users.
Opponents' view
The proposal is too large (5 million DOT, about 29.4% of the treasury DOT), but the proposal does not give specific, measurable target indicators. Moreover, this incentive activity is similar to the "airdrop" which is no longer useful, and it is ultimately distributed to a very small number of accounts, which is unfair.
https://data.parity.io/treasury
Although I like Hydration, I think that giving such a large amount of money at once will create a "too big to fail" situation, which will harm ecological diversity and sustainable development.
This will also lead to monopoly and hinder other projects from competing fairly. It is detrimental to the ecosystem in the long run, and even if it is effective in the short term, it will be difficult to sustain. It is recommended to provide funds in stages and set clear milestones.
JAM Implementers DAO (DV) believes that the size of the funding request is too high relative to Hydration's existing TVL, which will create systemic risks. And such growth always relies on treasury funds, not natural adoption by real users. When the treasury takes out so much money, it has no control over the Hydration network, and its governance is beyond OpenGov supervision. And they have received enough support before, suggesting to reduce the amount or come up with a more secure way.
Trustless Core (DV) is also concerned about the uncertainty risks brought by the allocation of 5M DOT funds. This proposal lacks a clear milestone evaluation system, and does not clarify the reward mechanism for users across the ecosystem. There is no clear suggestion on the details of DOT allocation. Consider loans instead of direct grants.
Hungarian Polkadot DAO (DV) believes that the proposal amount is too high. Concentrating resources on a single protocol before the launch of Polkadot Hub is not conducive to diverse competition. And there is a lack of a more comprehensive strategy to promote user adoption and ecological cooperation.
PolkaWorld (DV) believes that the marketing funds of the project should not be borne by the Polkadot Treasury, and questioned whether it is a good time to carry out large-scale incentive activities at the stage when the Polkadot Hub has not yet been launched. In addition, the proposal lacks a clear success goal, and it is also proposed to consider returning the proceeds to the treasury. It is recommended that everyone clarify the responsibilities of the project itself and the responsibilities of the treasury.
There are also opposing voices saying that the proposers have not been responsive to community issues, that the governance process seems to have been decided behind the scenes, and that the governance system is "broken."
Summarize
Overall, the supporters hope that the Polkadot ecosystem can produce a unicorn project that can lead the entire Polkadot ecosystem forward. Applying for 5 million DOTs will not cause much "drain" to the treasury, as it will be replenished through inflation in 3 months. We have always been very conservative in the past, but this time we should be aggressive and spend money to see the effect.
The opposing party is mostly more rational and conservative. They do not deny Hydration's contribution and current popularity, but they also pursue practical results, goals and executable strategies. Another point is that the current funding from the treasury is very vague. There is no strict definition of what proposals the treasury can support and what proposals should be the responsibility of the project party itself.
Finally, I would like to add some more thoughts after seeing these discussions in the past two days.
As one of the DVs, PolkaWorld’s responsibility is to help proposers find their place in Polkadot and try to ensure that the money spent by the treasury is spent on the right things, and also to consider the long-term development of the entire Polkadot community. The Hydration project is indeed a hot project, and the innovative products they launched have indeed attracted users. In the first incentive event, both TVL and on-chain users increased.
Therefore, from the user's perspective, we all support a project to emerge in the Polkadot ecosystem and bring incremental users and liquidity.
But what we need to consider now is, for a project with a higher probability, should its marketing funds be paid from the treasury owned by the entire Polkadot DAO?
1. A very simple truth is that the proposal of Hydration mentioned that other DeFi projects would take out 100 million or 200 million US dollars for liquidity because these projects used investors' money, not free money from the Ethereum Foundation. So the difference here is that investors have their tokens, while the Treasury only plays the role of a funder here and does not get tokens. PolkaWorld has always emphasized that the Treasury is currently a funder and does not have the identity of an investor.
2. Such incentive activities can indeed bring more integrations, but Jakub, one of its founders, mentioned in our chat that possible future integrations will also require money from the treasury. How to distinguish whether this is the money that the rollup project itself should pay for its integration, or because their business is aimed at DOT holders, then this money should be paid by the treasury owned by all DOT holders? This goes back to our original question, does Hydration belong to its team and HDX holders? Or does it belong to all DOT holders? So it is not unreasonable for the community to propose the acquisition of Hydration, or at least exchange some HDX tokens.
3. 5 million DOTs are equivalent to 30% of the DOT balance in the relay chain and the Asset hub. If a project with high expectations takes 30% of the balance and declares that it doesn’t matter, the treasury funds can be returned through inflation in 3 and a half months. However, they did not explain in the proposal what specific goal they want to achieve with 5 million DOTs, what kind of efforts they will make to achieve it, and said that because the price of DOT will also fall, it is difficult to say what the expectations are.
We believe that this is an irresponsible practice of taking Polkadot DAO's money and transferring market risks to Polkadot DAO.
So in the future, will all “highly-expected” rollups be able to apply for huge sums of money without making any commitments to Polkadot DAO?
When we demand all quantifiable deliverables from other small proposals, why can’t we do the same from the originators of large proposals?
If we set a clear goal, in addition to being a commitment to the treasury, it also sets a motivation for the Hydration team and the entire Polkadot community, sets a motivation for each spontaneous yapper, and tells the entire community the direction of our efforts.
So the current situation is that the National Treasury, in the role of a funder, is doing the work of an investor - picking a project that may be successful and pinning its hopes on this project.
Moreover, we have not discussed here how to retain users and liquidity after spending these "airdrop"-like money. This part is not mentioned in the proposal. Because we all know that those who take advantage of the airdrops have no loyalty. We can increase TVL and increase users in a short period of time, but if there are market changes, how are we going to make adjustments? What is the user retention strategy? We can't expect users to decide to stay because of incentives, right?
As Hayek said, “The price of freedom is eternal vigilance.”
In an open governance system, freedom means that everyone can initiate proposals, vote, and participate in direction setting. But this also requires us to be sober and restrained in the use of resources, especially when faced with proposals that are large in size and have great potential, but have not yet set clear delivery targets.
As a governance representative, PolkaWorld has been trying to find a balance between "supporting ecological growth" and "protecting public assets". We are not opposed to the investment of funds, nor do we deny the efforts of the project. But as mentioned above, we hope that the proposer will not only rely on "reputation/popularity" to obtain huge funds, but will be goal-oriented, set measurable milestones, and assume quantifiable responsibilities.
A truly decentralized, healthy and sustainable ecosystem should not rely on "throwing money blindly", but should encourage rational trust, open collaboration and clear commitments.
In short, we do not rule out the possibility of the public treasury supporting projects with high expectations. However, if the public treasury is asked to pay too high a price based on high expectations and does not set targets, strategies, or commitments before taking the public treasury money, we believe this is irresponsible.
As of the time of writing, the support rate for this proposal is 60.3%. Among the six DVs, one (Kus DAO) supports it, four (PolkaWorld, JAM Implementers DAO, Trustless Core, Hungarian Polkadot DAO) oppose it, and one (Permanence DAO) did not vote. But even if Permanence DAO voted, it would not change the result, because a giant whale 14D supported the proposal with 18 million DOT voting rights!
https://polkadot.subsquare.io/referenda/1542?tab=votes_bubble
It seems that the outcome is set. The proposal will enter the confirmation period in 11 days. Will there be any changes in the future? Follow us and keep tracking!