Polkadot has made a concerted effort to increase the decentralization and community power of its network, and the move appears to be paying off as it gains rapid traction amid a wider industry bull run.
Having struggled to keep pace with many of its rivals over the last couple of years, Polkadot has made a strategic pivot, putting full faith in the ability of its community to rejuvenate the project. Following its push for greater decentralization, Polkadot has seen a dramatic increase in network activity, with the community freeing up more of its treasury funds to support ecosystem growth.
Polkadot’s Drive To Democratic Governance
Late 2023 was a pivotal moment for the Polkadot blockchain, as it underwent a radical organizational change that reinforced its commitment to decentralization, and the community has reacted warmly to the change. Notably, the project transitioned away from centralized leadership, leaving all non-engineering-focused decisions to a decentralized autonomous organization called the Polkassembly, where everyday users have their say.
Previously, many of the decisions in Polkadot’s ecosystem were taken by Parity Technologies, the profit-making company that develops the Polkadot blockchain’s infrastructure. By shifting to a community-led model, Parity has stood aside in place of DOT token holders, who now influence all of the big decisions, including the distribution of treasury funds. Parity will now focus solely on blockchain development.
One of the first moves made by Polkassembly came as a real shock when the community voted to lay off a significant number of Parity’s staff. The layoffs impacted Parity’s marketing and business development operations and saw 30% of its workforce put out of a job. Instead of paying the professionals, Polkadot voted to leave marketing to the wider community.
The move has freed up more funding from Polkadot’s treasury, which currently holds over 42 million DOT (worth around $284 million). These funds come from the network’s users, with a portion of all transaction fees and staking rewards being redirected to the treasury’s coffers.
The decision to allow Polkassembly to control these funds stemmed from a longstanding discussion within the community, with many members arguing that the treasury had failed to find an efficient way to utilize this money. Events since September 2023 appear to have proven them right. Since Polkassembly, and therefore the community, gained direct control over the treasury, the project has dramatically increased the amount of funding provided to Polkadot-based projects.
Within Polkassembly, any DOT token holder can post a proposal or an application for funding on a dedicated forum, and then the wider community is allowed to vote on whether or not to approve it. It seems that the Polkadot community is much more generous than Parity ever was, as it has bestowed more than 1.13 million DOT, or $8 million, on various projects that have applied for funding. With dozens of other applications in the pipeline, this largesse is likely to increase.
Data from Messari shows that Polkadot is being rewarded for its generosity, for the network witnessed a significant jump in activity in the December quarter. Both the Polkadot chain and its Parachains saw the number of active wallets increase, by 95% and 93% respectively, while cross-chain messages sent via Polkadot’s XCM protocol were up more than 150%.
Polkadot Projects Are Gaining Momentum
A number of Polkadot-based projects have been making waves in recent weeks too. One of the most notable announcements came from Kusama, which is Polkadot’s canary network, built atop of the Substrate framework that also powers Polkadot’s Relay chain. With its latest consensus upgrade, known as Beefy, Kusama has enabled two new blockchain bridges dedicated to boosting cross-chain interoperability. The most important of these is Hyperbridge, which allows Kusama to talk to multiple L2s on Ethereum, such as Arbitrum and Polygon, while the Snowbridge serves to connect Kusama directly with Ethereum and other EVM chains.
Meanwhile, the Web3 Foundation which nurtures Polkadot and supports its ecosystem growth, has donated a reported $20 million in funding towards the Encryption to the Future Network, or ETF Network, which is focused on publicly verifiable randomness and timelock encryption to enable more secure and delayed messages between parachains.
The blockchain prediction market maker Zeitgeist has also made some big strides in recent weeks, adding support for USDC transactions between it and the HydraDX and Moonbeam parachains, boosting interoperability across the network. That announcement came just days after Zeitgeist launched its pioneering DLMSR, or Dynamic Logarithmic Market Scoring Rule, which is said to support the creation of more flexible prediction markets with enhanced liquidity. With DLMSR, Zeitgeist believes its network will benefit from substantial improvements to operational efficiency, allowing larger trades with lower slippage.
Polkadot’s Community Reacts
Notable figures within the Polkadot community have reacted positively to Polkadot’s push towards decentralization. Polkadot advocate Giotto De Filippi, a self-professed DOT whale, told Forbes contributor Victoria Chynoweth that the decision to grant more power to the Polkassembly has led to more rapid progress. By becoming more autonomous and empowering its community, Polkadot has attracted broader participation from various influential voices in the crypto industry, he said.
“We went from basically zero marketing a few months ago to having just hired some of the best influencers — all in a completely transparent and decentralized way — thanks to OpenGov,” De Filippi said.
William Chen, chief operating officer of Talisman Wallet, one of the major wallet providers in Polkadot’s ecosystem, told Chynoweth that he was initially taken aback by Parity’s decentralization initiative. However, he has since realized the importance of the decision, enabling community stakeholders to influence the project’s growth. “Global blockchain adoption is in its infancy, and as an industry, we will face untold challenges as we grow — decentralization is the understated force that gives true long-term resilience to the network,” he explained.
Besides powering more rapid growth and promoting greater resilience in the network, the shift to decentralization has also helped to foster more inclusiveness and diversity, said Kilt identity protocol founder Ingo Ruebe. According to Chynoweth, he believes the decision by Polkadot’s community to independently fund marketing and business development is a move that brings major benefits not only to the network itself, but the wider Web3 industry. He pointed out that by empowering individual agents with the ability to propose suggestions and seek funding from the community, Polkadot is encouraging the community to debate and decide on the most appropriate course of action. He believes that it will ultimately serve as a model for other blockchain projects that are less decentralized.
A Beacon For Decentralized Governance
Polkadot has undoubtedly set a precedent for the wider crypto industry. While many may have perceived Polkadot’s gambit as an experimental and risky move, it’s one that fits perfectly with one of the essential elements of the crypto world. Decentralization has been one of the most attractive aspects of crypto since the foundation of Bitcoin itself and is all about giving communities the responsibility to decide for themselves.
Because it’s a given that the vast majority of community members have the project’s best interests at heart, it makes sense that they will carefully consider each decision and take the best course of action after considering multiple viewpoints. Polkadot has shown that to be true, and in the process, it is fostering a more dynamic and inclusive community that welcomes the opinions of all.
It’s too early to say if Polkadot’s extreme form of decentralized governance will ultimately prove successful or not, but the early signs are positive. By emphasizing the importance of community engagement in driving growth and innovation, Polkadot is emerging as a beacon for the benefits of decentralization. So don’t be surprised if more blockchain projects decide to follow its forward-thinking approach and pivot towards a more democratic decision-making model.