Gavin Wood, the famed co-founder of Ethereum is also the founder of the competing cross-chain protocol for data and asset interoperability, Polkadot.
The problem, according to Wood, is that Kraken and Binance listed Polkadot’s DOT token on their respective exchanges three days before an agreed upon redenomination of the DOT. The redenomination—akin to a stock split in traditional equity markets—would see all old DOT tokens exchanged for 100 new DOT tokens, for a ratio of 1:100.
And the confusion evidently caused some DOT holders a great deal of pain, say Polkadot representatives: a perceived 90% drop in the value of DOT, which some traders may have mistakenly acted on. What’s more, the event highlights the growing tension between community focused projects like Polkadot and the business impulses of some of crypto’s largest exchanges.
The DOT split was confirmed by a community vote initiated July 13 and concluded four weeks later, with 86% of votes cast choosing the 100x token increase. As explained in a Polkadot Medium post, the change in denomination has no impact on the economics of the Polkadot ecosystem, instead only reflecting the will of the community to adjust the display price of DOT tokens in the lead up to tokens becoming transferable.
DOT tokens were previously non-transferable beyond over-the-counter (OTC) trades that manually match buyers and sellers. A 72-hour period following the start of token transferability was planned before the split occurred on-chain to allow OTC desks to settle outstanding trades that would be impacted by the redenomination.
The agreed upon waiting period began August 18 (Tuesday), with exchange listings anticipated this coming Friday, August 21. However, both Kraken and Binance listed DOT on their respective exchanges using the new denomination before the on-chain increase had occurred, leading to price feeds indicating a roughly 90% drop in the value of DOT.
A statement released by Polkadot the following day criticized the listings, claiming the exchanges “went against the Polkadot community and created chaos and confusion among DOT holders.”
Polkadot also sent an email to the community, stating in reference to the early listings: “We believe such action is irresponsible, deceptive, puts Polkadot stakeholders at risk, and may expose the exchanges to liability. However, since Polkadot is now decentralized and permissionless, we can do little against a determined third party.”
In response, a Kraken representative told Decrypt that the exchange only acted with its clients’ best interest in mind. “As always, our primary concern is our clients. We chose to do what was in our client’s best interest and have received positive feedback from them. We’ve seen an uptick in interest and clients have deposited 192,500 DOT on the platform (at current prices ~$56m USD),” said the representative.
“In the end, widespread adoption and support is what’s best for the ecosystem. We’re proud to support Web3 by listing Polkadot and look forward to continuing to offer our clients a wide range of assets – now more than 44 in total.”
Decrypt has also been in touch with representatives from Binance and will update this story if and when they provide comment.
While Binance and Kraken may have had no malicious intent listing the token before community-driven monetary changes had been resolved, an apparent price drop of such magnitude can’t help but give DOT holders and traders a moment of panic.
It’s a cautionary tale on the complex interplay between blockchains, communities, and exchanges, where competing incentives can lead to unexpected outcomes that strain trust in the decentralized world.