Large Unlocks Incoming, DOT and DYDX

As Polkadot’s initial parachain crowd loan matures, the DOT tokens pledged will begin to unlock. Given that recent parachain auctions have seen merely $1-$2M in DOT commitments, this unlocking will substantially surge the circulating supply of DOT.

The first wave of unlock starts on 24 Oct, 2023, with 113M of DOT valued at ~$403M today. The second wave on 16 Jan, 2024 has ~35.7M of DOT valued at $129M today.

Moreover, AStar, a leading Polkadot parachain, is shifting towards zkEVM by partnering with Polygon to debut the AStar zkEVM L2.

In anticipation of the forthcoming unlocking events, Polkadot’s governance has proposed immediate formula adjustments to ensure sufficient staking capacity. However, in my perspective, these measures might fall short of mitigating the anticipated spike in supply due to the matured crowd loans.

Come December, DYDX is facing a significant unlock event that will boost its circulating supply by 75% since July 2023.

As mentioned in our recent report on dYdX, “Employees, investors, and consultants were allocated 50% of the DYDX token supply altogether. 30% of these tokens were originally scheduled to be unlocked in January 2023, upon which vesting would begin. The 150M DYDX unlock was pushed back to December 2023, giving the dYdX token ample time following the v4 release to grow into its lofty valuation before the unlocks begin in December.”

One possible mitigation would be the implementation of dYdX v4, where users can stake their dYdX with validators to earn network and exchange fees.

The effectiveness of this approach hinges on the smooth migration to and continued adoption of dYdX v4, as well as the attractiveness of the fee rewards in offsetting the surge in supply.

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