Polkadot’s Proposed Native Stablecoin “PUSD” Moves Into Governance Discussion

Polkadot founder Gavin Wood has proposed the creation of a native stablecoin called PUSD for the Polkadot network. The idea is gaining traction and has formally entered the governance proposal stage. This article breaks down how PUSD is designed to work, the risks identified by the community, and its potential impact on the Polkadot ecosystem.

What Is PUSD and How It’s Proposed to Work

The core concept of PUSD is to issue a stablecoin within Polkadot itself (likely via the Asset Hub), backed exclusively by DOT as collateral. The goal: instead of paying block producers (validators) in volatile DOT, the network could reward them in a more stable asset. In effect, users would lock or stake DOT to borrow PUSD, much like how other overcollateralized stablecoins work.

• PUSD would be a native Polkadot stablecoin
• DOT would act as the sole collateral backing
• Borrowing and minting mirrors existing collateralized stablecoin models
• The protocol could use PUSD for block rewards or internal payments

Risks & Concerns Raised by the Community

While the proposal is appealing in concept, several community members have flagged important risks—chief among them correlation risk. Because DOT is volatile, a sharp price drop could lead to widespread liquidations, forcing the sale of DOT in vaults. That could create downward pressure on DOT itself, potentially triggering cascading effects. Other concerns include:

• If PUSD scale becomes large, collateral risk grows
• Liquidation mechanisms may stress the system in downturns
• Overdependency on DOT could undermine PUSD’s stability

Potential Impacts for Polkadot & DeFi

If PUSD is adopted, it could reshape parts of Polkadot’s on-chain economy:

• DOT becomes more functional as collateral within Polkadot itself
• Increased composability: PUSD could power DeFi, payments, or cross-chain flows
• Block reward flexibility: paying validators in stable value rather than volatile DOT
• May attract users seeking stable exposure within Polkadot

However, execution will matter greatly. Governance design, risk controls, liquidation frameworks, and market acceptance will determine whether PUSD becomes a positive innovation or a liability.

Conclusion

The proposal for Polkadot’s native stablecoin, PUSD, marks a bold vision by Gavin Wood: transforming DOT into not just a staking token, but a foundational collateral asset. While the plan is in its early governance stage, it raises compelling possibilities—and serious risks. If the community proceeds, key debates will center around stability, liquidation design, and how PUSD interacts with DOT’s price dynamics.