Exploring Protocol Revenue to Strengthen Polkadot’s Treasury

14p3...tgp4
4d ago
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*This proposal aims to discuss the macro-level possibilities of this topic, while specific amounts, protocol revenue, and dividend details will be discussed through a separate proposal before executing the referendum.

Summary

While the Polkadot community has previously discussed diversifying BTC and ETH in the treasury reserves, a key argument remains: Can these assets bring consistent or sustainable income?

This proposal seeks to explore an alternative approach — allocating a portion of the treasury to participate as a stakeholder in mature DeFi protocols, particularly through holding parachain tokens that provide protocol revenue. Rather than replacing BTC or ETH as reserve assets, this strategy aims to complement them by introducing yield-generating components into the treasury portfolio, potentially enhancing the long-term financial sustainability of the network.

Community Concerns

Based on previous discussions, the community has raised several concerns that we should consider in advance:

Why Parachain Tokens? - Addressing Concerns

Can dividends be provided for the treasury?

If the invested parachain projects can offer stable income, the treasury can receive returns through dividends, forming a sustainable funding cycle. Compared to simply assets holding, continuous dividends are more beneficial for long-term development.

Currently, there are parachain projects that can provide dividends with growth potential, such as Hydration and Bifrost.

For instance, in Bifrost's upcoming new economic model, holding bbBNC means participating in protocol revenue sharing. Although bbBNC is a non-transferable credential, the Polkadot treasury address can hold bbBNC on the Bifrost network and transfer dividends back through XCM calls.

In addition, the same logic can be leveraged on Hydration. Hydration continuously buys back HDX through their Treasury and distributes dividends to HDX stakers. The Treasury can act as a staker as well.

Revenue & Fee Metrics

Both projects have achieved stable revenue for at least six months to a year. As protocol operations expand and revenue increases, the Polkadot treasury will receive greater returns.

Fees on Hydration - revenue accruing since Mar, 2025

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Fees on Bifrost - revenue accruing since Mar, 2024

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Decentralization?

Investing in parachains can theoretically be fully implemented through Opengov execution, without requiring any third-party intervention. Whether staking HDX or holding bbBNC, on-chain execution can be completed through XCM calls to Hydration or Bifrost.

Community Confidence

  • The growth of parachain projects will greatly enhance Polkadot's visibility, especially those projects that deeply integrate DOT at the product level. Additionally, increases in Parachain token prices will further boost treasury revenue.
  • Implementing on-chain governance, investment, and dividend distribution models will be completely transparent, which could be a groundbreaking application paradigm for other chains.
  • Parachain Token management by the Polkadot community can enhance user confidence.

Timing

Compared to the DOT/BTC price, DOT still maintains a certain advantage when exchanging for parachain tokens.

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Risk

  • Parachain project tokens have higher volatility than BTC and ETH. Additionally, there are unpredictable risk factors such as protocol security issues, team stability, and development roadmap.
  • Protocol revenue is closely tied to business scale; if the business scale shrinks, treasury income will decrease accordingly.
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