4 posts tagged with "accounting"

A liquidity pool is a portfolio. Its reserve and price updates define an investment strategy: which assets it accumulates, which it releases, and the terms on which it changes its composition.

Multiswap's post-trade elasticity model expresses that strategy with one elasticity parameter, while retaining a rich accounting and safety structure. A natural extension is to give the portfolio an explicit preferred composition. The question is whether that preference can enter through a coherent valuation rule, preserve the post-trade framework, and strengthen the response to scarce inventory.

This article develops one such candidate. Its central result is an exact identity: the composition-sensitive part of portfolio valuation equals reference-priced holdings discounted by relative entropy from the preferred composition. The resulting prices favor acquiring underrepresented assets, retain exact invariance under uniform reserve scaling, and develop stronger elasticity near depletion.

Status: Proposed exact-arithmetic mechanism for externally owned CAV. The independent settlement fractions and CavalRe payable journals below describe the research model. Current contracts implement a narrower Surplus top-up mechanism, summarized after the atomic settlement requirements.

In this proposal, Surplus is externally owned CAV held by the Protocol for sale. CavalRe owns the CAV, authorizes its use, and receives the sale proceeds in CavalRe Treasury. CavalRe and the Protocol are distinct accounting entities.

The mechanism can route independent fractions of the user's pay and receive legs through Reserve. The remaining amounts execute as a CavalRe-owned CAV sale. A pure sale bypasses Reserve and leaves Multiswap prices unchanged. A mixed settlement is accepted when its complete Reserve endpoint passes the gauge-invariant safety condition.

Multiswap prices are gradients of a concave projective potential. Post-trade execution therefore produces a nonnegative Bregman divergence. For a closed swap, that divergence accumulates in LP Token backing. For a partial liquidity action, it finances the permitted change in the price surface. For externally owned Surplus, it combines with an explicit value flow across the Reserve boundary.

These are not three unrelated safety arguments. They are special cases of one exact balance law:

Projective-potential change equals Bregman production plus Reserve boundary value flow plus price-surface reset.

This article derives that law from the native Multiswap state and applies it to swaps, liquidity operations, and externally owned Surplus.

Multiswap uses double-entry accounting. Every posting is balanced within one token ledger: the debit and credit contain the same amount of the same token. A cross-token action is therefore a collection of balanced same-token journal entries, never one debit in token $A$ and one credit in token $B$.

Accounting conservation is always required. Safety is a second question: after the complete atomic action has been posted and the price-forming state has been updated, did the pool move in the permitted projective direction?

This article gives the full-ledger test and explains why many journal entries cancel before the safety calculation.

Scope: Exact-arithmetic accounting model. The externally owned CAV and CavalRe payable entries illustrate a proposed ownership structure. Current Surplus settlement uses a reduced Reserve quote and receive-side top-ups; it does not implement these proposed payable journals. See Fees and Surplus.