Demystifying Liquidity Bootstrapping Pools (LBP’s)
At Bounce, we’ve just launched a feature we call ‘Liquid Bootstrapping Pools’ or LBP’s for short. This is common terminology to describe what we’ve built, however frankly it’s not really obvious from this phrase what it actually is and what it’s used for.
This article aims to fix that. It’s important to clarify everything surrounding this new feature because it’s actually super-exciting and something we envisage great demand for.
What is a Liquidity Bootstrapping Pool?
So, let’s start with what this actually is. It’s an incredibly easy way for new projects to create and offer participation in a Token Launch Auction, or TLA.
What’s a Token Launch Auction?
This is a simple crowdfunding mechanism that enables any project — indeed, any team with a great idea or concept — to raise money from individuals without barriers to entry. This has always been possible, of course, but Bounce’s LBP system makes this incredibly transparent and straightforward to implement and kick off.
In essence, the LBP is therefore something often referred to as a ‘Token Launch Auction’ which is an auction with special rules designed to make everything as fair and un-manipulated as possible.
What are the Token Launch Auction mechanics and what do they fix?
The Token Launch Auction / LBP is implemented in a very specific way in order to deter sniper bots and bad actors from effecting a land-grab on the supply of a released asset via a high to low capital-efficient price mechanism.
This is done using a price-magnification method to deter the bots. The idea is that the user launching the auction is able to set the initial price as a multiplier (of up to 99 times relative to the collateral deposited along with it).
This means that if 10 bots were to simultaneously try and scoop the supply of a token via an LBP within 10 seconds of a launch on Bounce, they may send the market cap of the sale from tens of millions to the hundreds of millions and beyond. This means that it rapidly becomes unviable for the bots to act, so they stop, and the price naturally falls back and finds equilibrium, allowing honest actors to eventually acquire the token at a fair price in the auction. It’s no longer about ‘first to the token wins’.
Is the LBP the same as a Token Sale or an ICO?
No, though it sounds quite similar, the proceeds raised from an LBP are directly used to fund a liquidity pool for the token concerned, whereas Token Sales and ICO’s directly fund the project minting the tokens. Fundamentally it’s critical that tokens enjoy good liquidity in order to encourage healthy trading, and the LBP’s offer a way to kickstart this mechanism.
Is it risky?
The Cryptocurrency market is inherently volatile and anyone taking part in any related activity should do so responsibly and intelligently. There is always a degree of risk involved so you should research everything very carefully first.
Having said this, the Bounce LPB system is safe and reliable in itself, however the credentials relating to pools being created by users of the platform need to be checked before you take part in any related auction. You should know the deal by now — always DYOR! Bounce do not validate projects launching on our LBP system and cannot be held responsible for the listings made there. We urge you to put the time in to understanding what it is you’re investing in.
So one more time: Who is this for?
We’ve mostly answered this now, but basically both the projects that wish to create strong liquidity pools via a crowd-source mechanism to strengthen their projects, and for investors to participate! This is a very cool, very exciting and extremely innovative part of the Bounce ecosystem, though it’s kind of complex to explain to people quite how sexy it is! We hope this article has answered some of the key questions and allowed you to appreciate this, the latest deliverable from the Bounce.Finance team.
If you wish to read more about LBP you can do so in our Documents section found at https://docs.bounce.finance/ — and of course, if you have any questions always feel free to ask in our Telegram or reach out to the team and we will be only too happy to help!