Polkadot 2.0: Modular architecture and state of tokenomics

After wrapping up Polkadot 1.0 in July 2023, the blockchain community is now gearing up for Polkadot 2.0, backed by tech upgrades like Async Backing, Elastic Scaling, and Agile Coretime. 

The system’s core components include the Polkadot SDK, Polkadot Chain, and Polkadot DAO, which make it easy for developers to create custom blockchain projects.

According to Messari, these upgrades enable Polkadot to operate much like cloud services such as AWS or Azure. High-demand projects will benefit from increased transaction throughput, while early-stage projects will only pay for the coretime they actually need.

The Polkadot Chain, running on a Nominated Proof-of-Stake (NPoS) consensus, serves as the network’s central hub

Messari further explains that Agile Coretime is also a central feature of Polkadot 2.0, designed to tackle inefficiencies in the previous system by dynamically allocating computing resources according to network demand.

Elastic Scaling takes Agile Coretime a step further by enabling parachains to use multiple cores within a single Polkadot Chain block. This boosts network throughput and efficiently manages higher transaction loads. 

That said, Asynchronous Backing further improves block generation and validation by cutting block time in half and allowing for parallel transaction validation and block production.

“Polkadot 2.0 addresses high entry barriers and resource inefficiencies with Agile Coretime, Elastic Scaling, and Asynchronous Backing. The current slot auction model, where parachains rent blockspace for up to two years, will be replaced with more flexible on-demand and bulk models for purchasing blockspace,” the Messari report reads.

On the operational front, the DOT token serves as Polkadot's native currency, used for governance, staking, bonding, and paying transaction fees. With over 1.3 million onchain wallets, DOT holders have full decision-making power over the platform's direction through its advanced governance system OpenGov.

Polkadot's Nominated Proof of Stake (NPoS) system allows DOT holders to earn rewards by backing validators, securing the network in the process. Parachains, meanwhile, must lock up DOT tokens to secure slots, a mechanism that will be phased out with the introduction of Agile Coretime.

DOT also functions as the payment method for network fees, which are determined by a combination of base fees, weight fees, and length fees. The token has an uncapped maximum supply, with a current circulation of 1.4 billion DOT as of June 2024.

Moving to the economic side, Polkadot's inflation model incentivizes network participation through a 10% annual inflation rate, which can be adjusted via onchain governance. This inflation rate is divided between the treasury, validators, and nominators, with allocation percentages varying based on the proportion of DOT staked.