Polkadot governance is reviewing a proposal to create dotUSD, a protocol-native decentralized stablecoin designed to serve as the network’s primary stable-value instrument. The two-phase plan would first establish dotUSD on Asset Hub backed one-to-one by USDT, then introduce DOT-collateralized vaults with liquidation mechanisms and borrower-selected interest rates. A referendum proposes seeding a DOT-dotUSD liquidity pool with treasury funds, reducing reliance on external stablecoins for treasury operations and applications.
Polkadot governance is considering dotUSD, a protocol-native decentralized stablecoin proposed as its primary stable-value instrument. The proposal would create dotUSD on Asset Hub and establish a DOT-dotUSD market, eventually letting users mint it against DOT collateral.
The referendum proposes creating dotUSD as a protocol asset and recognizing it as Polkadot’s stablecoin. It also calls for a DOT-dotUSD liquidity pool on Asset Hub, seeded with treasury liquidity currently listing $1.5 million in USDT and $1.5 million in DOT.
Polkadot applications and treasury operations currently rely on external stablecoins. A native stablecoin could reduce that dependency while giving DOT a direct role in collateralized borrowing and liquidity.
dotUSD is planned as an over-collateralized stablecoin, with its full design drawing on Liquity v2. In the proposed second phase, users would lock DOT in vaults and mint dotUSD below the value of their collateral.
The system would use liquidations, a stability pool and redemptions to manage falling collateral values. A notable feature is borrower-selected interest rates rather than one protocol-set borrowing rate.
The rollout is divided into two phases to limit technical risk. Phase one uses a capped buffer backed one-to-one by USDT, while phase two adds DOT-backed vaults, oracle integration, stability mechanisms and redemption functionality.
The design addresses a key risk of reflexivity between DOT and dotUSD. The proposal emphasizes stability-pool protection, redistribution mechanics and a separate stablecoin buffer to reduce forced DOT sales during volatility.
The proposal calls dotUSD “the instrument which makes dollar-denominated budgeting possible on-chain.” The next step is governance approval and implementation across the network now.
