Overview & value flow
Covenant is one loop. A sell creates debt; a buy absorbs it; expiry locks it. The hook enforces all three inside the Uniswap v4 swap.
Read it as: sell pressure → covenant debt → buyer absorption → locked LP, with a flat 3% ETH tax skimmed to the creator on every trade.
A worked example
Assume 1 CVN ≈ 1 unit of ETH value for simplicity.
Alice sells 100 CVN.
- The 3% tax is taken in ETH and sent to the creator.
- Of the net proceeds, 20% is retained as a covenant — call it ~20 CVN of exit debt, priced at Alice's realized sell price, expiring in 7 days.
- The rest is sold into the pool as a normal swap. Alice receives ETH for it.
Alice has exited. The retained slice is no longer her claim — it now belongs to the mechanism.
Bob buys, while Alice's covenant is open.
- Bob's ETH is matched against the queue first. Alice's covenant is at the head (FIFO).
- Bob absorbs it at the covenant's frozen discount — say 10% — so he pays ~10% less than pool price for those CVN. The ETH he pays is booked to the protocol reserve.
- Anything left over after the queue is empty routes through the pool as a normal buy.
Bob got a discount for stepping in exactly when someone left. The covenant is now absorbed.
Nobody buys for 7 days.
Alice's covenant matures. Anyone can call the permissionless settlement. The hook pairs the covenant's CVN with its share of reserve ETH and mints a permanent, protocol-owned LP position in the CVN/ETH pool. Alice's sell pressure has become permanent depth.
Who gets what
| Actor | Gives | Gets |
|---|---|---|
| Seller | CVN + 3% tax + 20% retained | ETH for the sold portion; a normal exit |
| Buyer | ETH + 3% tax | CVN at a 5–20% discount when absorbing a covenant |
| Creator | (immutable recipient) | 3% of every trade, in ETH |
| Protocol / pool | — | deeper permanent liquidity from every unabsorbed covenant |
Continue with each step in detail: sell → covenant, buy → absorption, expiry → locked LP, and the creator tax.