Polkadot Foundation backs dotUSD as primary stablecoin, triggers debate over USDT reserves

dotUSD launches with USDT reserves

dotUSD officially arrived on Polkadot’s mainnet on October 8, receiving over 98% approval from voters and launching with a backing of 4.3 million DOT. Despite its backing in DOT at launch, the actual issued stablecoin is minted one-for-one against Tether’s USDT, meaning that every dotUSD in circulation is currently supported by an equivalent amount of USDT rather than Polkadot’s native asset, DOT.

The proposal listed as Referendum 1954 on Polkadot’s “Wish for Change” track was submitted by the PCF, which also filed the earlier Referendum 1944. It recommends that dotUSD receive primary status among “dotStables”—permissionless stable-value derivatives envisioned to be backed by DOT—serving as the flagship asset in this new class.

In the initial phase, users can mint dotUSD using USDT at a one-to-one rate, within specified supply caps. However, the current version does not utilize DOT as collateral and runs without an oracle or liquidation mechanism.

Industry observers have noted the irony of choosing to launch a Polkadot-focused stablecoin using USDT, given previous critiques within the proposal against the risks of centralized stablecoins such as USDT and USDC, issued by Tether and Circle respectively. The concerns center on the ability of these issuers to freeze assets, which could potentially disrupt DeFi operations that depend on them for liquidity.

A future version of dotUSD is planned to use DOT collateral, based on a model similar to Liquity v2’s BOLD. However, no launch date has been scheduled for this upgrade. Following the rollout of dotUSD, DOT traded around $1.17, marking a 6.1% increase in one day, but later hovered near $1.23 after a 3.5% decline in the last 24 hours.

Mini dictionary: Liquity v2’s BOLD is a decentralized borrowing protocol that enables users to mint stablecoins using volatile collateral without relying on centralized governance or oracles. It is designed to make liquidations and funding rates algorithmic and transparent on-chain.

Mandate seeks on-chain incentives for ecosystem growth

PCF’s latest governance mandate also proposes significant changes to project marketing and growth initiatives for Polkadot. Rather than relying on traditional influencer deals or outside agencies, the proposal calls for all growth spending to be managed through on-chain mechanisms, rewarding individual, verified participants via an algorithmic cap per person.

This stance comes after Polkadot allocated about $37 million to marketing in the first half of 2024, representing 42% of its total spend of nearly $87 million. The network invested $180,000 in branding European private jets, $400,000 in a CoinMarketCap animated logo, and nearly $5 million for influencer partnerships.

PCF’s recommended shift toward on-chain, transparent allocation of marketing funds contrasts with recent spending on external campaigns and influencer outreach.

Governance, transparency, and competing stablecoins

The PCF—the organization responsible for the dotUSD launch and the ongoing governance mandates—has come under scrutiny regarding oversight of its community treasury. In June 2026, community members requested a roadmap and full disclosure of treasury operations related to the Polkadot App, which was announced in 2024 but remained inaccessible to most users for over a year.

In response to these concerns, the PCF clarified its role as purely administrative, stating that it does not issue, operate, or provide custody for dotUSD, DOT, or USDT.

The designation of dotUSD as the DAO’s primary stablecoin affects existing and prospective projects within the Polkadot ecosystem. For example, Hydration’s Hollar, built with Aave’s technology, is classified as a third-party offering, while a previous proposal for a DOT-only stablecoin, pUSD, based on the Honzon protocol, was rejected by voters with only 18.6% support.

By giving DAO-approved projects priority status, the mandate increases the pressure on rival stablecoins, even as dotUSD continues to operate with a USDT reserve.