The sell-pressure problem
On a normal automated market maker, a sell is pure exit. Tokens go into the pool, ETH comes out, the price moves down, and nothing is left behind. Sell pressure is a one-way drain: it removes value and leaves the remaining holders worse off, with no mechanism to recover it.
Most token designs answer this with blunt tools:
- Sell taxes punish sellers and quietly transfer value, but do nothing structural.
- Burns and reflections move numbers around without adding real liquidity.
- Lockups and vesting delay exits rather than reshaping them.
None of them make an exit productive.
Covenant's answer
Covenant treats an exit as information the market can act on, not damage to absorb silently.
When you sell, the hook keeps a slice of the proceeds as a covenant — a visible, priced, expiring obligation. That does three things a plain sell cannot:
- It becomes a discount. A buyer can settle the covenant below market price. The exit turns into an incentive for someone to step in.
- It becomes liquidity. If no buyer absorbs it within 7 days, the hook converts it into a permanent, protocol-owned position in the pool. Sell pressure literally deepens the market.
- It becomes public state. Every covenant is on-chain in the queue: size, discount, and expiry are all readable. Exits are legible instead of hidden.
The framing matters: Covenant does not "punish sellers". It makes exits visible, absorbable, and productive. The seller still exits — but the part they leave behind works for the pool instead of against it.
Next: see the value flow end to end.