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 suggests an alternative approach: allocate treasury funds to mature DeFi protocols by holding revenue-generating parachain tokens. This strategy adds yield-generating assets to the treasury portfolio, potentially improving long-term financial sustainability.
In addition, the proposal also introduces a new financing model where funds remain staked within Polkadot, but using inflation to fund projects instead of spending principal.
We have already seen similar proposals in the community—using inflation as a funding source:
https://polkadot.subsquare.io/referenda/712
https://forum.polkadot.network/t/economic-growth-incentives/14300
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.
Through this model:
*This assumption does not represent the actual application and is for reference to understand the contents only.
Bifrost and Hydration 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.
| Project | Annual Fees | Annual Revenue (12M / Estimate) | Source |
|---|---|---|---|
| Bifrost | ≈ US$11 million annualized fees | ≈ US$1.48 million annualized revenue | Staking/vToken operation |
| Hydration | ≈ US$381,555 annualized fees | ≈ US$66,588 annualized revenue | Trading fees |
bbBNC - the protocol revenue sharing representation token in Bifrost's new tokenomics. 100% of protocol profits go into BNC buybacks, where 90% is distributed to bbBNC holders and 10% is permanently burned.
Based on $1.48M in annual profits and a 100% buyback policy (without considering protocol operation fee):
Treasury Return Assumption
| Investment (from 4yrs staking inflation) | BNC Price | Annual Return | APY |
|---|---|---|---|
| $1,000,000 | $0.1431 | $208,945 | 20.9% |
Hence, by holding bbBNC, Polkadot Treasury will continuously get a share of protocol revenue from $BNC buyback.
For DeFi protocols, "Liquidity" contribution is the most direct evaluation metric. Introducing external assets to Polkadot brings financial resources from other ecosystems, enhancing liquidity while fulfilling Polkadot's core value of cross-chain connectivity.
| Project | Method of Bringing External Assets | Typical External Assets | Key Data | Value to Polkadot |
|---|---|---|---|---|
| Bifrost | Uses Liquid Staking / vTokens to transform staking rights of native or cross-chain assets (ETH, DOT, MANTA, ASTR.) into derivatives usable within Polkadot and multi-chian. | vDOT, vETH, vMANTA, vASTR etc. | TVL ≈ $117M, Cross-chainable asset TVL ≈ $100M | Unlocks liquidity of staked assets and channels their “yield rights” into Polkadot DeFi. Channels DOT staking to other chains. |
| Hydration | Aggregates multi-chain assets, stablecoins, and derivatives into shared liquidity pool. | USDC, USDT, ETH, BTC, AAVE, SOL etc. | TVL ≈ $480M, monthly trading volume in the tens of millions. Over $100M liquidity from other chains. | Directly imports external trading assets into Polkadot, significantly enhancing liquidity and price discovery |
| Hyperbridge | Provides verifiable cross-chain bridging (ISMP / state proofs) to securely bring native assets from other chains into Polkadot, and vice versa. | Native assets from Ethereum, Optimism, Arbitrum, Base, BNB, Gnosis, etc. | Supports for 14 major chains; ~$56M of cross chain transaction between other chains and Polkadot. | Channels major-chain native assets into Polkadot with minimized trust assumptions. |
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.
All actions below can be implemented via OpenGov:
On AssetHub:
On Bifrost:
Here's a simple summary of the Polkadot treasury proposal:
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 suggests an alternative approach: allocate treasury funds to mature DeFi protocols by holding revenue-generating parachain tokens. This strategy adds yield-generating assets to the treasury portfolio, potentially improving long-term financial sustainability.
In addition, the proposal also introduces a new financing model where funds remain staked within Polkadot, but using inflation to fund projects instead of spending principal.
We have already seen similar proposals in the community—using inflation as a funding source:
https://polkadot.subsquare.io/referenda/712
https://forum.polkadot.network/t/economic-growth-incentives/14300
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.
Through this model:
*This assumption does not represent the actual application and is for reference to understand the contents only.
Bifrost and Hydration 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.
| Project | Annual Fees | Annual Revenue (12M / Estimate) | Source |
|---|---|---|---|
| Bifrost | ≈ US$11 million annualized fees | ≈ US$1.48 million annualized revenue | Staking/vToken operation |
| Hydration | ≈ US$381,555 annualized fees | ≈ US$66,588 annualized revenue | Trading fees |
bbBNC - the protocol revenue sharing representation token in Bifrost's new tokenomics. 100% of protocol profits go into BNC buybacks, where 90% is distributed to bbBNC holders and 10% is permanently burned.
Based on $1.48M in annual profits and a 100% buyback policy (without considering protocol operation fee):
Treasury Return Assumption
| Investment (from 4yrs staking inflation) | BNC Price | Annual Return | APY |
|---|---|---|---|
| $1,000,000 | $0.1431 | $208,945 | 20.9% |
Hence, by holding bbBNC, Polkadot Treasury will continuously get a share of protocol revenue from $BNC buyback.
For DeFi protocols, "Liquidity" contribution is the most direct evaluation metric. Introducing external assets to Polkadot brings financial resources from other ecosystems, enhancing liquidity while fulfilling Polkadot's core value of cross-chain connectivity.
| Project | Method of Bringing External Assets | Typical External Assets | Key Data | Value to Polkadot |
|---|---|---|---|---|
| Bifrost | Uses Liquid Staking / vTokens to transform staking rights of native or cross-chain assets (ETH, DOT, MANTA, ASTR.) into derivatives usable within Polkadot and multi-chian. | vDOT, vETH, vMANTA, vASTR etc. | TVL ≈ $117M, Cross-chainable asset TVL ≈ $100M | Unlocks liquidity of staked assets and channels their “yield rights” into Polkadot DeFi. Channels DOT staking to other chains. |
| Hydration | Aggregates multi-chain assets, stablecoins, and derivatives into shared liquidity pool. | USDC, USDT, ETH, BTC, AAVE, SOL etc. | TVL ≈ $480M, monthly trading volume in the tens of millions. Over $100M liquidity from other chains. | Directly imports external trading assets into Polkadot, significantly enhancing liquidity and price discovery |
| Hyperbridge | Provides verifiable cross-chain bridging (ISMP / state proofs) to securely bring native assets from other chains into Polkadot, and vice versa. | Native assets from Ethereum, Optimism, Arbitrum, Base, BNB, Gnosis, etc. | Supports for 14 major chains; ~$56M of cross chain transaction between other chains and Polkadot. | Channels major-chain native assets into Polkadot with minimized trust assumptions. |
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.
All actions below can be implemented via OpenGov:
On AssetHub:
On Bifrost: