What changes will occur after Polkadot reduces security expenditure?
I believe everyone has already seen the article released by PolkaWorld yesterday — the key direction proposed by Gavin Wood at the Web3 Summit in Berlin on July 16 — he believes that the current security expenditure of the Polkadot network is too high and hopes to reduce security spending from about $500 million per year to $90 million, decreasing by as much as 82%.
What is the cybersecurity expenditure? That is, 85% of the DOT generated annually through inflation in Polkadot's NPoS mechanism is rewarded to validators and nominators! Gavin believes that this part of the reward is currently too high and needs to be reduced!
Currently, it is heard that this proposal may be put forward by the end of this month. If this proposal is indeed implemented, what significant changes will it bring to Polkadot's staking mechanism, DeFi ecosystem, and treasury mechanism? Today we will provide a brief analysis!
On the staking side: Can Polkadot easily enter the top ten of global DeFi TVL?
Polkadot's current high staking rate is to support an expensive security model. That is, the Nominate Proof-of-Stake (NPoS) mechanism relies on a large amount of funds locked in staking to resist attacks and maintain network security.
Gavin proposed at the Web3 Summit to reduce network security expenditure from $500 million to $90 million. From some measures he mentioned, we see that the future security mechanism may no longer rely solely on high staking.
The essence of these measures is to make the assumption that 'the more you stake, the safer it is' no longer valid. For example:
Fix income for each validator, rather than distributing according to staking weight;
Conduct KYC or interviews for validators;
Use a more refined slashing mechanism combined with PoP (Proof of Personhood) identity constraints;
Change the incentive structure, establish an intermediary pool to adjust rewards
Reduce inflation, adopting a fixed total issuance mechanism of 3.14 billion DOT
Set a fixed fiat return for stakers (for example, earn an annual return of 3% when staking $1 million) etc.
The result of this will be
Staking rewards will decrease, thus no longer attracting a large amount of DOT into staking
DOT will be released for DeFi, governance, liquid staking, and other uses
The staking rate may drop from the current 52% to a more reasonable ratio
But the network can still remain secure (through higher validation thresholds and PoP identity mechanisms)
Therefore, once the security expenditure model shifts from 'locking a large amount of capital for security' to 'smarter ways to ensure security,' it will naturally not require 52.25% of the total DOT to be used for staking (security protection).
Okay, let's do a simple calculation now.
Currently, Polkadot's staking rate is 52.25%, with about 809 million DOT locked in staking. Assuming the staking rate drops from 52% to 30%, this is close to Ethereum's current staking ratio (about 29.5%).
This will release up to 345 million DOT of on-chain liquidity.
https://staking.polkadot.cloud/#/overview
What if all these DOT flow into Polkadot DeFi?
If DOT is calculated at $10, then Polkadot's DeFi TVL could easily exceed $3 billion!
This will directly push Polkadot into the top ten of global DeFi TVL, initiating a new growth flywheel.
https://defillama.com/chains
If Polkadot enters the top ten of global DeFi TVL by releasing staking capital and activating DeFi liquidity, it will bring at least five impacts:
1. Surge in capital attention
Entering the top ten means that Polkadot's DeFi ecosystem will first enter the radar of institutional investors, analysts, rating agencies, and mainstream media. This will bring:
More funds will be included in DOT and its DeFi protocols
More trading platforms will launch DOT derivatives (such as collateral, lending, leverage)
Investor confidence will increase, and TVL growth will enter a positive feedback loop
2. Ecosystem developers and project influx
Developers prefer ecosystems with many users, high TVL, and abundant funds. Once Polkadot DeFi enters the mainstream rankings:
Attract more DEX, stablecoins, and lending protocols to be deployed on Polkadot Hub and other core chains
Encourage developers to migrate from Ethereum, Solana, etc., or cross-chain deploy, enhancing the diversity of the chain
3. The on-chain utility and demand for DOT will increase
DeFi is the starting point for the explosive utility of DOT. An increase in TVL means DOT will:
Be more widely used as LP assets, collateral, and liquid staking assets
Enhance the economic role of DOT on-chain as collateral, governance, and exchange medium
More conducive to supporting the value of DOT and long-term network security
4. Improvement in ecosystem valuation and financing ability
TVL is an important valuation indicator when financing Web3 projects. Once Polkadot DeFi rises:
Funding for parachains and dApp projects will be easier and valued higher
External venture capital, funds, and RWA projects will be willing to launch new products on Polkadot
The overall ecosystem transitions from a 'construction phase' to a 'capital multiplier phase'
5. Narrative reshaping
"Is DOT good technology but no one uses it?" This narrative will change completely:
Polkadot will move from an 'infra narrative' to a 'TVL narrative'
Become a key variable in the DeFi narrative: safer cross-chain, higher performance execution environment (PolkaVM, JAM), flexible scalability
In summary, TVL is the key stepping stone for DOT to transition from the 'staking era' to the 'usable asset era.' Entering the top ten is the key to unlocking the triple thresholds of narrative, capital, and developers.
Treasury funds will decline significantly! The use of treasury funds will tend toward efficiency, restraint, and precision
What impact will this have on the treasury funds?
Gavin's reform plan will also have another significant impact — Polkadot's treasury income will shrink significantly.
If the current ratio of 85% inflation to stakers and 15% inflation to treasury is maintained:
Security expenditure reduced from $500 million to $90 million
Thus, the treasury's annual revenue will drop to only about $15.88 million
Assuming each DOT is priced at $5, this means only 3.17 million DOT enter the treasury each year.
You can see how significant the reduction is by comparing — only in June this year, the treasury spent $28.24 million, already far exceeding this figure!
Data source: https://data.parity.io/opengov-report?tab=polkadot-treasury&info-tab=treasury-overview&chart-tab=chart_opengov_report_treasury_spending
Based on this trend, we have repeatedly reminded everyone in recent live broadcasts and articles that the Polkadot community must quickly adapt to the 'low-budget era.'
It is also because of this that, as a DV, PolkaWorld updated our voting principles last week:
1. Security expenditure reduced from $500 million to $90 million, which is a clear signal! Treasury funds will shrink significantly, and we must adapt as soon as possible. Therefore, we refocus on the core mission of the treasury:
Only fund 'indispensable' proposals
Prioritize support for irreplaceable public goods
Clearly reject 'non-essential' or purely promotional proposals
From now on, every funding request must prove its necessity from this perspective.
2. Recently, we have seen a wave of SDK and development tool proposals claiming to optimize user experience. But the reality is that many tools are hardly used. The treasury should not fund 'potentially useful' tools that are actually unused.
Our position is:
SDK and UX tool proposals = only support retroactive funding
First produce results. Have real users. Then bring out data to apply for funding.
This can protect treasury funds and also reward truly impactful builders.
3. About salary subsidies:
We believe that 'maintenance' ≠ 'development' and should be treated differently:
Development work: upper limit $100 / hour
Maintenance work: upper limit $30 / hour
Exceeding this standard, we will vote no (NAY). (In the future, we may further lower the upper limit.)
4. What is our ultimate goal?
Ensure the long-term sustainability of Polkadot and support creators that truly align with the ecological mission.
Voting 'no' is not against a specific team, but an invitation — inviting you to do better, to respond to the true needs of this ecosystem.
Let's work together to build a better Polkadot!
This is the starting point for profound reform
If Gavin's security expenditure reform is implemented, we are standing at the starting point of a new round of ecological upgrades and governance optimizations for Polkadot:
DeFi may become the engine for the new round of DOT explosion
Treasury governance will tend toward efficiency, restraint, and precision
Polkadot needs to spend smarter and more precisely support true ecological creators
What do you think of this series of reforms? How do you think the release of DOT will reshape Polkadot's ecological structure? Feel free to leave a message and discuss with us!
