BlotSwap

Why a Native DEX

Leveraged tokens need a purpose-built trading venue designed specifically for the mechanics of leveraged token markets — not a generic Uniswap fork.

KittyPunch has been building and operating DEX infrastructure for over two years. PunchSwap on Flow. PunchSwap on Abstract. StableKitty for stable pairs. BlotSwap inherits everything learned about running trading infrastructure on consumer chains, now applied to a fundamentally different product type.

Leveraged tokens don't behave like normal ERC-20s. They decay. They rebalance. Their NAV drifts from market price and needs constant arbitrage correction. A generic AMM deployment doesn't account for any of this. BlotSwap does.

How It Works

BlotSwap is a V2-style AMM on Ink with gauge-directed emissions and a fee structure designed around leveraged token trading behavior.

Every leveraged token minted by the Blot Protocol is paired against WETH or USDT0 on BlotSwap. Users can buy and sell leveraged exposure in a single swap without ever touching the mint/redeem flow directly. For most users, BlotSwap is the entire experience — they never interact with Nado, never manage a vault, never think about the underlying perp. They just swap.

Core Pools

Fee Structure

Every swap on BlotSwap generates a 0.3% fee.

This is the standard split for normal pools. Leveraged token pools may carry adjusted fee tiers to compensate LPs for the unique risks of providing liquidity against decaying assets.

The Arbitrage Loop

This is the mechanism that makes the entire system work. Leveraged tokens have a Net Asset Value determined by the underlying Nado perp position. BlotSwap has a market price determined by supply and demand. These two prices stay tight because of arbitrage.

LT trades ABOVE NAV on BlotSwap
    → Arbitrageur mints new LTs at NAV (cheap)
    → Sells on BlotSwap at premium
    → Price corrects down to NAV
    → Protocol earns mint fee

LT trades BELOW NAV on BlotSwap
    → Arbitrageur buys LTs on BlotSwap at discount
    → Redeems at NAV (higher)
    → Price corrects up to NAV
    → Protocol earns redeem fee

This loop is self-correcting and self-incentivizing. The wider the spread between market price and NAV, the more profitable the arb, the faster it gets corrected. The protocol earns fees on both sides. LPs earn trading fees from every arb transaction. Volume is constant and structural — it doesn't depend on retail sentiment or market direction.

LPing Leveraged Tokens

Leveraged tokens decay in choppy markets. If you LP an ETH-3X/WETH pool, you're accumulating an asset that bleeds value during sideways price action. That's real risk. Here's why the math still works for LPs, and what we're building to make it better.

Why LPs Profit Anyway

• Volume is structurally higher. The arb loop creates guaranteed trading activity every time NAV and market price diverge. Rebalances create arb opportunities. Volatility creates arb opportunities. Even in flat markets, the daily rebalance moves prices enough to generate arb flow.
• Fee revenue outpaces decay in active markets. A $500K leveraged token pool doing 200% daily turnover generates $1M in volume — $2,500/day in LP fees at 0.25%. Monthly decay on a 3x token in a 20% volatility environment is roughly 3–5%. Monthly fee income at that volume level is roughly 15%.
• Drips emissions compensate for risk. LPs in leveraged token pools earn Drips on top of trading fees. veVOID governance directs emission weight to the pools that need it most. Higher risk pools get heavier Drip allocation.

LP Innovations

We're building beyond the standard AMM LP experience to address the specific challenges of leveraged token liquidity.

• Single-Sided LP Vaults — Deposit USDT0 or WETH only. The vault handles the other side of the pair. LPs never directly hold the decaying leveraged token. The protocol manages the LT exposure, and LPs earn fees denominated in their deposit asset.
• Decay Rebates — Protocol tracks the realized decay impact on LP positions and compensates with additional Drip emissions. LPs who take on decay risk are made whole through the points system, keeping their net position positive.
• Auto-Compounding Vaults — Fees earned are automatically harvested, the decaying LT side is sold back to the base asset, and the position is rebalanced. LPs don't accumulate excess leveraged token exposure over time.
• Protocol-Owned Liquidity — The protocol itself seeds core leveraged token pools using treasury assets. This ensures baseline depth exists from day one. Fee revenue from POL flows back to veVOID holders.

Time-Locked Boost Tiers

Longer LP commitments earn multiplied Drip emissions. This compensates for the compounding nature of decay over time and rewards LPs who provide consistent depth.

Beyond Ink — OFT Distribution

Every leveraged token minted by the Blot Protocol is deployed as a LayerZero Omnichain Fungible Token. This means leveraged tokens aren't trapped on Ink. They can move.

Mint ETH-3X on Ink
    → Bridge to Abstract via LayerZero
    → Trade on Abstract DEXs
    → Use as collateral on Abstract lending protocols
    → Bridge back to Ink to redeem at NAV

BlotSwap is the primary venue — the home market where NAV arbitrage keeps prices accurate and where Drip emissions flow. But leveraged tokens are standard ERC-20s that can trade anywhere. Other DEXs. Other chains. Centralized exchanges.

Multi-Chain Trading

The OFT architecture means distribution scales without fragmentation. There's one canonical token. One NAV. One mint/redeem flow on Ink. But infinite venues to trade. Arbitrageurs bridge between venues — if ETH-3X trades at a premium on Abstract, arbs buy on BlotSwap (at NAV) and sell on Abstract. If it trades at a discount on a CEX, arbs buy there and redeem on Ink. Every venue stays tight to NAV because the mint/redeem mechanism on Ink is the anchor.

CEX Path

Leveraged tokens are a proven CEX product. Binance, OKX, and others have all offered leveraged tokens to millions of users. The difference here is that Blot leveraged tokens are permissionless ERC-20s — any exchange can list them without partnership agreements or special infrastructure. NAV tracking, rebalancing, and risk management all happen at the protocol level.

Getting Blot leveraged tokens listed on centralized exchanges is a key goal. Built on Ink (a Kraken L2), bridgeable via LayerZero, with transparent on-chain NAV — the architecture is designed to make CEX listings straightforward. Any exchange looking to offer leveraged exposure products can list these tokens without special infrastructure.

BlotSwap in the Token Stack

BlotSwap isn't just a trading venue. It's a core piece of the tokenomics engine.

• Fee generation. Every swap generates protocol revenue that flows to veVOID holders. Leveraged token pools produce structurally higher volume than spot pools, making BlotSwap the primary fee engine for the entire protocol.
• Gauge system. veVOID holders vote on which BlotSwap pools receive Drip emissions each epoch. This creates the bribe economy — projects and market makers pay veVOID holders to direct liquidity to specific pools.
• VOID-WETH liquidity. The veVOID system requires locking VOID-WETH LP tokens from BlotSwap. Every veVOID position automatically deepens VOID trading liquidity on the DEX. Protocol-Owned Liquidity for the governance token is built into the design.
• Arb-driven mint/redeem volume. BlotSwap price deviations trigger mint/redeem activity, which generates fees at the protocol level. The DEX and the leveraged token vaults are symbiotic.

BlotSwap trading fees
    → Protocol revenue → veVOID holders
    → LP fees → Liquidity providers
    → Arb opportunities → Mint/redeem fees → Protocol revenue
    → Gauge votes → Drip emissions → More LPs → Deeper liquidity
    → Deeper liquidity → Tighter spreads → More volume → More fees