What is shared liquidity?

Shared liquidity is an innovative DeFi liquidity model that lets the same wallet balance back multiple strategies at once.

1inch Aqua  brings you shared liquidity: a new type of liquidity provision, in which the same token balance can back multiple liquidity positions while remaining in the user's wallet, without the need to be deposited into a liquidity pool.

What does shared liquidity mean in practice?  How does it work?  And how does it change the results you can expect?

Why traditional liquidity falls short

For years, automated market makers (AMMs) have been the foundation of DeFi trading.

The model is simple. LPs deposit tokens into a liquidity pool, traders swap against that pool and LPs earn fees in return.

This helped DeFi grow because anyone could become a liquidity provider without relying on centralized market makers.

But the model also has limitations.

Each deposit is tied to a specific pool, trading pair or price range. If an LP wants to provide liquidity across several markets, the balance must be divided into multiple positions. Once the tokens are deposited, they remain committed to those positions until they are withdrawn.

As a result, capital often becomes fragmented. Some positions may see heavy trading while others receive little or no activity. A protocol can report high TVL, yet only a fraction of that liquidity may actually support trades when demand appears.

What is shared liquidity?

Shared liquidity, pioneered by 1inch Aqua, is a liquidity provision model that allows the same token balance to support multiple liquidity positions or strategies simultaneously without requiring the assets to be deposited into a liquidity pool.

Instead of transferring tokens into pool contracts, LPs approve their wallet balance for liquidity provision. Multiple positions can reference that same approved balance.

The assets remain in the wallet until one of those positions is used to execute a swap.

This changes an important assumption in DeFi. Rather than asking LPs to decide in advance exactly where their capital should sit, shared liquidity allows one balance to remain available across several opportunities at the same time.

How shared liquidity works

Shared liquidity replaces deposits with approvals.

Rather than moving tokens into a pool, an LP authorizes a wallet balance to back one or more liquidity positions.

Those positions define trading parameters such as the token pair, price range or fee settings. However, they do not hold the tokens themselves.

If a swap matches one of the positions, the LP receives the trader’s input tokens directly into their wallet, while the trader receives the LP’s output tokens directly from that wallet. In other words, the assets move into and out of the LP’s wallet as part of the swap. If no swap occurs, the tokens never leave the wallet.

Because every position references the same available balance, LPs do not have to divide their assets before knowing where trading activity will occur.

Why shared liquidity matters

The biggest advantage of shared liquidity is better capital utilization.

In traditional AMMs, one balance often becomes fragmented across multiple positions. Each position is backed by only part of the LP's capital, regardless of where trading demand eventually appears.

Shared liquidity removes that constraint. The same wallet balance can support multiple positions simultaneously, allowing liquidity to remain available across more markets without being pre-split.

This also reduces liquidity fragmentation. Instead of creating separate deposits for every pool, strategy or trading opportunity, LPs can manage multiple positions from a single balance.

For developers, shared liquidity opens the door to more flexible liquidity infrastructure that does not depend on isolated pools for every new application.

Self-custody remains intact

Shared liquidity also changes where assets are held.

In traditional liquidity pools, tokens leave the wallet and are deposited into a smart contract. LPs no longer hold those assets directly while they provide liquidity.

With shared liquidity tokens never leave your wallet: the settlement between the LP and the taker happens atomically: on a wallet-to-wallet basis. This preserves self-custody throughout the process. LPs keep control of their assets, and the approved balance can be updated or revoked according to the protocol's rules.

For many users, this makes liquidity provision feel closer to the wallet-native experience that originally attracted them to DeFi.

It can also reduce certain risks

Traditional pooled liquidity introduces more than capital inefficiency.

It can also expose LPs to strategies such as Just-in-Time (JIT) attacks. In these attacks, sophisticated bots add liquidity immediately before a large swap and remove it immediately afterward, capturing trading fees that would otherwise have gone to long-term liquidity providers.

Research has estimated that JIT attacks can reduce LP fee income by as much as 44%. Shared liquidity models can be designed differently. Because liquidity positions are no longer shared pool deposits, they can reduce or eliminate opportunities for this type of fee-sniping strategy, depending on the protocol's architecture. For instance, in 1inch Aqua, JIT is substantially reduced by design.

A new direction for DeFi liquidity

Shared liquidity is still an emerging concept, but it reflects a broader shift in how DeFi thinks about liquidity.

The industry is moving beyond simply measuring how much capital is locked on-chain. Increasingly, the focus is on how efficiently that capital can support trading when demand appears.

Rather than locking assets into isolated pools, shared liquidity aims to make one balance available across multiple positions while preserving self-custody.

Shared liquidity on 1inch

The shared liquidity model was first introduced by 1inch Aqua, a self-custodial liquidity layer built around this approach.

Instead of depositing tokens into pools, LPs approve their wallet balance to support multiple liquidity positions simultaneously. Their assets remain in their wallet and are transferred only when a qualifying swap is executed.

This allows one balance to back multiple positions while helping reduce liquidity fragmentation and improving capital utilization. As with any form of liquidity provision, positions remain exposed to market risk, and fees are not guaranteed.

Explore 1inch Aqua and discover how shared liquidity is reshaping DeFi liquidity provision.

Disclaimer: This content is provided for informational purposes only. Nothing in this material constitutes financial, investment, legal, or tax advice, or a recommendation to enter into any transaction. Interacting with Aqua involves risk, including the possible loss of all funds involved.