The proposal for Polkadot's native stablecoin PUSD sparks heated discussion: Can DOT collateral reshape the reward system?

In the volatile and double-edged world of crypto, a recent proposal by Polkadot co-founder Gavin Wood has sparked intense community debate over the future of stablecoins. This plan, named PUSD, aims to replace DOT with a native USD-pegged stablecoin as the direct block reward for validators, seeking to alleviate the income uncertainty caused by DOT’s sharp price fluctuations.

1. Proposal Background: The Reward Dilemma Amid High Volatility

As the core infrastructure of a multi-chain architecture, Polkadot’s network security relies heavily on validators staking DOT to participate in block production and cross-chain transactions. However, the high volatility of DOT’s price has long troubled the validator community. For example, in 2024, DOT’s price surged from around $7 at the beginning of the year to $15, then plummeted below $3. Such drastic swings have led to highly unstable validator incomes—staking the same amount of DOT, monthly earnings can shrink from several hundred dollars to less than a hundred.

Gavin Wood pointed out in the proposal that the current DOT-based reward mechanism makes the network security budget subject to market sentiment. If the market declines, validators may be forced to sell DOT, further increasing network pressure. The introduction of PUSD is intended to “decouple” the reward mechanism from DOT’s price volatility, providing validators with predictable and stable returns.

2. PUSD Operating Mechanism: DOT-Exclusive Collateral and Liquidation Design

According to the published proposal details, PUSD will adopt a pure DOT collateral model. Users can borrow PUSD by collateralizing DOT, with the collateralization ratio set between 150%-200%. For example, collateralizing $150 worth of DOT allows borrowing 100 PUSD. The system features an automatic liquidation mechanism: when the collateral value falls below the threshold, the system will auction the collateralized DOT to maintain PUSD’s USD peg.

For reward distribution, block rewards will be injected directly into the treasury and distributed to validators in the form of PUSD, avoiding the impact of secondary DOT volatility. This design emphasizes “localization,” using only DOT as collateral to maximize the use of liquidity within the Polkadot ecosystem. Currently, Polkadot’s total value locked (TVL) has surpassed $10 billion. If PUSD is implemented, it could become the “lifeblood” circulating among parachains.

3. Community Division: Support and Doubts Coexist

After entering the discussion phase, the proposal has elicited polarized reactions from the community. Supporters believe PUSD will enhance the stability of validator returns, attract institutional participants, and promote a shift in the ecosystem from “high risk, high reward” to “sustainability.” Community media such as PolkaWorld pointed out that if PUSD’s circulation reaches $1 billion, validators’ annualized returns could stabilize at 8%-10%, much higher than the current volatile environment.

However, there are also strong voices of skepticism. Opponents worry that a single DOT collateral model could amplify systemic risk. If DOT’s price drops sharply, cascading liquidations could impact the entire network. In addition, the governance voting threshold is high, requiring over 50% support, while small and medium holders tend to prefer conservative strategies, making the proposal’s passage uncertain.

4. Risks and Prospects: Volatility in the Data

The potential and risks of PUSD are deeply tied to DOT’s price volatility. Below are DOT’s price fluctuation data from August to September 2025:

Despite significant short-term volatility, if PUSD is successfully implemented, it could push Polkadot’s TVL past $15 billion in 2025 and enhance its competitiveness in cross-chain payments and DAO governance. However, realizing this vision requires balancing risks, such as introducing liquidation buffer mechanisms or expanding to multi-collateral options in the future to avoid “putting all eggs in one basket.”

5. Conclusion

The PUSD proposal is a key turning point for the Polkadot ecosystem, representing an exploration of sustainable incentive mechanisms. Although there are differences within the community regarding technical feasibility and economic models, the discussion itself has already pushed the ecosystem forward. Next, the result of on-chain governance voting will determine whether this stablecoin can move from blueprint to reality, and the future landscape of Polkadot may well hinge on this decision.