Polkadot DAO has voted to reduce its inflation from the current 10% to 8% and gradually over time, but will this support DOT price? Or will bears stay in control?
Inflation matters.
Whether in Bitcoin, Ethereum, Polkadot, or even Solana, developers are looking for a way to track inflation and reduce it over time.
Like in TradFi, inflation impacts valuation, mostly introducing a supply impact that can slow down bulls.
Bitcoin halves its mining rewards after every 240,000 blocks. At the same time, Ethereum implemented EIP-1559 to burn the base fee, reducing ETH depending on network demand.
Bitcoin Halving has helped prop up prices for years while the impact of EIP-1559, after Dencun, has been minimized, and the network is now inflationary.
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Polkadot Approves Referendum 1139: But What Does It Mean For DOT?
Now, Polkadot
Price Trading volume in 24h Last 7d price movement 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 after approving Referendum 1139.
Over 77% of voters, representing over 63 million DOT, were in favor of this proposal. What this means is that most holders agreed that this proposal was necessary and saw the need to implement a fixed treasury inflow and make other upgrades that allow for governance changes of inflation.
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.
The initial idea 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, 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.
Will DOT Price Recover As Inflation Halts?
DOT will become scarcer over time by reducing inflation, 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 shows. DOT is down nearly 70% from March highs.
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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.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
