Polkadot community voted to launch DOT-backed local stablecoin dotUSD

Polkadot community launches governance vote on native decentralized stablecoin dotUSD

Polkadot community has launched a governance vote on native decentralized stablecoin named "dotUSD". The proposal aims to establish the dollar-anchored asset as the network's primary stable value tool and ultimately use DOT primarily as its backing (collateralized/backed) asset.

Content of the core proposal

According to the ongoing vote by Polkadot Open Governance (OpenGov), the core goal of the proposal is to create dotUSD as a local decentralized stablecoin for the network. Specific plans include:

• Initial liquidity injection: plans to provide US$5 million in initial liquidity (consisting of DOT and USDT) to the DOT and dotUSD trading pools.
• Implementation in phases: In the initial stage, dotUSD will be minted through USDT; in the second stage, DOT-supported vaults, clearing mechanisms and redemption functions will be introduced.
• Operating mechanism: The complete system will allow users to lock DOT to cast dotUSD and maintain its pegging to the U.S. dollar through an on-chain mechanism.

According to OpenGov Referendum 1944According to the information, the proposed stablecoin will be owned by the protocol and operate autonomously through on-chain logic, without the need for a centralized issuer. The proposal was drafted by the builders, developers and other participants of the Polkadot ecosystem. As of this writing, the proposal is still in the decision-making stage. If approved, dotUSD will become a new asset, be officially recognized as Polkadot's stablecoin, and establish a DOT/dotUSD liquidity pool at the Polkadot Asset Center.

According to Polkassembly's archived snapshot, 2.4 million DOTs voted in favor and 59,900 DOTs voted against at that time, with a approval rate of 97.5% and a disapproval rate of 2.5%. It should be noted that these data show the frozen status during the voting process and may not represent the final on-chain results.

Phased release plan for dotUSD

According to the plan, dotUSD will initially operate differently from what developers envision as a final system fully DOT-supported.

Phase 1: USDT Support Period

Phase 1 has been built on-chain. At this stage, users can cast dotUSD with USDT at a ratio of 1:1, but there is a supply limit. Because USDT provides reserve support at this stage, the system requires no oracle, mortgage vault or clearing infrastructure.

The proposal seeks to use Polkadot's treasury assets to provide seed money for a DOT/dotUSD pool on a centralized exchange (DEX). The version submitted with Referendum allocates US$2.5 million in USDT for casting dotUSD, and the equivalent of US$2.5 million in the DOT injection pool, for a total of US$5 million in initial liquidity. However, the newer version shown on Subsquare adjusted the initial pool of funding to $1.5 million USDT and $1.5 million DOT, reducing the total proposed allocation to $3 million.

dotUSD will be designated as a "sufficient asset", which means that accounts do not need to maintain a DOT balance while holding the stablecoin. The governance body will set parameters for the hook stability module, including the maximum amount of dotUSD that can be initially cast.

Phase 2: DOT Support Period

Phase 2 will bring dotUSD closer to the intended design by introducing a DOT-backed mortgage vault, oracle, stability pool, clearing mechanism and redemption mechanism. The proposal describes dotUSD as an overcollateralized stablecoin whose architecture draws heavily on Liquity v2's BOLD system.

How does the DOT-supported dotUSD system work?

Once the second phase is implemented, users will deposit DOT in a vault and lend dotUSD at a value lower than the collateral they provide.

An example of the proposal: Assuming that 300 DOTs are priced at US$5 each, a collateral value of US$1,500 is generated. Users can make up to US$1,000 of dotUSD for this position, with a corresponding mortgage rate of 150%. If the value of DOT falls enough to break the required mortgage rate, the vault will be eligible for liquidation.

Borrowers can set their own interest rates paid on their positions. Lower interest rates place the vault at the top of the redemption queue, while borrowers willing to pay higher rates can reduce the risk of their collateral being selected for redemption.

aims to keep dotUSD near US$1 through two arbitrage routes:

1. Premium arbitrage: When the trading price of stablecoins is higher than the pegged price, users can lock in DOT, mint dotUSD and sell it at a higher market price, thereby increasing supply.
2. Discount arbitrage: If dotUSD falls below US$1, traders can buy it at a discount and exchange it for US$1 worth of DOT through an agreement.

In addition, it is planned to establish a buffer pool of stablecoin with a cap. Existing stablecoins will support this portion of dotUSD and always maintain a redemption value of $1, which provides another way to maintain the peg without selling DOT used as collateral.

Liquidation is first absorbed by participants depositing into the dotUSD-funded stability pool. In return for providing capital, stability pool participants will receive liquidated DOT at a discounted price, while the corresponding dotUSD will be destroyed to offset outstanding debt. If the pool is exhausted, collateral and debt will be reallocated proportionately to the remaining vault.

Correlation between dotUSD and Polkadot's new economic model

The stablecoin proposal follows Polkadot's reform of the DOT economic model, which includes the introduction of a fixed maximum supply. Polkadot DAO approved a cap of 2.1 billion DOT units in September 2025, replacing the previous unrestricted release of the network model. Subsequent token economics upgrades introduced a dynamic allocation pool (DAP), into which newly issued DOT and other network revenue will enter and be distributed through governance.

When the new token economics framework entered the implementation phase in March, DOT emissions fell by 53.6%, and newly minted tokens, transaction fees and penalties were directed to DAP. Governance agencies can allocate these funds for pledge incentives, treasury expenditures and other network budgets.

Referendum 1944 proposes the use of dotUSD in the next phase of the system. In the second phase of the DAP, verifiers and nominees are expected to be paid in the form of stable assets, while the treasury will receive a combination of stablecoins and DOT. The proposal states that dotUSD would make these obligations denominated in U.S. dollars and settle through Polkadot's native assets.

Decentralized Advantages and Compliance Statement

Polkadot currently supports externally issued US dollar tokens. The USDC will be launched at the Polkadot Asset Center in September 2023, allowing the stablecoin to move between parallel chains through the network's messaging system.

The dotUSD proposal believes that relying on externally issued stablecoins makes Polkadot applications and treasury operations dependent on external issuers and their governance structures. A full version of its proposal would switch to using DOT as the primary collateral while still being governed through Polkadot.

The Polkadot Community Foundation said its role is administrative only and will not issue, control or host dotUSD, DOT or USDT under the proposal. It will not operate stablecoins or provide liquidity, and dotUSD is designed to operate through on-chain logic without the need for an issuer.

Implementation of Referendum pre-imaging depends on whether the Polkadot system chain is upgraded to version 2.5 under a separate governance proposal Referendum 1942.