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Polkadot Approves RFC-10: Will Burning Revenue be Bullish for DOT

Last Updated February 14, 2024 4:24 PM
James Morales
Last Updated February 14, 2024 4:24 PM

Key Takeaways

  • Polkadot has approved a proposal to burn revenue from “coretime” sales.
  • Coretime refers to tokenized block space that applications can buy and sell as Polkadot transitions to a more dynamic procurement model.
  • The news that DOT generated by Polkadot’s coretime sales will be burned could be bullish for the cryptocurrency.

The Polkadot Fellowship has voted  to approve a proposed upgrade that will burn revenue generated by sales of the platform’s “coretime.”

Known as RFC-10, the planned upgrade will decrease the available supply of DOT, which could take a bullish turn as markets factor in the adjusted supply dynamics.

Token Burning and Crypto Prices

Historically, both one-off token burns and blockchain upgrades that increase a cryptocurrency’s burn rate or introduce a new burning mechanism have had a positive effect on prices.

One especially dramatic example of the phenomenon occurred in May 2021, when Ethereum founder Vitalik Buterin burned 410 trillion Shiba Inu representing 40% of the meme coin’s total supply.

After Buterin’s burn, the price of SHIB exploded, jumping by more than 1600% in the following 6 days.

For DOT, the positive result in the RFC-10 election won’t lead to a single massive burn. However, the long-term effect on the token’s supply could still be significant.

Under the Current model, the Polkadot Treasury generates most of its income from fees, of which it typically burns a few hundred thousand DOT each month, retaining the rest as a kind of ecosystem growth fund. 

However, the transformation to Polkadot 2 initially threatened to disrupt the status quo by introducing an additional source of potential Treasury income: coretime sales. 

Polkadot 2: From Slot Leasing to Coretime Procurement

Traditionally, Polkadot parachain slots were auctioned off to the highest bidder, who then leased the slot for a predefined period.

However, Polkadot has acknowledged  that “the slot auction mechanism is not agile, creates high entry barriers, and is designed for long-running single applications.”

Going forward, the network is moving toward a more dynamic “coretime marketplace” in which applications can buy and sell tokenized block space as needed. 

As Polkadot transitions to a dynamic marketplace model, the community has debated what to do with the revenues from coretime sales – direct them to the Treasury, burn them, or a mix of both?

RFC-10  Targets Stable Treasury Income

In his proposal , the RFC-10 author Jonas Gehrlein argued that it is in the interest of the Polkadot community to have a consistent and predictable Treasury income. “Why should we consider adding more volatility to the Treasury by tying it to fluctuating coretime sales?” he questioned.

After months of discussion, Polkadot Fellowship members have come around the Gehrlein’s way of thinking and RFC-10 was passed with a 100% majority voting in support of the proposal.

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