Polkadot Proposes $2 Million Bitcoin Reserve to Stabilize DOT Amid 7% Price Drop

Polkadot, a prominent blockchain platform, has proposed a strategic initiative to enhance its financial stability by establishing a $2 million Bitcoin reserve. This move comes as the platform's native token, DOT, faces significant market challenges. The proposal involves converting 500,000 DOT, valued at approximately $2 million, into Threshold Bitcoin (tBTC), a decentralized and non-custodial version of Bitcoin secured through threshold cryptography.

Before the conversion to Bitcoin begins, the 500,000 DOT will be staked in aDOT, a yield-generating collateral token. This step allows the treasury to earn returns on its DOT holdings while increasing liquidity for decentralized finance (DeFi) borrowing. Additionally, 1,000 DOT will be set aside to cover transaction fees associated with executing this strategy.

The Polkadot treasury plans to execute the Bitcoin conversion gradually over a year using Hydration’s rolling dollar-cost averaging (DCA) feature. This method enables daily, incremental purchases to maintain a steady Bitcoin inflow. Once enough tBTC is accumulated, portions of it (0.005 tBTC per transaction) will be added as liquidity to the Hydration Omnipool. The proposal emphasizes that the tBTC will remain under the control of the Treasury and is intended to be maintained as a reserve, not a pool for payments.

Supporters of the plan argue that this move will reduce exposure to market swings and create new opportunities for DeFi on Polkadot. The reserve is also designed to preserve the treasury’s value and ensure sufficient funds for future budgets. This strategy mirrors a broader industry trend where organizations and governments are viewing Bitcoin as a strategic reserve asset to hedge against economic instability and currency devaluation.

Polkadot’s interest in building a Bitcoin reserve comes at a time when its DOT token is facing market challenges. According to data, DOT’s price has dropped 7% in the last 24 hours to $3.80, its lowest level since October 2023. In Bitcoin terms, the token has fallen to an all-time low of 0.00003658 BTC, losing over 62% of its value in the past year. This downturn in DOT’s price highlights the need for Polkadot to seek stability through diversification into Bitcoin.

In summary, Polkadot’s proposal to create a $2 million Bitcoin reserve is a strategic move to enhance financial stability and reduce exposure to market volatility. By converting DOT into tBTC and gradually adding it to the Hydration Omnipool, Polkadot aims to preserve the treasury’s value and create new opportunities for DeFi. This initiative reflects a broader industry trend of viewing Bitcoin as a strategic reserve asset, underscoring its potential to hedge against economic instability and currency devaluation.