How to Structure a Partnership for Shared Liquidity Pools

A shared liquidity pool partnership is a formal agreement where multiple entities—such as protocols, DAOs, or institutional investors—collaborate to bootstrap, manage, and govern a single liquidity pool. Unlike a simple token swap, this structure involves shared ownership, coordinated incentives, and defined operational roles. The goal is to create a deeper, more resilient market for an asset pair, reducing individual capital requirements while amplifying collective market influence. Successful examples include partnerships between Layer 1 blockchains and major DEXs, or between DeFi protocols and liquidity-as-a-service providers.

The core technical architecture revolves around a smart contract that manages pooled capital and enforces the partnership's rules. Key components include a multi-signature vault for the pooled assets, a fee distribution mechanism, and a governance module for parameter updates. For instance, a partnership might use a Gnosis Safe for treasury management, a custom Solidity contract for automated fee splitting, and a Snapshot space for off-chain voting. The contract must clearly define deposit/withdrawal permissions, fee accrual logic (e.g., 0.3% of swap volume), and the process for adding or removing partners.

Economic design is critical for long-term alignment. Partners must agree on: the initial capital contribution ratios, the fee-sharing model (pro-rata by stake or based on performance), and a vesting schedule for any partnership tokens or rewards. A common model is to issue LP tokens representing each partner's share, which are then used to claim accrued fees. It's also essential to model impermanent loss scenarios and establish guidelines for rebalancing the pool or providing supplemental incentives during periods of high volatility to protect the shared capital.

Governance establishes how decisions are made. Will changes to pool parameters (like fee tiers) require a simple majority or unanimous consent? Define clear processes for onboarding new partners, handling emergency withdrawals, and upgrading the smart contract system. Many partnerships use a council model with elected representatives from each entity, coupled with a time-lock mechanism for executing sensitive treasury transactions. Transparency is maintained by routing all operations through the shared multi-sig and publishing regular on-chain analytics reports.

To implement, start with a legal memorandum of understanding (MOU) outlining intent, then proceed to a technical specification. Develop and audit the core smart contracts, deploy them on a testnet for simulation, and finally launch on mainnet with an initial capital deposit from all parties. Continuous monitoring via tools like Chainscore for pool health, volume, and partner contribution metrics is essential. This structured approach transforms a simple capital aggregation into a sustainable, transparent, and strategically valuable partnership in the DeFi ecosystem.

A shared liquidity pool partnership is a formal agreement between two or more entities—such as DAOs, protocols, or trading firms—to jointly provide capital to a single liquidity pool. This structure is common for liquidity mining programs, cross-protocol incentives, or bootstrapping new DEX pairs. Unlike a simple token grant, it requires a clear framework defining capital contributions, fee distribution, governance rights, and operational responsibilities. The goal is to align incentives and mitigate risks like impermanent loss and counterparty default through transparent, on-chain enforceable terms.

The core of the partnership is the smart contract architecture. For an ERC-20 pair on an AMM like Uniswap V3, partners typically deposit into a shared vault contract (e.g., a Gnosis Safe multi-sig or a custom vault) that then mints the LP position. Governance is handled via a separate contract that manages parameters: - Contribution Ratios: Defining each partner's share of the total capital. - Fee Withdrawal Schedule: Automating profit distribution based on ownership stakes. - Rebalancing Logic: Rules for adjusting the position's price range or adding/removing liquidity. - Exit Mechanism: A clear process for a partner to withdraw their capital, often with a notice period.

Legal and operational due diligence is critical. Partners must verify each other's legal entity status, KYC procedures (if required), and treasury management practices. For DAOs, this involves ratifying the agreement via governance vote and documenting it in a Memorandum of Understanding (MoU) or a more formal Joint Venture Agreement. Key clauses should cover dispute resolution, liability limits, and the handling of protocol-specific risks, such as changes to the underlying AMM's fee structure or a fork of the blockchain. All agreed terms should be reflected in the smart contract's logic to minimize trust assumptions.

Economic modeling precedes deployment. Use tools like Token Terminal for historical fee data and Gamma Strategies for simulating concentrated liquidity performance. Model scenarios for different volatility regimes and calculate expected returns net of gas costs and impermanent loss. This analysis informs the partnership's capital allocation, target price ranges, and the planned duration of the liquidity provision. Establish key performance indicators (KPIs), such as Annual Percentage Yield (APY), captured fees vs. impermanent loss, and pool depth improvement, to measure success.

Finally, establish a transparent reporting and communication framework. This includes regular on-chain analytics reports using Dune Analytics dashboards to track the pool's health, and pre-agreed channels for governance signaling. For long-term partnerships, consider implementing a vesting schedule for any incentive tokens earned, locking them in a contract like Vesting Contract by OpenZeppelin to ensure aligned long-term participation. A well-structured partnership transforms a simple capital merge into a resilient, scalable liquidity engine.

Structuring a partnership for shared liquidity requires a clear definition of the liquidity pool's purpose and the value exchange between participants. Common models include: revenue-sharing agreements where swap fees are split proportionally to contributed capital; co-marketing initiatives to drive volume; and technical integrations that allow one protocol's LP tokens to be used as collateral in another. The first step is to formalize these terms in a legal Memorandum of Understanding (MoU) before any code is written, covering governance rights, fee distribution schedules, and exit clauses. This ensures all parties have aligned incentives before committing development resources.

The core technical architecture is defined by the smart contract layer that governs the shared pool. For Ethereum and EVM-compatible chains, this often involves deploying a custom LiquidityPoolManager.sol contract. This manager contract should hold ownership of the pool's LP tokens and contain the logic for automated fee harvesting and distribution. A critical design pattern is to use a multi-signature wallet or a DAO-controlled treasury as the contract owner, rather than a single entity, to decentralize control. The contract must also implement secure functions for partners to deposit/withdraw their share of liquidity, often using a vault or wrapper token to represent each partner's stake.

Implementing the fee distribution mechanism requires careful on-chain accounting. A typical approach uses a harvestFees() function that anyone can call to collect accrued fees from the underlying DEX (like Uniswap V3 or Balancer), convert them to a stable denomination (e.g., USDC), and then distribute them to partner addresses based on predefined ratios. For transparency, all distribution logic should be on-chain and verifiable. Consider using Chainlink Oracles for secure price feeds if fee conversion is needed. It's also prudent to include a timelock on critical functions like changing distribution ratios or adding new partners, giving all stakeholders time to react to governance proposals.

Risk management and security are non-negotiable. Partners must agree on a slashing mechanism or insurance fund to cover potential smart contract vulnerabilities or impermanent loss beyond agreed thresholds. All smart contracts should undergo rigorous audits by firms like Trail of Bits or OpenZeppelin before mainnet deployment. Furthermore, establish a clear incident response plan detailing how to pause the pool, migrate liquidity, or execute an emergency withdrawal if an exploit is detected. These contingencies should be codified in the smart contracts with privileged functions accessible only via a decentralized governance process or a security council.

Finally, successful partnerships require ongoing performance monitoring and analytics. Tools like The Graph can be used to index pool data—such as daily volume, fee generation, and partner share—into a dashboard. Setting up on-chain alerts for unusual withdrawal activity or volume drops is also recommended. The partnership agreement should include regular review periods (e.g., quarterly) to assess performance metrics and renegotiate terms if the market or protocol dynamics change, ensuring the shared liquidity pool remains beneficial for all participants in the long term.

A multi-signature (multi-sig) wallet is a smart contract that requires multiple private keys to authorize a transaction, such as adding liquidity or changing pool parameters. For a partnership, this replaces a single point of failure with a consensus mechanism. Popular implementations include Gnosis Safe (now Safe{Wallet}) on EVM chains and Squads on Solana. The core decision is determining the signature threshold—for example, 2-of-3 or 3-of-5—which balances security against operational agility.

The governance structure must be codified in the wallet's configuration. Define clear roles: who are the signers (partner representatives), what are the asset custody rules, and what types of transactions require approval. Common guarded actions include: depositing/withdrawing liquidity, adjusting fee parameters, upgrading pool contracts, and allocating incentive rewards. Document these rules in an off-chain agreement, but their enforcement happens on-chain via the multi-sig's required approvals.

Deployment is straightforward. Using Gnosis Safe as an example, partners connect their wallets to the Safe{Wallet} app, create a new Safe, and specify the list of owner addresses and the confirmation threshold. The resulting contract address becomes the treasury for the partnership. All subsequent liquidity pool deposits (e.g., providing USDC/ETH to a Uniswap V3 pool) should originate from this address, creating a transparent and auditable record of all pooled capital.

For ongoing operations, integrate tools like Safe Transaction Service for proposal creation and Zodiac modules for advanced automation. A typical workflow involves a partner drafting a transaction (e.g., to collect fees), which is then visible to all other signers for review and approval. This process ensures no single entity can unilaterally move funds, building essential trust. Remember, the multi-sig manages the assets; the underlying liquidity pool smart contract (like Uniswap or Curve) still handles the trading logic and fee accrual.

Finally, establish off-chain communication channels aligned with on-chain actions. Use a dedicated Discord channel or forum for discussing proposals before they are submitted to the Safe. This prevents transaction spam and ensures signers understand the context of each vote. The combination of a secure, on-chain execution layer (the multi-sig) with clear off-chain governance processes forms a robust foundation for managing shared financial infrastructure.

A revenue-sharing contract is a smart contract that acts as a transparent and automated escrow for DEX fees. Instead of manually splitting profits, the contract is programmed to receive fees (e.g., from a Uniswap V3 pool) and distribute them to predefined partner addresses based on a fixed percentage split. This eliminates trust issues and operational overhead. The core logic involves implementing a receive or fallback function to accept incoming ETH or ERC-20 tokens, tracking total revenue, and allowing authorized partners to withdraw their share.

The contract structure requires several key components. You must define the owner (deployer) who can manage partners, a list of partner addresses, and their respective sharePercentage (summing to 100%). A mapping like mapping(address => uint256) public shares; stores each partner's allocation. Critical functions include addPartner, removePartner, and updateShares—all restricted to the owner. The contract must also track totalRevenueReceived and each partner's amountWithdrawn to calculate their current claimable balance accurately.

For security, the withdrawal function should follow the Checks-Effects-Interactions pattern to prevent reentrancy attacks. Before transferring funds, update the internal accounting state. Use OpenZeppelin's ReentrancyGuard and Ownable contracts for best practices. Here's a simplified snippet for the withdrawal logic:

solidityCopy
function withdrawShare() external nonReentrant {
    uint256 total = totalRevenueReceived;
    uint256 myShare = (total * shares[msg.sender]) / 100;
    uint256 alreadyWithdrawn = amountWithdrawn[msg.sender];
    uint256 claimable = myShare - alreadyWithdrawn;
    require(claimable > 0, "No funds to withdraw");
    amountWithdrawn[msg.sender] = alreadyWithdrawn + claimable;
    (bool success, ) = msg.sender.call{value: claimable}("");
    require(success, "Transfer failed");
}

Deploy the contract on your target network (e.g., Ethereum Mainnet, Arbitrum, Base) using a tool like Foundry or Hardhat. After deployment, you must configure your liquidity pool to send fees to the contract address. On Uniswap V3, this is done by setting the pool's feeTo address via the factory owner. For other DEXs like Balancer or a custom pool, you may need to modify the fee collection logic in your pool contract to forward payments. Always verify the contract on a block explorer like Etherscan and conduct thorough testing on a testnet with simulated revenue streams before mainnet deployment.

Consider advanced features for production use. Implement time-locked withdrawals or vesting schedules using a timestamp-based release mechanism. For ERC-20 fee tokens (like USDC from pool swaps), create a function withdrawTokenShare(IERC20 token) that distributes the specific token balance. To save gas for frequent small claims, you could allow partners to claim on-demand or implement an automated pull-payment system. Always include events like RevenueReceived and ShareWithdrawn for off-chain monitoring and transparency.

Finally, establish clear off-chain agreements that mirror the on-chain logic. The smart contract enforces the split, but legal partnership terms should define the revenue source, the split percentages, and dispute resolution. Document the contract address, partner addresses, and shares in your project's documentation. Regular audits of both the contract code and the actual revenue flow are essential to ensure the system operates as intended and maintains partner trust over the long term.

The core of a shared liquidity pool partnership is a smart contract agreement that codifies the terms. This contract should explicitly define the capital commitment from each party, the revenue-sharing model (e.g., 50/50 split of swap fees), and the governance rights for modifying pool parameters. For a Uniswap V3-style pool, this could involve a multi-signature wallet controlling the nonfungiblePositionManager to manage the concentrated liquidity position, ensuring no single party can act unilaterally. Clarity here prevents disputes and establishes trust.

Incentive alignment extends beyond fee sharing. Partners must design a joint liquidity mining campaign to bootstrap usage. This involves allocating a shared token budget (e.g., 100,000 PARTNER tokens from each protocol) to reward users who provide liquidity to the pool. The campaign parameters—emission rate, duration, and distribution curve—should be agreed upon and automated via a liquidity mining smart contract like MasterChef or a custom staking contract. This creates a unified front for users and efficiently utilizes marketing resources.

Risk management is a critical, often overlooked component. The agreement must outline procedures for impermanent loss (IL) hedging or compensation, especially if one token is more volatile. It should also define a clear exit strategy or dissolution process, specifying how remaining liquidity and assets are divided if the partnership ends. Including slashing conditions for malicious behavior or failure to meet capital commitments adds a layer of security. These terms protect both parties' treasury assets.

Technical integration is the execution layer. Partners need to decide on the oracle for fair pricing (e.g., Chainlink, Pyth), the DEX framework (Uniswap V3, Balancer, a custom AMM), and cross-chain messaging if applicable (using LayerZero or Axelar). The deployment and audit of the joint pool contract should be a collaborative effort. Documentation for developers on how to interact with the pool (e.g., via the DEX's SDK or direct contract calls) is essential for ecosystem adoption.

Finally, establish Key Performance Indicators (KPIs) and reporting mechanisms. Track metrics like Total Value Locked (TVL), daily trading volume, fee generation, and unique liquidity providers. Use on-chain analytics tools from Dune Analytics or Flipside Crypto to create a shared dashboard. Regular reviews based on this data allow partners to adjust incentive rates or marketing efforts dynamically, ensuring the pool remains competitive and achieves its strategic goals for both protocols.

A shared liquidity pool partnership involves multiple entities—such as protocols, DAOs, or investment funds—pooling capital into a single smart contract to earn fees or provide market depth. The primary legal consideration is the choice of entity. Common structures include forming a Limited Liability Company (LLC) to act as the pool's legal wrapper, establishing a Series LLC for segregated asset pools, or using a Decentralized Autonomous Organization (DAO) with a legal wrapper like a Wyoming DAO LLC. The chosen entity must be capable of holding assets, entering contracts, and limiting member liability, which is crucial when dealing with smart contract exploits or regulatory scrutiny.

The partnership's operational rules must be codified in two layers: the legal agreement and the smart contract. The legal Operating Agreement or DAO Constitution should define key terms: capital contributions, profit/loss distribution (e.g., proportional to stake), governance rights (on-chain voting vs. multi-sig), dispute resolution, and exit mechanisms. Concurrently, the pool's smart contracts (e.g., an AMM like Uniswap V3 or a custom Balancer pool) must enforce these rules programmatically. Use access controls and timelocks on admin functions, and implement a clear fee distribution mechanism, such as sending fees to a designated treasury contract owned by the legal entity.

Risk allocation is a critical section of the partnership agreement. Clearly outline liability for smart contract risk (e.g., bugs, oracle failures), regulatory risk (securities law compliance, KYC/AML if required), and counterparty risk (one partner's actions impacting the pool). Consider requiring professional audits from firms like ChainSecurity or Trail of Bits and obtaining directors and officers (D&O) insurance for key decision-makers. The agreement should also specify procedures for responding to an exploit, including pausing mechanisms, fund recovery efforts, and communication protocols to protect the partnership's reputation.

Governance structures must bridge the legal and on-chain worlds. For smaller partnerships, a multi-signature wallet (e.g., Safe) with signers representing each entity can control treasury funds and parameter updates. For larger, more decentralized pools, an on-chain governance system using tokens (like Compound's Governor) is appropriate. In this case, the legal agreement must bind token-holding members to the outcomes of on-chain votes. All proposals for major changes—such as adjusting fee tiers, adding new tokens, or upgrading contracts—should require a supermajority as defined in both the legal charter and the smart contract's voting module.

Finally, establish clear accounting, reporting, and dissolution terms. Partners need transparent, verifiable records of pool performance. Use subgraphs from The Graph or custom analytics dashboards to track TVL, volume, and fee accrual. The agreement should mandate regular financial reporting aligned with these on-chain metrics. Include a dissolution clause detailing how assets are distributed if the pool is wound down, prioritizing the return of principal contributions before profit sharing. Proactively consulting with legal counsel experienced in DeFi, such as firms working with the DeFi Education Fund, is essential to ensure the structure is robust and compliant.

To begin, formalize the partnership agreement with clear, on-chain verifiable terms. Use a multisig wallet controlled by representatives from each partner to manage the pool's admin keys and treasury. Document the economic model—including fee splits, tokenomics for any joint LP token, and governance rights—in a transparent, publicly accessible document or a smart contract with immutable rules. Tools like OpenZeppelin's Governor contracts or Aragon can provide a framework for decentralized decision-making between entities.

Next, proceed with a phased deployment on a testnet. Start by deploying the core AMM contracts (e.g., a forked or custom Uniswap V3 pool) and your joint governance contracts. Rigorously test all interactions: - deposit and withdrawal flows for both partners, - fee accrual and distribution mechanisms, - emergency pause functions, and - governance proposal execution. Conduct an audit with a reputable firm like Trail of Bits or ConsenSys Diligence, focusing on cross-party access controls and fund segregation. A bug bounty program on Immunefi can provide additional security coverage post-launch.

Finally, plan the mainnet launch and ongoing management. Use a timelock controller for all privileged operations to give participants a review period. Monitor pool metrics using subgraphs from The Graph or analytics platforms like Dune and DefiLlama to track TVL, volume, and partner share. Establish regular operational reviews to assess performance against the model and vote on parameter adjustments (like fee tiers). The partnership is a live system; its success depends on continuous alignment, transparent analytics, and the robust, trust-minimized architecture you've built.