The Poolshark Protocol

Poolshark is an AMM (automated market maker) protocol that enables both directional and bidirectional liquidity.

Through directional liquidity, pool depositors can set up sell-only liquidity positions.

What problem does Poolshark Address?​

To grasp what makes Poolshark different, it helps to look at two areas: directional liquidity as an alternative to standard LPing, and the idea of native limit and stop functionality inside AMMs.

Native Limit Orders for AMMs​

Right now, DEXes struggle to satisfy pro traders when it comes to directional execution. As a result, the existing DEX setup leaves spot trading with constrained options.

In practice, the only way a trade can execute directionally is by trading against the pool itself, which effectively imitates a Market Order. With Market Orders, traders receive the live exchange price at the moment of execution.

Limit Orders, in contrast, fill at a specified price. Poolshark introduces Limit Swaps-an on-chain trading approach that blends token swapping with liquidity provisioning.

Native Stop Orders for AMMs​

A stop-loss order acts as a cap on the maximum loss an investor is willing to take. When the stop price is reached, the assets are automatically sold to limit additional downside.

Current DEX platforms provide an off-chain form of stop-losses.

Still, traders don’t have certainty over the execution price, since on-chain execution can lag behind the moment the stop level is triggered. Cover Pools give liquidity providers the ability to define the price band in which they want to exit an asset.

For instance, a Cover LP might sell a user's ETH from 1500 -> 1000 DAI per ETH.

When the reference price enters the LP’s specified range, liquidity is released and handled via a dutch auction. This improves the likelihood that the user’s Cover LP gets filled, since the auction mechanism can move faster than the prevailing market price.

In conclusion​

Directional liquidity supports one-way fills, similar to the behavior of traditional limit orders.

The Poolshark team is looking forward to seeing what new utilities emerge around each custom position type.

With these position options, liquidity providers can tailor their risk exposure by making directional bets on market movement.