This is a follow-up to an earlier thought exploration, intended to clarify and evolve understanding. It is still absolutely the case that a token is not being offered, sold, or distributed by me or any legal entity I’m affiliated with. It is written as technical detail, opinion and illustration. Any actual implementation rests solely with DOT DAO.
JAM is a protocol to manifest a “Collective Computer”. It is, in part, a generalisation of Polkadot’s Relay-chain protocol so that it can run code directly, rather than merely secure Polkadot’s flavour of L2 blockchains (called parachains) so a Polkadot JAM-chain would replace the Polkadot Relay-chain by generalising it. Much more than the Relay-chain protocol, this makes JAM comparable in the type of service-provision to other general-purpose L1 smart-contract protocols such as Ethereum and Solana.
This is important as provision of security for L2 blockchains on the Polkadot stack has thus far been found to be an economically unrewarding proposition. This has been found both in Polkadot, where high-utility L2s made no material difference to DOT demand, and in Ethereum where a predominant view among core developers is that private L2s with their own economic drivers can materially undermine the L1’s interests.
JAM, like the Relay-chain, splits its computation amongst discrete units called cores. They’re a lot like CPU cores and each can work on a different job at once. For the Relay-chain, that job was always checking that a parachain’s business logic was being correctly observed. Cores manifest as a result of validators operating the network’s nodes in line with the protocol.
For JAM, it can still do this (and so is backwards-compatible with the Relay-chain), but it also enables lots of other stuff to be done with these cores directly, including smart-contract execution, agent execution, media serving, and even running regular software like Quake. A fully enabled JAM can do thousands of these all at once.
DOT Value
I will set aside speculative volatility and the idea of a single world currency centring around DOT, since any good coming from either is at best uncertain and at worst highly improbable. In both cases I’ve neither the desire, the need nor the intention to assist. I believe therefore that Polkadot’s underlying token, DOT, is economically tied to its utility: transforming validators into value.
This means: selling the usage of these cores at more than the cost for Polkadot to manifest them. Ethereum commentators sometimes call this “deflationary” with the idea that Ether is burned by users faster than it must be issued to validators to manifest the service. Deflation is indeed the effect when you make a profit, assuming a closed economy and operating costs are paid through issuance while sales receipts are burned. But the material point here is that the network is profitable.
During 2024 we estimated that cost of running Polkadot at around half a billion dollars a year. This can be seen as a cost to the DOT economy, but in reality DOT DAO has absolute power over Polkadot and the DOT token, and so is more accurately framed as a cost to DOT DAO.
Thus, long-term for DOT DAO to make a profit (which could potentially be used to enable a deflationary policy if desired), this cost must be offset by the sales of the assets and services belonging to the DAO. Other than the treasury holdings and as-yet undistributed DOT, this really just means time on its cores. Cores must convey enough utility to actually make them worth paying more for than the cost of production.
An Island Story
To help properly comprehend the nature of the change from the Relay protocol to the JAM protocol, we might imagine Polkadot as an island. In this analogy, it has its own sovereign governance, DOT DAO. It also has its own currency DOT which that governance has the ability to issue. In this narrative, DOT DAO owns the infrastructure on the island. We might visualise it as having some sort of nuclear fusion (the clean, futuristic type!) power plant capable of generating oodles of clean energy but costing a substantial amount to have developed and run.
This infrastructure can be used by island entrepreneurs to operate whatever industry they are conducting on the island. It follows that a greater amount of industry on the island leads to additional demand for the infrastructure and, thus, greater revenue for DOT DAO as the island authority and power-plant owner.
Under the Relay-chain, DOT DAO can only sell its cores to secure other (L2) chains. In our analogy, economic activity on the island would be accordingly limited; basically just to reselling the power to other islands without their own power facilities. It’s actually worse: historically those other islands must be using the same, quite particular, kind of infrastructure (a so-called “Polkadot-SDK parachain”). Connecting islands up to Polkadot Island’s Power system is quite involved. It’s like the island’s power plant simply isn’t wired into a local grid which would allow the electricity to be used more generally and directly.
Yet the infrastructure, like a nuclear power plant, costs a lot to develop and build, costs a lot to run and cannot easily be turned off. Sure the infrastructure provides plentiful power for the marginal cost, but the running costs are large (validator rewards) and they absolutely must be offset by revenue or the island economy is unsustainable.
Unfortunately, it turns out that there a very limited amount of potential power purchasers, i.e. compatible islands. This leads to little demand for the infrastructure services from which DOT DAO can make revenue. With little revenue, DOT DAO must rely on inflating its currency, DOT, as a means to pay for infrastructure upkeep. This can have a debasing effect.
It is not the case that the island is any less capable of hosting useful, valuable work. However, the island limits its infrastructure to be used almost entirely for “export only” to power other islands. And this service has a low market clearing value: the security might be good and cheap but the value comes from how it is refined and used. As long as that value sits wholly on other economically-independent islands, and as long as the market of potential buyers stays small, then DOT DAO will find it difficult to turn a profit.
Why would we want DOT DAO to limit itself to reselling its infrastructure services out to a small and ailing market of isolated economies & societies? It seems clear that Polkadot Island must build a locally rooted, bustling internal economy and population with high-level services. Of course they use this historically cheap electricity but they also add material value to it. By adding value to the electricity within the Island economy, DOT DAO can drive up its economic exposure to more meaningful, valuable activity rather than just selling its own form of Polkadot electricity which can be seen as a somewhat proprietary variant of a largely unrefined resource low on the value-chain.
Building a local population might seem a tough task, but Polkadot Island has such cheap plentiful energy that it can afford to do something other islands cannot: make services based on its high quality power system widely gratis. This can enable a freemium model otherwise quite antithetical in the ultra-transactional world of crypto and Web3.
In this analogy, the change in nature to Polkadot Island commensurate to the JAM technology upgrade is simple: flexibility of how this cheap, plentiful resource may be used.
Thus, under JAM, activity restrictions of how electricity is used on the island are lifted. Power can be used not merely for reselling to other islands, but to underpin local social and economic infrastructure and activity. And that activity and infrastructure, sitting on one island, becomes far more seamlessly, speedily, richly and cheaply interoperable. Additionally, JAM implies improvements to the overall “power plant” infrastructure, making it cheaper to operate (by about 40%) and more flexible (allowing cores to be switched off when economically unfeasible).
Under JAM, Polkadot Island’s plentiful high quality electricity supply could be used for things which other, competing, islands’ older infrastructure cannot support. Technically speaking this includes continuous execution, media streaming and parallelizable synchronous composition.
If entrepreneurs on Polkadot Island are better able to use this power infrastructure for valuable activities then it follows that more entrepreneurs will create valuable activity which utilizes it; rising competition generally implies rising demand and, if so, the clearing price for that underlying enabler, electricity, increases.
When, as under the Relay-chain regime, Polkadot Island’s economy is just about selling power to other islands, the actual territory of the island is not a material resource. Under the regime of building on the island to use the power natively, then it becomes important. A plot can only be built upon by one entrepreneur at a time. Furthermore, entrepreneurs invest their own capital with the hope of taking profit later. This implies some continuity of the control over their corner of the island. An entrepreneur is hardly likely to build a factory, apartment building or office block for their business if it can be repossessed by some other force arbitrarily.
This is both the opportunity and the predicament that DOT DAO finds itself in if and when it upgrades itself to the JAM protocol. The JAM protocol doesn’t care how its “island” is used, but to be safe, sound and secure then the total amount of development which happens on the territory must be strictly limited. The island is only so big after all and its geography can only support so much construction.
JAM protocol keeps this activity in check through a resource access token which is built right into the protocol. It’s a bit like a carbon-credit, but for “constructions” rather than releasing fumes. If the “JAM island” is used to build office blocks, tenancies or factories or any other building, whatever it’s doing it needs a corresponding amount of these tokens. This ensures that JAM is never asked to support more than it can safely manage.
If DOT DAO decided to “upgrade” Polkadot Island to JAM, then naturally it would own all of the island and thus all of these tokens. If DOT DAO retained all of the tokens, then only the “original” power-reselling service (i.e. L2 “parachains” security) could use that land, and it would be a similar situation to the island under the Relay-chain regime, as at present. On the basis of simple economics, we should not expect JAM to help the DOT economy in this case. Indeed, in this case, the upgrade to JAM seems like a huge cost for little gain and is difficult to support at all.
However, if DOT DAO brought the prospect of general development of the island to market so that the market could build whatever establishments they deem best, DOT DAO may have a route to capture some of that value on two fronts. Firstly via the infrastructure sales, on which it has a natural and inalienable monopoly as the developer and owner of the island’s power plant. Second, through making the island prosperous, populous and creating a strong internal market, the rest of the island may become more valuable and DOT DAO would be exposed to this increase of value through, and to the extent of, any retained access tokens.
These “resource access” tokens are not cryptocurrency per se: they directly represent access to a resource and were not created to perform duties typically considered financial in nature. The tokens cannot directly be “spent” via a transaction: JAM has no concept of this. However, at the internal level they happen to share the mechanics of cryptocurrency on a smart-contract platform in that they exist under auto-enforcing rules which ensure that they cannot be arbitrarily created and that transfers of “ownership” are made only according to the implications of the code which “owns” them.
So, in a nutshell:
- JAM protocol is a more powerful, generalised replacement for the present Relay-chain protocol.
- DOT retains all economic utility as before including, in aggregate, being in sole control of the DOT DAO.
- Both JAM and the Relay-chain produce coretime for DOT DAO.
- DOT DAO sells coretime to fund the incentivisation for Polkadot validators which presently includes validator and nominator rewards.
- As long as coretime sales are insufficient, then DOT DAO (via the on-chain staking system which it controls) must use inflation to incentivise validators.
- DOT DAO’s success, and with it the future of Polkadot’s economy, is therefore based around making coretime valuable.
- More useful coretime should have a greater market value.
- Utility comes from flexibility and market.
- JAM’s coretime is strictly more flexible and in technically important ways.
- JAM requires an internal resource access token for soundness.
- Ownership of this token is required to make use of JAM’s cores for anything new.
- In an effort to make its coretime as valuable as possible, DOT DAO could consider bringing to market the resource-access token.
Question & Answer
What is JAM? What will it be used for and why is it important?
JAM gives DOT DAO a more flexible version of coretime to sell, but this only works if $JAMKB is generally available to developers.
Why does there need to be a two token model?
The idea that one token is better than two is a cryptocurrency mind-virus. In this mind-virus, all tokens are simply competing currencies with essentially the same limited utility (i.e. “Magic Internet Money”). All are vying for supremacy, and thus all are in direct competition with each other over their apparent mindshare, capitalisation and liquidity. Neither DOT nor $JAMKB are primarily intended as cryptocurrencies. The JAM protocol doesn’t even support transactions, thus making it questionable to characterise $JAMKB as a cryptocurrency at all. DOT is primarily a DAO token (in aggregate, it controls the Relay-chain). It is also used as a currency in limited form (for payment of coretime and as slashable deposits in the staking system). $JAMKB is a resource access token; it maps 1:1 with the finite resource of JAM chain state. The two are thus materially different in terms of purpose, specific utility, economic architecture and even technical mechanics. Put another way, even in the hypothetical situation of DOT never having existed, any optimally architected public JAM network would still need separate tokens for managing the usage rights of its two resources (cores/coretime and footprint). Any attempt to make the two resources use the same underlying token would be a bit like trying to force both oil and gold to use the same ticker symbol for their price. It might unite two classes of investor and simplify oil trading conceptually, but it’s fundamentally economically broken and would lead to bad pricing of at least one of the two commodities, ultimately causing catastrophic consequences if history is anything to go by.
How is there value accrual back towards DOT?
DOT DAO sells time on Polkadot’s cores to fund itself. At present coretime is not worth nearly so much as the cost of the validators which DOT DAO must incentivise in order to produce it. Thus far DOT DAO has drawn upon inflation to make ends meet. This is economically unsustainable. If DOT DAO votes to upgrade to JAM and bring $JAMKB to market, DOT DAO can sell coretime which is qualitatively more useful and thus, hopefully, valuable. This increased income stream would empower DOT DAO to strengthen its economy and reduce its reliance on inflation to cover validator costs.
How will developers or services acquire $JAMKB from DOTDAO?
That is not for me to define. I believe time and discourse is needed for DOT DAO to land at a good decision. As for my personal opinion at present, a sensible path might be to slowly trickle-feed $JAMKB into a DEX. I personally do not believe that more than 50% should be distributed within 5 years.
Will $JAMKB be sold for DOT, dotUSD (or as some know of it as pUSD), or another asset?
That is not for me to define. I believe time and discourse is needed for DOT DAO to land at a good decision. As for my personal opinion at present, the most obvious option to me would be dotUSD.
If $JAMKB is sold for dotUSD, how does that value flow back to DOT holders?
DOT DAO would be the one selling $JAMKB (and the coretime too). It would thus build a reserve of dotUSD. This in and of itself could increase the need for DOT (since DOT is the underlying collateral of dotUSD). It is up to DOT DAO to determine how to make this dotUSD best “work” for its constituents (DOT holders). One option would be a kind of monthly “DOT return”, paid in dotUSD. Another option would be a “DOT purchase”, buying up DOT for dotUSD. A third option would be mass user-acquisition activities funded by the dotUSD. It could also be a combination of these and/or other ideas.
Would it make more sense for $JAMKB sales or auctions to be denominated in DOT, so that demand for JAM state creates direct demand for DOT?
I don’t believe “direct” demand is especially important. Economics is a well-understood discipline with clear and strong theory behind it: economic plumbing works. More important, I believe, is an effective market and for that there needs to be good accessibility. DOT is a volatile and quirky asset compared to USD, making sales of $JAMKB outside of this parochial crypto realm somewhat more difficult than an asset with a stable value like dotUSD.
If $JAMKB is released through an on-chain exchange, who determines the release schedule?
DOT DAO is in control. In principle they could delegate this to a third-party “executive”, but I’m not sure it would be a good idea.
Should some $JAMKB be reserved for grants, loans, early JAM builders, or public-good services?
As a resource access token of primary utility to JAM developers, I believe it entirely rational to “seed” $JAMKB to such individuals and teams most likely to develop interesting services on JAM (and thus for which DOT DAO could ultimately sell coretime). Probably some modest periodic gifts make the most sense since anything else is of too high a delivery and maintenance cost.
If developers need both coretime and $JAMKB, what is the intended relationship between DOT, coretime payments, and $JAMKB acquisition?
Since DOT only has a single supply factor (issuance/inflation, used to pay validators and their backers and go to the treasury; very predictable), we can measure DOT’s economy essentially in terms of demand factors: uses which demand DOT. Payment for coretime is one and typically fetches up to a thousand USD per year per core. It is immaterial in comparison to supply. In fact DOT’s most powerful utility is as a DAO token: in this respect it has absolute power over the staking system, coretime sales and even DOT-collateralised stablecoins. At present DOT DAO “owns” the cores manifested under the Relay-chain. It sells time on them to parachains as coretime to gain revenue (or burn in order to drive benefit to its constituents, the DOT holders). Nothing changes regarding this with a JAM upgrade, it’s just that the DOT DAO “owns” a machine which produces materially more flexible resources and can sell those instead. $JAMKB is the means by which JAM knows how to recognise software which is allowed to use up its limited state.
Could DOTDAO use proceeds from $JAMKB sales to buy back or burn DOT, fund validators, fund ecosystem development, or replenish the treasury?
All of the above.
What mechanisms will prevent $JAMKB from becoming primarily speculative rather than being held by services that actually need state?
A speculative market could, in the short-term, be advantageous to DOT DAO. While advantaging itself to such a situation, it could in principle gift or loan $JAMKB to developers to ensure a degree of utility. We would assume speculation wanes; DOT DAO could be receptive to this in turn. Probably there can be other mechanisms and probably they can be combined. Ultimately, it must be the decision of the DOT DAO to what extent it would wish to capitalise on speculation.
What reporting should exist so DOT holders can see how much $JAMKB remains under DOTDAO control, how much has been released, and what proceeds were received?
This is trivially accessible via on-chain information.
