I’ve argued that @jonas ’ DAP proposal is effectively a Perpetual DEX Vault managed by a protocol-level algorithm. If we map the components, the isomorphism becomes clear:
- The Vault → the Allocation Pool (buffering volatility)
- Funding Rate → the smoothing parameter (β), which adjusts outflows to preserve solvency
- Insurance Fund → the underlying Inflation + Treasury creating the “security budget”
| Perpetual DEX Component | DAP Component (Jonas’ Proposal) | The Mechanism |
|---|---|---|
| Liquidity Vault (GLP/ALP) | The Allocation Pool | A buffer of assets (DOT) used to absorb shocks between inflow (revenue) and outflow (spending/rewards). |
| Funding Rate / Rebalancing | Smoothing Parameter (ദ) | A variable rate that adjusts to balance the “inventory.” In a Perp Dex, the funding rate penalizes the heavy side to force equilibrium. In DAP, ദ adjusts the “spend” to keep the pool solvent over time. |
| Insurance Fund | Treasury / Inflation | The backstop. If the Vault (Pool) runs dry due to a “price crash” (revenue drop), the system prints more DOT (inflation) or drains the Treasury to cover the liability. |
| Traders (Long/Short) | Coretime Buyers / Validators | The participants extracting value from the Vault. |
The Economic Problem with DAP proposal:
However, if by virtue of similarity of the DAP proposal we contrast it with a “Perp DEX”-style architecture it reveals the exact economic trap I warned about in my critique of Jonas’ proposal here:
In a functional Perp DEX (e.g., GMX, Hyperliquid), the Vault is sustainable because external traders pay real fees (via PnL or funding) into the system. There is a purchasing power transfer from the outside world into the Vault.
In the current DAP model, however, we are building a “Perp DEX” where the protocol trades primarily against itself.
We treat blockspace allocation as “revenue,” but if that revenue is sourced from internal rotation (re-staking, treasury swaps, validator churn) — rather than from external market demand (Cambridge Coefficient k) — then the Vault is simply washing volume.
As I mentioned in the DAP thread:
“When a system fails to couple its ‘GDP’ (activity) back to its ‘Reserve Asset’ (DOT) via enforced sinks, the velocity of money becomes infinite, k → 0, and the Cost of Corruption (CoC) collapses.”
If we implement a “Perp DEX” architecture without a Purchasing Power Anchor, then we’re automating the devaluation of the Insurance Fund (i.e., DOT holders). It becomes a sophisticated machine to burn our own equity with no innovation value.