Motivation

Since the inception of Poolshark, the team and early community have worked together to come up with a token model that will drive value towards holders and enable value capture at the protocol level.

Token models at the application layer have not seen a proven model to date, although there have been some silver linings that the FIN model draws from.

Poolshark is an AMM targeted towards for both beginner and pro traders. Poolshark was started because we wanted a better way to trade on AMMs. The protocol our team and community wanted didn’t exist, so we built it.

In building Poolshark, it was not only important for the decentralized exchange to offer new features to users (i.e. range limit and stop-loss orders), but also to enable a new generation of Defensible Liquidity and Progressive Ownership.

The FIN token will be a part of our ongoing efforts to decentralize and democratize the decision-making process within the Poolshark ecosystem. By issuing this token, the aim is to incentivize active participation and contribution from our community, and to foster a sense of ownership and shared success.

Token Features and Utility

Staking for Multiplier Points:

Holders can stake their FIN tokens to earn Multiplier Points, enhancing their rewards and influence within the Poolshark ecosystem.

The maximum Multiplier Points that can be earned will be 100% of the staked amount, with the maximum cap reached after 1 full year of FIN staking.

Unstaked FIN will result in a loss of multiplier points proportional in size to the amount unstaked. If 100 Multiplier Points have been earned and the user unstakes 50%, they will have 50 Multiplier Points remaining.

In this way, FIN stakers are rewarded for loyalty without making it too difficult for new participants to buy and stake FIN and build Progressive Ownership in the Poolshark ecosystem.

Season Rewards

Each season, token holders will receive rewards, marking milestones in Poolshark's growth and success.There are 5 ways to earn points in Season 1:

• Whitelisted Pairs

• Non-Whitelisted Pairs

• Market and Limit Swaps

• FIN Staking

• ??? (to be revealed)

Options Liquidity Mining (Enabled by Bond Protocol):

OLM (Options Liquidity Mining) is a novel way to engage in liquidity provision, allowing users to mine liquidity options and contribute to the robustness of the Poolshark platform.

Poolshark will be partnering with Bond Protocol to provide oFIN, allowing users to purchase FIN at a discount to market price.

Revenue from oFIN sales will go towards deepening liquidity on the platform and rewarding loyal participants in the Poolshark ecosytem.

Public Bonding Sale

Starting December 11th, Poolshark users will be able to publicly purchase FIN bonds via Bond Protocol at a fixed price of $2. This implies an FDV (fully diluted valuation) of $40 million USD given the maximum total supply of 20 million FIN.

The first batch of purchasers will be vested for 3 months at which point the user can exchange for the underlying bond in full.

Users must supply WETH to receive FIN bonds. The liquidity received through the bond purchases will be used to bootstrap FIN/ETH liquidity upon launch of the protocol.

Only 150k FIN bonds will be available for purchase initially, so be sure to mark your calendars for December 11th to ensure you receive the best vesting terms.

Token Distribution

Below are the set allocations for the FIN token by category:

The maximum total supply of FIN is 20 million tokens.

To date, only 3.25% out of the total 18% has been earmarked to be received by Investors over a 3-year vesting period.

It is important for Team and Investor allocations to be vested over longer periods to ensure alignment with participants engaging in receiving FIN rewards and supporting the ecosystem. Team vesting occurs over a 4-year period in order to incentivize long-term commitment.

Our team fundamentally believes that the FIN token will not only enhance our community engagement but also demonstrate our commitment to transparency and fairness.

Season 1 Details

2.4% of the total FIN supply will be issued during Season 1.

This amounts to 480,000 FIN in rewards to mark the first era of growth for Poolshark.

The token will be distributed on an ongoing Season basis with OLM, also known as Options Liquidity Mining. DAO Options allow the protocol to capture revenue by issuing oFIN, an option to buy FIN at a market discount and share token revenue with the Poolshark DAO Treasury.

When the user receives oFIN as Season Rewards, they can choose to sell the oFIN on the open market despite the limited liquidity for oFIN tokens. If the user wants to tap into a larger liquidity pool, they must trade oFIN → FIN by buying FIN at a market discount.

This is the what the Season Rewards distribution will look like for Season 1:

• 50% for LPs on whitelisted pairs

• 22.5% for LPs on non-whitelisted pairs

• 15% for Market and Limit Swaps

• 10% for FIN stakers

• 2.5% for ???

Whitelisted Pairs (50%):

• FIN/ETH (bootstrapping pair)

• ETH/USDC

• ETH/USDT

• USDC/USDC.e

• USDC/USDT

• wstETH/ETH

• rETH/ETH

Non-Whitelisted Pairs (22.5%)

Non-whitelisted pairs will require pairing with ETH, USDC, or UDST. Other Base Assets (e.g. stETH, DAI, etc.) will be added pending a governance proposal.

Non-Whitelisted Pairs allow for “permissionless incentives”, wherein LPs, protocols, etc. that boost liquidity on the platform can start receiving incentives immediately to match their commitment size and fee revenue generated.

Market and Limit Swaps (15%)

• Points are rewarded to traders based on the USD value of their trade at the time at which it is executed. For Limit Swaps, this will be the time at which a Limit LP is crossed or 100% filled and claimed.

• Limit LPs will be rewarded based on how much of their order was filled.

• Points are rewarded exactly the same between Market (classic) and Limit (Poolshark exclusive) Swaps.

FIN Stakers (10%)

Not only will FIN stakers receive Multiplier Points the longer they stake, but also they will be granted Season 1 Rewards based on both their original stake as well as their Multiplier Points.

This means in order to maximize rewards, users must stake their max deposit size for the entire season duration.

??? (2.5%)

Once Season 1 Rewards conclude, the Mystery Category will be revealed.

Building Defensible Liquidity

Defensible liquidity in DeFi refers to cash flow or revenue that passes through a DeFi protocol and is used to sustain incentives.

This concept is closely tied to FIN season rewards as well as the willingness of users to trade the revenue of today for the growth opportunity of Poolshark tomorrow.

Market forces will come and go, and deit is the responsibility of the DAO to encourage sustainable behavior in the long-run in order to operate at the highest level.

Example Defensible Liquidity Loop:

1. Issue oFIN

   Users that drive activity to the protocol will receive oFIN, the option to buy FIN at a discount.

2. oFIN → FIN revenue capture

   To then tap into the liquidity of FIN on-chain, users will provide assets such as ETH and USDC to the DAO. This will provide permanent value capture which can be directed in a number of ways.

3. Reinvest into Defensible Liquidity

Reinvesting into the right areas of the ecosystem will be key to maximizing profit      streamed to the DAO Treasury. Purchasing stable liquidity (e.g. USDC-DAI) and      directing swap fees to FIN stakers is one powerful way to enhance value over time.

It is easiest to think of building Poolshark as a liquidity hub for Arbitrum as similar to that of building a castle. The DAO must fortify any weak areas in order to control a sizeable market share in DeFi and drive value to DAO token holders.

Why Defensible Liquidity Works

1. Extractable Value:

   The liquidity provider can extract profit from the protocol the same as Liquidity Mining 1.0, and the revenue or cashflow that the Poolshark DAO receives in return directly scales with the amount of inflation to the FIN token. Liquidity providers can still sell oFIN to the open market, although liquidity will be on a limited basis.

2. Capture Value:

   FIN holders win because there is value capture at the protocol level, which helps potentially increase the floor price of FIN each time the protocol is reinvested into (e.g. deepening liquidity). FIN stakers get more revenue from liquidity providers seeking to receive Season Rewards.

3. Beat The Mercenaries:

   Mercenary liquidity providers are still incentivized to deepen liquidity, but these same mercenaries cannot extract value from FIN without providing cashflow for the protocol in return. Thus, Defensible Liquidity is achieved through token revenue sharing with the DAO.

Revenue Capture

For example, if there is 20% discount for the Season 1 FIN Rewards with the FIN token price at $10, 20% will go to the liquidity miner and 80% will go towards protocol revenue. Even if Poolshark Liquidity Miners are 100% mercenary, the Poolshark DAO has captured 80% of the value of its own token.

If the Poolshark DAO issues 500k oFIN in Season 1 and captures 80% of its token value at $10, that will mean $4,000,000 of revenue to the DAO in a 3-month period. This is a massive game-changer for building a defensible liquidity platform where the Poolshark DAO can reinvest and build a long-term strategy to retain deep liquidity and an active user base.

Doubling Down On Users

Now that Poolshark has a form of revenue capture, it’s important for the DAO to reinvest this cashflow into the right places into to sustain long-term growth.

A simple example for how powerful this cashflow can be is for the DAO to purchase stable liquidity such as USDC/USDC.e, which is often used to bridge in and out of native USDC on Arbitrum.

100% of the fees from this USDC/USDC.e can then be directed towards FIN stakers, increasing the floor value of FIN. A higher FIN price means more value capture during Season Rewards, thus increasing the “defensibility” of the liquidity in Poolshark for the long haul.

This is just one example of how the FIN token can create Defensible Liquidity and return increasing amounts of value to stakeholders. The challenge for the DAO long-term lies in finding the correct balance between incentivizing new participants with mercenary-style rewards vs. directing loyal participants with increasing amounts of revenue generation.

Next Steps

Next, the Poolshark Team will be announcing an official launch date for the protocol on Arbitrum Mainnet.

This marks the first network Poolshark will be live on, meaning the launch will serve as the first set of key insights on how the Poolshark Labs and the DAO will develop the product moving forward.

If you haven’t yet signed up for our Beta-2, you can still do so for the next couple weeks at this link. You can also check out our homepage at poolshark.fi.

NFTs will be issued for testnet participants shortly after Beta-2 ends.

The team looks forward to sharing more details as soon as we are ready to announce them publicly. In the meantime, you can come engage with us both on Twitter and Discord and plug us with any questions.Thanks for taking the time to read and talk soon!

- The Poolshark Team 🦈

The team for Poolshark is also making the source code for Limit Pools available to the public in celebration of this critical milestone.

To couple with this, we are excited to share the audit we concluded with Guardian Audits last month in auditing the Limit Pool contracts.

Let’s dive in! 🤿

Moving from Bidirectional → Directional

Liquidity providers to date have been limited to bidirectional liquidity, which helps bootstrap liquidity for trading pairs and enable swaps. For traders trying to use double-sided liquidity to simulate limit orders, this has led to trade reversal and failed transactions.

Directional AMMs (DAMMs), being introduced with the launch of Poolshark Protocol on both Arbitrum and Scroll, allow more advanced traders to have the familiar limit order experience whilst being able to specify a price range.

In vanilla CFMMs (constant function market markers), LPs are compensated with trading fees and a receipt token for their provided capital. These LPs facilitate bidirectional trading, meaning users in an ETH-DAI pool would be able to trade both ETH → DAI and DAI → ETH.

When the market price of ETH or DAI moves too far in one direction, liquidity providers can incur opportunity cost commonly referred to as IL (Impermanent Loss) or LVR (Loss Versus Rebalancing).

Improved Trading Experience for AMMs

With DAMMs, LPs harvest volatility instead of fees. Each LP position facilitates trading in a single direction, which could be ETH → DAI or DAI → ETH. In this way, the trader takes one-sided risk and is more easily able to get the price they desire.

Poolshark also introduces the concept of Limit Swaps, which behave like a normal swap when the price matches the trader’s expected price. When there is not enough liquidity at the trader’s expected price, a Limit LP will be minted and filled as the pool price crosses the trader’s chosen price or price range.

In the next set of images, we will take a look at the market swaps of today’s AMMs, providing variable execution, and the limit swaps offered on Poolshark which result in fixed execution for the trader, preventing MEV/front-running from affecting the trader’s execution price.

Solving the Dilemma of LVR

From Day 1, Poolshark will have a dynamic fee system for LPs similar to the proposed solution from Alex Nezlobin. This solution increases the fees paid to liquidity providers the further the price is moved away from a manipulation-resistant reference price. Based on sample data, this can cut the losses of LPs to arbitrageurs by 95%.

Alex Nezlobin

@0x94305

So it begins.

How do we cut the losses of LPs to arbitrageurs by 95%?

Let's start with a simple trick that should give us 10-15% right away...
1/

490

2:10 PM • Jun 30, 2023

Market Swaps vs. Limit Swaps

In trading, a market order involves a trade executing at the current price, and a limit order involves a trade executing at an exact price specified by the trader.

In using the terms “market swap” and “limit swap”, we apply the same thought process: market = current price (variable); limit = exact price (fixed).

1. Quote

In this first image, Alice is quoted an ETH amount in exchange for her DAI.

Take note of her Expected Price as this will be the critical difference here.

2. Front-Run

In image number two, another party is able to see Alice’s trade and decides to move the price on her based on her slippage tolerance.

From here, we can see the execution difference between Market and Limit Swaps.

3a. Market Swap

With today’s market swaps on classic AMM venues, users are forced into doing market swaps.

The trader will take the current price up to their slippage tolerance, beyond which the transaction will fail if exceeded.

In the below image, the miner adds liquidity so that Alice’s trade executes within her set price limit.

4a. Variable Execution

Because Alice was able to have her swap execute within her price limit, her actual price is quite different from her expected price prior to the trade.

On today’s centralized stock exchanges, this would be expected behavior as Alice takes the current price whenever her trade is executed.

3b. Limit Swap

With a limit swap, Alice will create a Limit LP at the price range she expected for her trade: 2000 → 2010 DAI per ETH.

4b. Fixed Execution

Because Alice was able to create a Limit LP at an exact price, her execution is “fixed”, meaning at exact price or better.

Bottom Line: Alice was able to have better execution using a Limit Swap instead of a Market Swap.

Beta-2 Participation

Users who would like to participate in our beta-2 should keep an eye out on our landing page.

We will announce a go-live date on our Twitter handle, after which you will have 48 hours to sign up for the beta and have your participation recorded for all time.

Beta-2 will have some noticable feature improvements, namely:

• Improved User Interface 📱

• First Look at Limit Swaps 💰

• …and More!

To avoid fragmentation of liquidity, our first official launch will be on Arbitrum Mainnet in the coming weeks.

Join us in our Community Discord to stay up-to-date with all the latest alpha and chat with us.

We can’t thank everyone enough for all the support we’ve been receiving from DeFi enthusiasts around the globe.

If you plan to attend ETHLisbon or ETHIstanbul, our team will be attending both of these events and we hope to see you there! Please don’t hesitate to contact us.

The Secret to Limit Pools

The means by which Alice will be able to claim her position will be through the process of passing a ‘Claim Tick’ to the contract.

This ‘Claim Tick’ should have been crossed since Alice created her position.Therefore, we use an epoch system to determine the last time a tick has been crossed.

This is the secret to the gas efficiency of Limit Pools in being able to known process for filling Limit LPs when they claim their position. For full details regarding this mechanism design, you can read the Poolshark whitepaper in its entirety.

Conclusion

To wrap things up, this was a huge release for us and several months worth of work wrapped up into one post.

There’s so much more that wasn’t covered in this article regarding Poolshark and we hope to be able to share more in the coming months.

Your support means everything and we hope to see you out in the waters!

- Poolshark Team🌊🦈

Directional liquidity was introduced in January of this year by Poolshark 🦈 in order for LPs to have a means of taking directional trades against the market.

Our thesis is that the ways in which users can provide liquidity to decentralized exchanges is limited in the current market.

Enter Cover: a stop-loss liquidity pool.

Today the Poolshark team is proud to publicize the smart contracts for Cover, a fully on-chain liquidity protocol allowing users to hedge against market movement.

Cover is not just about decentralizing stop-losses in a meaningful way, but also about opening up the minds of builders around the world in thinking about how to shift the paradigm of AMMs into a new era.

The ultimate dream for on-chain enthusiasts is to have all the features that centralized exchanges offer today but on-chain with intuitive UX, fine-tuned controls, and most importantly, full self-custody.

Continuous Liquidity vs. Profitability

The transition to range-bound or concentrated liquidity has been a significant development in the DeFi world, with several projects moving towards this new liquidity model and paradigm for on-chain protocols.

Providing liquidity within a set range increases capital-efficiency and thus fee revenue earned by liquidity providers. In the same way, impermanent loss risk also increases due to more liquidity being available near market price.

Today’s AMMs work quite well for highly-correlated assets such as stablecoin pairs and liquid staking derivatives (LSDs) and have been proven to be profitable ventures in a large number of cases. According to Impermanent Loss and Price Discovery by Jonathan Choong “this profitability does not apply to riskier asset pairs, which saw average negative returns of -20%” (Choong 57).

Ultimately when providing liquidity, LPs open themselves up to taking a trade on either side of the pair in exchange for trading fees. Liquidity providers are exposed to volatility and agree to take on the payoff profile of both the trading fees as well as the resulting impermanent loss (IL).

Impermanent Loss is ultimately the difference between the average price LPs sell their position at versus the current liquid value had the LP held those same assets.

Instead of limiting trading volume by attempting to shut down Impermanent Loss from happening in the first place, Cover allows self-custody liquidity providers to hedge against volatility and generate a profit margin as the market moves in their favor.

This profit margin is intended to offset the impermanent loss a liquidity provider would experience over that same range. Thus, they are able to minimize the costs of rebalancing their liquidity position.

Cover Pools as a Stop-Loss

Cover supports stop-loss and range stop-loss orders for traders. In trading, a stop-loss order is a common tool used to automatically close a trade when a pre-set price is reached.

This helps protect the trader's capital and minimize risks. Some benefits of using a stop-loss in trading include:

• Protection against further risk to capital in volatile markets

• Safeguarding profits on held assets or profitable active trades

• Protection from liquidation when lending or accessing leverage

Mirroring the market

One way to use a stop-loss order to move with the market is by employing a trailing stop-loss order. A trailing stop-loss order is an order that executes when the price of an asset moves a percentage or dollar amount in a specified direction.

As the price of the stock moves in the investor's favor, the trailing stop-loss order rises along with it, but it doesn't move if the price moves against the trader. This allows the investor to automatically ride trends that are in their favor while exiting when a reversal sets in.

Covering Impermanent Loss

If in the pair of tokenA to tokenB one side begins to drop in value you increase your exposure to the side dropping in value. On the contrary if token A increases in value the position accumulates a greater proportion of token B. This may seem like a losing battle without a lot of liquid ways to hedge.

One way to hedge against impermanent loss is by using stop-losses, which involve setting a specific price at which you will sell your assets to minimize losses. This essentially acts in reverse to by gaining exposure to the side increasing in value.

Today’s AMMs are short volatility.

Cover longs volatility in the same direction as the market.

Whitelisted Testnet

Currently, Poolshark is conducting its Beta Testnet Phase 1, where users can participate in giving feedback on the UI and help be apart of the journey to mainnet.

Join our Discord to find out how to participate in future Beta Testnet Phases.

What’s up Next

Poolshark is targeting an Arbitrum Mainnet launch after Beta Testnet Phase 3. From there, we will be diligently branching out onto other networks that we align with from a technology and UX perspective.

The Poolshark Team feels we have a responsibility to signal to users where we believe the innovation will occur in the future and thus will be laser-focusing our efforts onto networks that align with our vision of decentralization and expanding network effects.

As decentralized technology continues to flourish and scale to millions of new users, we’re excited to be a critical part of that path to mainstream adoption with self-custody trading experiences that users know and love.

Thank you to everyone for all the support in building this public good that we hope will empower users to exchange their assets in ways they never imagined possible.

Stay vigilant,

Poolshark Team 🦈