ACE Is The Place With The Helpful Value Capture

When Anatoly first pitched us Solana (originally called Loom), his deck was called “Blockchain at NASDAQ Speed.” Public blockchains have evolved a lot since then, but at their core, they’re still ledgers for the world’s financial assets.

In traditional finance, trading is fragmented because assets are kept on separate systems. Stocks, options, futures, FX, commodities, payments, and credit each have their own ledgers and ways of clearing, holding, and settling. As a result, moving value between them is slow, complex, and costly when compared to assets all living on the same fluid ledger.

Blockchains combine all these functions, which is why they're becoming the foundation for global trading. It’s not only about speed or cost; it’s about creating new ways for markets to interoperate. When all assets are on one ledger, you can bring together spot trading, leverage, options, liquidations, lending, and payments into one system.

Historically Market Microstructure Hasn’t Been Good Enough

The term market microstructure describes how price discovery actually works on a trading venue. It includes how orders arrive, how they’re prioritized, how liquidity shows up, and how trades get filled. Even if two exchanges offer the same assets and fees, they can act very differently because their plumbing works in different ways.

In DeFi, exchanges mostly compete by changing their microstructure. From what we’ve seen, each new DEX tries to solve problems the previous one couldn’t through a novel design. It began with simple x * y = k AMMs, pioneered by Uniswap. From there, we got concentrated liquidity and more use case specific AMMs, such as Curve for stablecoins. Eventually, DeFi teams brought fully onchain limit order books (CLOBs) to market, like Phoenix.

As time went on, we observed that general-purpose chains were poorly equipped to support high-performance trading. Problems like state contention, latency, and global ordering make it difficult to create fast, liquid markets for both makers and takers.

It’s also hard to customize matching rules or get execution guarantees on a shared chain without political challenges. In our assessment, this is why many of the leading derivatives DEXs, like Hyperliquid, Lighter, Aster, and Paradex use their own execution environments. Running their own infrastructure gives them full control over ordering, block times, fees, etc., rather than being limited by the generic rules of public chains.

Solana’s ecosystem is tackling this problem differently by introducing application controlled execution (ACE). Instead of the chain deciding transaction ordering rules, applications can set their own rules for how their transactions are ordered and processed. This allows protocols to use custom execution rules without sacrificing offchain and onchain forms of composability.

While verticalized execution like Hyperliquid and Lighter can improve performance, it functionally reduces composability and shared liquidity. ACE seeks to achieve the best of both worlds. It keeps a single pool of capital and state on one chain, while still giving applications detailed control over transaction order and execution.

ACE Creates a New Value Capture Model for App Tokens

A lot has already been written about ACE and its benefits. In this essay, we won’t rehash those points. Instead, we’ll assume that Solana and other general purpose chains will adopt some form of application sequencing.

One interesting effect of ACE is that it could help DeFi tokens actually capture value. DeFi value capture is a topic we’ve discussed at length (here, here, here, and here), and we’ve examined how app-layer tokens succeed or fail at this. We believe ACE represents the first new framework for DeFi tokens to capture value in years. Importantly, this framework is based on the idea that applications can create value for token holders by giving them priority in how their transactions are ordered (as discussed below) without layering on extra fees for users, making value capture sustainable.

In many cases, DeFi tokens have struggled to capture the value their protocols create. It’s our understanding that many protocols didn’t enable fees at first given regulatory risk and now because of competition. When DeFi protocols support hundreds or thousands of local frontends worldwide, collecting fees becomes even harder. For example, if two borrow/lend protocols have the same capital and interest rate curves, the one with the lower net interest margin will win. This is important when trying to attract assets from large fintechs like Revolut and Nubank, since even a small fee difference adds up at scale.

Today, DeFi tokens capture value in a few main ways: (1) staking tokens for fee discounts, (2) protocols buying back and burning tokens or sharing some revenue, (3) users burning tokens for benefits, and (4) holding tokens for governance. There are other uses, like using native tokens as collateral, but in our experience these are the main ones.

ACE introduces a new way for tokens to capture value. With ACE, protocols can give token holders priority in how their transactions are ordered within the system.

V1 of This Idea Happened at the Base Layer

The idea of letting token holders get priority execution isn’t new. Projects like Eden Network on Ethereum and Paladin on Solana tried to use tokens to influence how transactions are ordered at the base layer.

Both projects aimed to give their token holders better access to blockspace. They let users send transactions through special relays or builders that offered priority or better ordering. The idea was that holding the token gave you the right to execution priority. But these systems worked at the base layer instead of the application layer, and that difference mattered.

Since base-layer ordering affects all applications, these systems struggled to gain traction. Validators and builders needed to opt in, and users had to route transactions through special relays, which made coordination tricky. With only a few validators participating, the priority guarantees were weak, so users didn’t have much incentive to hold or use the token.

ACE Helps DeFi Tokens Capture Value

When the application controls execution, things that actually matter to traders—such as liquidations, bonding curve interactions, or maker cancels—can be prioritized. This makes the value of priority clear and easy to understand. The protocol also improves without needing global coordination between validators or unrelated apps.

This idea might seem a bit abstract, so here are a few examples to make it clearer.

Bonding Curve Launchpads

The first example is a launchpad like Pump.fun. Here, prices are set by a bonding curve instead of a CLOB. As people buy tokens, the price moves up along the curve and early buyers pay less, while later buyers pay more. This makes ordering important: who gets to interact with the curve first directly affects the price they get.

Since bonding curves update with every trade, transactions in the same block are still processed sequentially. That means two people buying in the same block can end up with very different prices, depending on who goes first. In high profile launches, early access to the curve becomes valuable, as lots of buyers rush to get in at the start.

Today, getting early access to the curve mostly depends on speed and MEV tools. Faster bots, private connections, and relationships with validators often decide who gets in first. The protocol treats all buyers the same, even though some are long-term users and others are just looking for quick flips.

With ACE, a launch platform can set rules that give priority to users who hold or stake the platform’s token. Token holders get the first chance to interact with the curve in each block, as long as they meet the requirements, and can be ordered by stake weight. In a Pump.fun mint, this effectively means PUMP holders are the first buyers on the curve in every block. Everyone else can still participate, but they’re doing so after price impact has already been realized.

In theory, the same idea could work for AMM trades. The taker with the highest stake weight would be able to execute in a pool first within a block.

Liquidations on Borrow/Lend Protocols and Derivatives DEXs

In borrow/lend protocols like Aave and Kamino, and derivatives DEXs like Drift and dYdX, liquidations are what keep the system solvent. If prices move against a borrower or leveraged trader and their collateral isn’t sufficient, a third-party liquidator can step in. The liquidator pays off all or part of the borrower’s debt and gets the borrower’s collateral at a discount. Most of the time, unless prices drop sharply, this is a profitable strategy. Bots usually dominate liquidations because they race to be first and earn the profit.

On most chains today, liquidations are all about speed. All liquidation transactions go into the same mempool, and whoever gets their transaction ordered first wins. The protocol can’t really do anything to favor long-term supporters over opportunistic searchers, barring restricting who can liquidate (which in our opinion can create lots of negative downstream consequences.)

With ACE, a borrow/lend protocol can set rules that give priority for some liquidations to addresses that stake the protocol’s native token for some duration. Note that staking should be required so as to avoid atomic borrow and repays to win liquidations. This would give token holders the right of first refusal to a liquidation opportunity within a block (e.g. their transactions are ordered ahead of non-token stakers if they meet the rules.)

However, we believe this priority shouldn’t be exclusive and if token holders don’t act to liquidate the underwater position, anyone else can still step in and execute the liquidation during the same block. The protocol shouldn’t risk its solvency.

Onchain CLOBs

A main use case for ACE is prioritizing maker cancels. As we see it, one reason Hyperliquid has grown so much (along with no gas for maker trade placement and HLP being an early market maker) is that makers get priority to cancel orders. This is important because being able to cancel stale quotes quickly lets makers quote tighter spreads without much risk of adverse selection.

Extending this to our framework, a perpetuals DEX can require market makers to stake tokens to get cancel priority for their orders. This means that makers who support the protocol should have less execution risk than others. (We understand that market makers are sensitive to cost of capital, but humor us on this. They could also accumulate tokens via liquidity mining by trading on the exchange.)

Most CLOBs work by filling makers who offer better prices first, and when prices are equal, the earliest order gets priority. This is called price-time priority. It’s the default matching logic in most traditional and DeFi markets.

Another possible model is to replace price-time priority with price-stakeweight priority. If multiple makers are quoting the same price, the exchange would allocate fills based on who has staked more, rather than who placed their order first. For instance, if three makers each offer 1 SOL at $80, and Maker A has staked 10 DEX tokens, Maker B has staked 5, and Maker C has none, then when a taker buys 1 SOL, 66% of the fill would go to Maker A and 33% to Maker B. In practice, this means makers who are aligned with the protocol get more of the flow. There are lots of open questions about whether or not this would unnecessarily hurt liquidity, but it’s an interesting thought experiment nonetheless.

RFQ Systems

Request for Quote (RFQ) has become a popular way to execute trades in DeFi. Here, instead of using an AMM or a CLOB, a trader asks several market makers for quotes. The order is matched with the maker who offers the best price.

ACE could allow protocols to set their own rules for handling RFQs. For instance, market makers who stake the protocol’s native token might get a stake weighted right of first match. All makers would submit quotes for an RFQ, and the best price would be chosen. Before the trade is finalized, makers would get last look opportunities in order of their stake size: smaller stakers see the RFQ first, and larger stakers see it later. It's important to understand that this is not the usual last look where makers can reject trades. Prices remain competitive and the best price still wins, but maker stake weight decides who gets the final chance to match.

The third largest staker gets the third-to-last look, the second largest gets the second-to-last, and the largest staker gets the final look. If the top staker matches the best price, they win the trade. Teams considering this model would need to consider latency as they explore this design.

NFT Mints

The last example we’ll talk about is an NFT mint. When a collection mints at a fixed price, the earliest transactions get access to scarce supply, while later ones either revert or clear at higher or lower secondary prices. Two transactions in the same block can have very different results depending on execution order. In practice, this is somewhat similar to our memecoin bonding curve example.

Today, mint ordering mostly comes down to speed, and bots, private RPCs, and validator relationships are what matter. With ACE, holding or staking the platform’s token could give users priority access to the mint within a block, without shutting out everyone else if supply is still available.

Some IP and NFT projects now have their own tokens, like Pudgy Penguins, Mad Lads (soon with the Backpack token), and ApeCoin. These projects could let token holders access new collections first, giving them priority over others even in the same block.

Conclusion

Across all of these examples, the key question is whether ordering within a block actually matters for the application. If two transactions in the same block can lead to different prices or decide who captures a profitable trade, then ordering has real economic value.

Until now, most of that value leakage in applications has flowed to searchers, MEV bots, validators, and stakers across the global transaction supply chain. DeFi protocols created these opportunities, but haven’t really captured the value, which means token holders haven’t benefited either.

ACE changes this by letting applications and protocols control ordering for valuable transactions. Ordering of things like liquidations, bonding curve fills, maker cancels, RFQs, and NFT mints can all be done by applications via ACE. Unlike previous attempts at offering priority via token ownership, validators don’t need to opt in or coordinate, and token holders can capture the value.

Our portfolio company Jito is building Block Assembly Marketplace (BAM), which allows DeFi developers on Solana to start layering in these value capture mechanisms. Currently, BAM is used by 25% of Solana network stake, and is quickly growing.

Importantly, this mechanism doesn’t require extracting more fees from users. For example, we believe that in this framework (a) borrow/lend protocols don’t need to increase their net interest margins, (b) makers don’t need to quote wider spreads on DEXs and in fact could end up quoting tighter than they do on CEXs, (c) takers on RFQ would still get best execution across all makers, (d) NFT creators still get the same prices, and (e) memecoin issuers earn the same as before. The difference is simply where the value ends up: less with bots and searchers, and more with token holders. In other words, token value capture improves without sacrificing product quality.

If you’re a DeFi protocol thinking about ACE and how it could help your token capture value, reach out to us on X at @spencerapplebau and @shayonsengupta. We’d love to explore the design space with you.

This is the first post in a series we plan to publish around market microstructure. In our next post, we’ll look at why blockchains are easy playgrounds for adverse selection for market makers, and what DeFi developers can do about it. We believe there’s a vast design space for improving retail execution in onchain markets.