Supply Idle DOT on Hydration as Yield-Bearing Collateral

Requested Amount: 0 DOT

Date (discussion): 20-01-25

Short Description: Ref #1104 created a long-running DCA schedule on Hydration on behalf of the Polkadot Treasury to accumulate USDT and USDC using DOT. Currently, the DCA holds ~3,700,000 DOT which is sitting on Hydration and waiting to be swapped. This proposal aims to increase the capital-efficiency for the Treasury and for DeFi users by supplying the open amount as collateral to the Borrow feature on Hydration, and selling that collateral over time to continue executing the DCA schedule. By doing so, the Polkadot Treasury will accumulate yield on the dormant DOT, while substantially increasing the DOT supply available for borrowing, thus enabling more DeFi use cases.

Please read the full proposal here.

Context

The Polkadot Treasury has decided in Ref #1104 to accumulate USDT and USDC stablecoins by transferring 5,256,001 DOT to Hydration and placing a long-running DCA order which performs the swaps over time. This is not the first time it has done so - previously, Ref. #457 DCA’ed 3,405,000 DOT into USDT and USDC over ~11 months.

At the time of writing, there is ~3,700,000 DOT remaining in the running DCA schedules (it can be checked here). At the time of writing, the schedules are expected to continue for another ~260 days. This DOT is just sitting there, waiting to be swapped. Instead of letting it stay idle, the Treasury could utilize these assets by supplying it as collateral to Hydration’s Borrow feature. As Hydration allows using collateral to execute a DCA schedule, the accumulation of USDT and USDC can continue uninterrupted, as planned in the original proposal.

Impact

Supplying the idle DOT as collateral on Hydration will have three major benefits.

In the first place, it will improve the capital-efficiency of the Treasury DCA. After being supplied as collateral, the DOT will start accumulating a yield which is determined by the demand for this asset on the borrowing market. Using that yield, the Treasury will be able to accumulate more USDT and USDC.

In the second place, this proposal will give a boost to the native DeFi ecosystem by increasing the DOT available for borrowing on Hydration. With a current utilization rate of 40%, the community is showing strong interest in borrowing DOT which can be used for various interesting DeFi strategies.

Finally, the proposal will help grow some important DeFi metrics, while showcasing some strong use cases of Polkadot (cross-chain transfers, governance, trustless swaps).