Polkadot has introduced its new stablecoin, dotUSD, describing it as an asset with no issuing company behind it. The launch took place on October 8, signaling the network’s effort to address concerns over centralization in the current $250 billion stablecoin market.
Current launch relies fully on USDT reserves
Despite Polkadot’s claim of offering a new model, the first phase of dotUSD’s rollout functions as a wrapped version of Tether’s USDT. Users can mint dotUSD on a one-to-one basis with USDT, meaning each dollar of dotUSD is backed directly by a dollar of USDT in reserve. This model currently mirrors the centralized structure that Polkadot said it intended to avoid.
The phased launch follows governance referendum 1944, which details how users may mint dotUSD by depositing USDT, up to a predetermined supply cap. This approach puts Tether’s token at the core of dotUSD’s stability in its initial stage.
To kickstart trading, Polkadot’s treasury provides liquidity by funding a DOT-dotUSD pool through its Asset Hub. Early drafts allocated $2.5 million in USDT and $2.5 million in DOT to the pool, totaling $5 million. Subsequent revisions lowered both amounts to $1.5 million each, establishing a $3 million launch pool.
The Polkadot Community Foundation, which submitted the proposal, states it acts in an administrative role only and does not issue, operate, or hold custody of dotUSD, DOT, or USDT.
Mini dictionary: Polkadot Community Foundation, a non-profit organization facilitating governance and development initiatives on the Polkadot blockchain ecosystem.
| Stablecoin | Backing Asset | Issuing Authority | Phase One Cap |
|---|---|---|---|
| dotUSD | USDT | None (administered, not issued) | Defined by proposal |
| USDT | USD-reserves & equivalents | Tether Limited | N/A |
Initial model contradicts decentralization claims
The governance proposal behind dotUSD’s launch previously cautioned against reliance on centralized stablecoins such as USDT and USDC. These issuers retain the ability to freeze assets, deny access to wallets, or blacklist addresses—often acting in response to government requests, with limited recourse for users.
Despite this warning, dotUSD’s current phase exposes its users to the same risks. Each dollar of dotUSD is a direct claim on USDT reserves, meaning if Tether freezes the associated wallet, the value and liquidity of dotUSD are equally impacted.
Those concerns outlined in the proposal, especially the ability of centralized issuers to freeze or block user funds, now directly apply to dotUSD’s first stage since it is fully dependent on USDT reserves.
Tether’s freezing activities are well documented. In one 30-day window, Tether reportedly froze $514 million in USDT across 370 Ethereum and Tron addresses. Cumulatively, over $1.26 billion was blacklisted during 2025.
Freezes imposed on wallets are seldom lifted, and Tether’s interventionist powers are currently facing legal challenges. On October 6, payments company Conduit sued Tether in a New York federal court after a $2.76 million freeze allegedly locked its main account for more than a year. Conduit alleges the freeze occurred despite Brazilian police confirming no investigation of the address. Another lawsuit followed from two Thai businessmen regarding $42.4 million in USDT, reportedly frozen on informal law enforcement requests before any warrant was issued. Tether has dismissed these lawsuits as baseless and underscored its cooperation with more than 340 law enforcement agencies.
Community awaits decentralized phase two
The decentralized vision for dotUSD remains a future goal. In its next phase, dotUSD aims to transition to a model backed by DOT-collateralized vaults, supported by an oracle, a stability pool, liquidations, and a redemption mechanism. However, a firm date for this upgrade has not been set.
Discussions about a fully DOT-backed stablecoin have circulated within the Polkadot community since July 2025, when co-founder Gavin Wood referenced the project at the Web3 Summit. Until the second phase materializes, dotUSD’s decentralized promise remains unfulfilled.
For now, dotUSD operates as a wrapped USDT token, with users directly exposed to the risks associated with Tether reserves. The transition to a protocol leveraging DOT collateral is still in development, with no announced launch date for phase two.
