Polkadot inflation sparks debate: DOT prices to tank?

As a seasoned crypto investor who has witnessed the rise and fall of numerous digital assets, I find myself deeply concerned about Polkadot (DOT). The ongoing debate over its inflation rate is not just a theoretical discussion but a matter that directly impacts my investment portfolio.

Discussion about Polkadot (DOT) is abuzz due to ongoing debates concerning its perceived high inflation rate. Advocates, expressing their concerns on platforms like Reddit, are advocating for an adjustment in the network’s current inflation rate to elevate the worth of this altcoin. One user commented,

As a crypto investor, I find that the staking rewards I’m earning seem insignificant when the value of the coin I’ve invested in continues to decline. The rate at which my principal is being eroded is far more substantial than any potential returns from staking, which typically range between 10% and 14%. In other words, the losses I’m experiencing are significantly greater than the rewards I might receive through staking.

Another supported the call, stating that he would rather hold on to his cash if it was going to be eroded by DOT’s inflation.

“While I appreciate high return rates on staking just like anyone else, if it turns out that my DOT‘s value is decreasing faster than the staking rewards over the same duration, then it might make more sense for me to simply hold cash instead.”

Is DOT inflation to blame?

Yet, a different user disagreed with the stakers’ suggestion, arguing instead that the real issue is the network’s expansion, rather than inflation.

‘The problem is network adoption, not inflation.. if the network was growing and we had people using it, the price would go up.. you can lower the inflation to zero, and it won’t make any difference’

To provide some context, similar to Ethereum and Solana, validators and those who support them (relatively inexperienced participants who pledge their DOT to validators) are compensated with rewards as part of their stake, with the goal being to maintain the security of the Polkadot network.

The returns on investment (ROI) can vary from 8% to 14%, leading some to question if this rate is sustainable for the value of Polkadot (DOT). According to data from Polkadot scanner, there are approximately 1.4 billion DOT tokens in circulation, with around 60% of them currently staked.

1. After reaching a record high of $11.8 in 2024, this altcoin has experienced a significant drop, losing more than 56% of its value. This decline has been influenced by market sentiment and inflation. In the last week alone, approximately 2.8 million DOT tokens have entered the market, according to Token Unlocks data, which equates to over $14 million per token.

As a researcher examining Ethereum Layer-2 (L2) tokens, I observed from a June Deribit report that the influence of inflation on reducing their values was prevalent in most cases throughout the market.

Can DOT rebound?

Now, the DOT price has erased all the 2024 gains and was trading at last November’s values.

Furthermore, the technical analysis of higher timeframes suggests a declining market, as the RSI (Relative Strength Index) has remained lower than usual since April, highlighting a significant drop in the value of the altcoin.

Some participants have expressed that they might leave the network if the increased returns (inflation) are altered or eliminated.

In essence, the general feeling towards DOT has been predominantly negative since April, with a brief positive spike in late June. This suggests that most crypto traders were not anticipating significant growth potential for DOT.

It implies that the lack of movement in DOT‘s price might continue if the current discussion doesn’t result in an agreement that won’t further strain the value of the altcoin.

2024-08-04 14:15

Is DOT inflation to blame?

Can DOT rebound?

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