Polkadot Approves Referendum 1139: But What Does It Mean For DOT?

Polkadot plans to lower its DOT emissions. Last week, the community voted to reduce the DOT inflation rate from 10% to 8% over the coming weeks

Polkadot (DOT) price has been trending lower in 2023, despite the network’s native token rallying over 200% from lows last year.

However, DOT price is now up over 70% year-to-date, outperforming Bitcoin and Ethereum. But could recent Polkadot DAO decisions impact DOT price?

Polkadot DAO has voted to reduce the network’s inflation rate from the current 10% to 8%, with plans to gradually lower it over time. But will this support DOT price or will bears remain in control?

Polkadot DAO Approves Referendum 1139

Polkadot (DOT) price will become scarcer over time as the network plans to reduce its inflation rate. Last week, Polkadot community members voted in favor of reducing the DOT inflation rate from 10% to 8% over the coming weeks.

This decision was made after Polkadot DAO approved Referendum 1139. Of the total vote, over 77% of voters, representing over 63 million DOT, were in favor of this proposal.

The proposal aimed to reduce the platform’s treasury emissions, which are currently fully inflationary. But this will be achieved by reducing the new issuance of DOT.

The objective was to align the platform’s inflation mechanism with its current operational dynamics, which keeps in mind the network’s original inflation mechanism.

Initially, the plan was to tie inflation with the staking rate. However, considering the recent sequence of events, especially around network usage, the current inflation rate is no longer optimal.

Specifically, the introduction of Agile Coretime, which makes the crowdloan model redundant, is pushing inflation higher and to excessive levels.

Agile Coretime Pushes Polkadot Inflation

Agile Coretime, which came into force in Q3 2024, introduces a spot market for core time. Here, users can buy the network’s core time or processing power in real time, leading to more flexibility.

Unlike the crowd loan model, core time is agile, meaning it is more market-driven and efficient.

However, this also means that network users can now fully utilize the network’s processing power without having to participate in crowdloans. As a result, staking participation and the amount of DOT being bonded will decrease.

This, in turn, will lead to a lower average staking rate and higher inflation. To counter this, the proposal suggests reducing the inflation rate from 10% to 8%.

Will DOT Price Rise as Inflation Drops?

With less inflation, new issuance of DOT will become scarcer over time, potentially supporting prices. Eventually, Polkadot plans to reduce inflation to around 120 million per year through inflation and by coretime burns.

Even so, whether this will support DOT prices remains to be seen. The coin has been trending lower, as the daily chart below shows. DOT is down nearly 70% from March highs.

(DOTUSDT) price on Binance日からチャート. 出典: TradingView

Moreover, while Polkadot plans to shave inflation, adoption levels remain lower than the set inflation rate. At the same time, with fewer DOT available, it means only a few will trickle into the Polkadot Treasury.

Whether this will significantly impact how the platform (Foundation) funds new projects and boost ecosystem developments remains to be seen.