Implementing an Allocator Module for the DOT Treasury


Many in the DotSama space embrace the cross-chain future of DeFi, recognizing the value (financial and otherwise) in the ability to interoperate seamlessly between various blockchains. However, to realize this cross-chain vision, chains themselves must take an active approach. This approach can also be leveraged to improve the liquidity of the chain’s own native assets.

Taking the lead set by Cosmos Hub’s recent Atom 2.0 Whitepaper, I propose implementing an allocator module for the Polkadot ecosystem. This document put the rationale for this best, stating that “Sustaining the rapid growth of the interchain will require new approaches to on-chain economic coordination”. In other words, promoting the cross-chain future of DeFi requires innovative tactics applied to the actual economics on chains. This can benefit the DOT tokens and the users and protocols that hold it, augmenting its liquidity.

With its Interchain Allocator, the Cosmos Hub aims to accomplish this; the Allocator is described as “a venue for economic coordination and interchain project alignment”. Specifically, the Allocator facilitates the ATOM Treasury’s commitment of ATOM to various locations in the Cosmos ecosystem (across various chains) to make money for the treasury and the protocols it supports, thus driving secure, sustainable interchain growth.

What this Looks Like for Polkadot

Similarly to the step being taken by the Cosmos Hub with its Interchain Allocator, Polkadot should implement interchain allocations by the DOT treasury, supporting various projects that integrate with Polkadot and align with its interests. This injection of TVL will help grow the involved projects. This support can eventually be repaid, delivering financial gains to the Polkadot Treasury. Perhaps most importantly, this system will solidify Polkadot as a hub of cross-chain operations, with its DOT token a sought-after form of cross-chain collateral.

Like the Interchain Allocator, the following pieces of infrastructure would be required:

  • A Covenant: a governance proposal-generated agreement between Polkadot and parachains for the injection of DOT from the Polkadot Treasury into DApps on these connected chains, and then the repayment of this DOT
  • A Rebalancer: a means of automatically managing (i.e. rebalancing) the DOT distribution between various DOT portfolios across different DApps

Using these tools, the flow of interchain allocations on Polkadot would be as follows:

  • A covenant is proposed and approved via Polkadot governance
  • The DOT treasury commits some amount of DOT to a protocol, as outlined in the covenant
  • The covenant is signed
  • DOT is injected into a protocol from the treasury
  • This increases the protocol’s total value locked (TVL)
  • Then after a period of time (established in the covenant), the DOT is repaid to the treasury
  • The covenant has been fulfilled


There are many benefits that can be derived from this implementation of interchain allocations in the Polkadot ecosystem including:

  • Ecosystem incentive alignment between Polkadot and the projects that interface with it
  • Supporting the creation and growth of projects that integrate with Polkadot
  • Supporting cross-chain operations and enhancing available (cross-chain) liquidity of DOT and other assets
  • Promoting DOT as a highly desirable asset in the ever-growing cross-chain economy

Use Cases

The interchain allocation of DOT from the Polkadot Treasury can be used in a number of ways, including those that are specific to the DApps being supported by the Polkadot Treasury. Just a few of these many opportunities are outlined below:

  • Participation in the governance of Polkadot and other chains/DAOs, pushing forward the aligned desires of the DApp and the Polkadot ecosystem
  • Participation in/support of cross-chain liquid staking opportunities for DOT, enhancing these opportunities for the DOT token
  • Incentivizes for major/promising projects to deploy on/expand onto Polkadot
  • Guarantees on insurance, under-collateralized loan defaults, auctions, etc.
  • Creation of automatic liquidity provisioning around the DOT token, or liquidity provisioning of the DOT token on another platform

Example of Interchain Allocation from the Polkadot Treasury

To ensure that the Polkadot Treasury remains funded for its other purposes (such as for implementing approved governance proposals), there should be a cap on the amount of treasury funds distributed via interchain allocations. I propose that no more than 10% of treasury funds can be deployed in a month for this purpose, at least initially. Of course, governance votes could then increase or decrease this percentage.


I propose that the Polkadot Treasury should implement interchain allocations, in a similar manner to the innovative approach set forth in the Cosmos Hub’s ATOM 2.0 Whitepaper. This will help support the interchain blockchain space as a whole, as well as the growth of individual projects aligned with Polkadot’s vision. Moreover, this will augment the Polkadot ecosystem itself, solidifying Polkadot’s role as a frontrunner in the cross-chain space with a highly desirable native asset for cross-chain use.


cc A Better Treasury System


After reading this, I’m asking myself on what of this is not already possible? I mean the treasury could already send some tokens via XCM to some Parachain. So, what is missing in your eyes? This Covenant? Wouldn’t this be some kind of written contract that can be found on polkassembly describing the treasury proposal? I mean yes, there could be some logic on the chain that handles this. However, it would be relative useless, because the tokens are on the Parachain and not longer under control of the relay chain. So, the relay chain needs to trust the Parachain logic anyway, rendering any kind of logic for handling this stuff on the relay chain irrelevant.


The only piece that is necessary is the actual process setup. The issue is that everytime a parachain wants liquidity from the treasury, it has to submit a proposal, bond a ridiculous amount of tokens, and then wait for the proposal to be approved. One at a time. This isn’t very scalable, and has a massive amount of overhead. Instead, there should be a process where the treasury is mandated to perform a fixed % of allocation per quarter, which would make both sides incentivized to pursue this shared goal.

and then ofc, some sort of automated way where after a specific date, the DOTs can be withdrawn.

so essentially, you are right, perhaps there isn’t so much technical overhead as there is operational.


Not much to add except that I’m a big fan of this idea - the knock on marketing effects (TVL tracker rankings, fundraising ease, etc) are huge for attracting new users and capital into the ecosystem. Making it easier for projects to boost their numbers is always a win.

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Agree with all the benefits that you mentioned. There’s an ongoing effort to restructure the current standalone application process by leveraging the bounty mechanism so that these liquidity requests can be responded in a much efficient manner.

Brainjar’s proposal provides a mechanism to tie together the Polkadot ecosystem through true political economy and meaningfully boost DOT’s value.

Cosmos 2.0 focuses on cementing value accrual of ATOM token to the success of the projects who purchase Interchain Security (ICS). This value accrual comes from the auction of block space through the “Scheduler” mechanism and also the receipt of funding in consumer chain tokens in exchange for security. The last part, most relevant to this discussion, gives the ATOM treasury governance rights of connected chains. This represents a fulcrum point that allows ATOM to directly influence the direction of security consumers in ways that best accrue value to the ATOM ecosystem, and, by proxy, ATOM itself. As a result, successes of the consumer chains themselves add direct value to ATOM because ATOM holds some of their tokens and ATOM also benefits because its able to sell the block space (MEV rights) that appreciates with greater consumer chain usage.

By contrast, DOT does not directly benefit from parachain success. Parachain tokens and governance rights flow only to the specific DOT holders who back each parachain at auction. At the same time, there exists no mechanism for DOT holders to capture the value of MEV. The result is that while ATOM is an index bet on those chains who purchase its security, DOT as an asset does not represent this same bet. While DOT accrues value by means of parachain and parathread auctions, there is not direct value accrual from a parachain’s success to the DOT token. All the value is derived from secondary network effects that increase the price of the security auctions.

Brainjar asserts a vision to enable the DOT treasury to directly benefit, in clear value accrual, by deploying to projects in exchange for the tokens of each project. The treasury controlling these tokens will incentivize greater ecosystem cooperation (and DOT holder participation) through a true political economy by allowing the DOT treasury to influence the parachains in ways to benefit DOT holders. Taken to its logical extreme, DOT can be used from the treasury to fund parachain auctions for high value projects and receive upside from those bets. As a consequence, this potential for direct fiduciary rewards should catalyze greater participation in governance - particularly from parties such as VanEck, who have a legal obligation to pursue governance actions to benefit their investors.

As such, Brainjar’s proposal needs to be discussed at higher levels with intention to seriously consider its merits.

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just a minor comment - there is some mechanism to capture value of MEV. If you trade on Mangata parachain, the MEV is not taken from users in the first place, and stays where it should stay