Polkadot puts forward a step change capable of redesigning its DeFi: pUSD is born as a stablecoin pegged to the dollar and exclusively backed by DOT. The promise is autonomy from USDT/USDC.
However, the price is a concentrated exposure to the network’s risk. Recently announced on Polkadot’s official channel Polkadot Network, the proposal has attracted the attention of operators and validators.
According to data collected from on-chain monitors and public OpenGov discussions, the initial proposals related to pUSD highlight a strong focus on LTV, liquidation thresholds, and oracle design.
Industry analysts note that, based on previous stress tests on the network and incidents on related protocols, user preference tends towards schemes with diversified collateral to reduce the likelihood of cascading liquidations (see the Acala episode of June 15, 2022).
Recently announced, pUSD focuses on an over‑collateralized model based on the Honzon framework, already adopted by Acala.
The move reignites a debate on security, governance, and adoption, topics that the market follows closely. The operational reference to the Honzon framework has been reviewed following the incident on aUSD reported by industry outlets CoinDesk (June 15, 2022).
What was announced: objective, structure, and scope
According to the proposal, pUSD will be issued against collateral in DOT with a collateralization ratio above 100%, managed by on‑chain modules inspired by Honzon.
The stated intent is to reduce dependence on centralized stablecoins and give the network greater control over its financial infrastructure.
The initial design involves a start in the Polkadot ecosystem, with progressive extensions to dApps and parachains.
The precise definition of the scope of responsibilities between implementers and Polkadot OpenGov (on-chain governance) remains to be determined, a crucial point in terms of reliability.
The 5 main risks for users
- Concentrated Collateral Risk (only DOT)
A single-collateral backing exposes pUSD to shocks in the price of DOT. Under conditions of high volatility, liquidation cascades can be triggered, selling pressure on DOT, and contraction of the remaining liquidity. In this context, MakerDAO has mitigated similar dynamics by moving from ETH-only to a diversified basket (crypto and RWA), as reported by industry sources Bitcoin: a journey that has created new millionaires. - Governance and operational responsibility
Without a clear division between OpenGov, executive teams, and custody/monitoring of vaults, the risks of decision-making ambiguity, slowness in emergencies, and potential conflicts of interest increase. It must be said that transparency on key parameters (LTV, fees, liquidation thresholds) is crucial for trust. - Technical debt of the framework (Honzon) and precedents
The reference to Honzon brings to mind the episode of aUSD on Acala in June 2022, linked to a misconfiguration that led to unauthorized mints. Although in a different context, the risk of bugs and poorly defined emergency procedures remains to be monitored with independent audits and substantial bug bounty programs as illustrated in recent analyses Ethereum revolutionizes security with Zero-Knowledge Proof. - Liquidity and market integration
USDT and USDC dominate the global market depth. At launch, pUSD will operate within a more limited scope (Polkadot parachain and dApp), with fewer pairs and fewer market makers, making liquidity more challenging as observed in various analyses on the crypto market and advanced trading Binance and Mastercard: the definitive breakthrough for instant withdrawals. - Stability of the peg and reliance on oracles
The maintenance of the peg depends on reliable oracles, liquidation parameters, and the ability to absorb drawdown on DOT. Errors in oracles or latencies can lead to incorrect liquidations or collateral gaps. That said, safety margins and circuit breakers become indispensable. The critical role of oracles has been highlighted in recent developments with RedStone integrating its real-time oracles on the TON blockchain.
Impact on Market and Adoption: Where pUSD is at a Disadvantage
The competition is formidable. Tether (USDT) and Circle (USDC) hold the majority of the capitalization and cross-chain trading routes, with a market cap, as of September 29, 2025, of approximately USDT ~ $83 billion and USDC ~ $42 billion according to CoinMarketCap.
After the announcement, DOT showed contained fluctuations and technical indicators in the neutral area (RSI) with a cooling of the MACD, as reported on TradingView. The dynamic remains subject to intraday variations.
Additionally, the overcollateralization required for pUSD imposes usage costs and immobilizes capital during phases of stress. Without deep pools and cross‑chain integrations, adoption outside of Polkadot might proceed slowly.
Sustainability of a DOT-only stablecoin in the current context
A DOT‑only design simplifies the architecture but centralizes the risk. With adequate risk parameters, robust oracles, and established emergency procedures, the system can operate under normal conditions. However, shocks on DOT remain the dominant variable to consider.
The experience of other protocols indicates that a gradual diversification of collateral improves resilience.
A potential shift to multiple collaterals or real-world assets (RWA), if compatible with governance, could reduce systemic fragility as advocated in many studies on the tokenization of real world assets.
Operational Details and Governance: What’s Missing
The fundamental issue is governance. The community discusses the role of OpenGov in setting parameters, corrective actions, and responsibilities in case of incidents.
Without clear documents on custody, auditing, emergency policies, and disclosure, adoption risks remaining confined to the most informed users.
Public audits, specifications on oracles, on‑chain monitoring plans, and a publication schedule for periodic reports (risks, treasury, incident response) are also needed.
What to Monitor in the Coming Days
- Risk Parameters: Initial LTV, liquidation penalty, stability fee.
- Liquidity Depth: TVL of pUSD/DOT and pUSD/blue-chip pools in major DEX.
- Oracles: provider, redundancy, update frequency, anti-manipulation mechanisms.
- On‑chain Governance: proposals on OpenGov, quorum, outcomes, and execution times.
- Audit and bug bounty: auditor signatures, severity of anomalies, and remediation tracking.
Essential FAQ
Is pUSD algorithmic?
No. The declared model is over-collateralized with collateral in DOT; it is not based on reflexive type mint/burn algorithmic.
How is the peg to $1 maintained?
Through economic incentives (fees, liquidations), arbitrage on spot/DEX markets, and price updates via oracles.
Parameters and procedures play a crucial role as discussed in the context of Ethereum’s security and its ecosystem Ethereum: here is the roadmap for privacy by Vitalik Buterin.
What is the role of OpenGov?
OpenGov should define or approve parameters, upgrades, and emergency actions. Transparency regarding powers and responsibilities will be crucial for user trust.
Conclusion
pUSD aims to provide Polkadot with greater financial autonomy, but the DOT‑only choice highlights five critical issues: risk concentration, clarity in governance, technical debt of the framework, limited initial liquidity, and reliance on oracles for the peg.
The trajectory of the project will depend on how the community addresses these issues with transparent policies, rigorous controls, and credible mitigation tools.