Introduction

Recently, blockchain gaming project Dragonverse Neo, yield enhancement protocol Airpuff, and decentralized AI ecosystem Zero1 Labs have all conducted fundraising through LBP (Liquidity Bootstrapping Pool). Among them, Zero1 Labs raised $10.78 million through LBP in just three days. The average real-time ROI of users on the LBP platform Fjord Foundry reached 308.19%. So, what exactly is the charm of LBP? How does it facilitate fundraising for projects? And do ordinary people have opportunities to participate? This article will provide you with a comprehensive analysis of LBP.

What is Liquidity Bootstrapping Pool?

Liquidity Bootstrapping Pool (LBP) is a DeFi method that facilitates fair and decentralized distribution of new tokens. Introduced by the veteran DEX Balancer in March 2020, LBPs are an alternative to traditional token distribution methods such as qualification-based allocations, ICOs, IEOs, or Initial DEX Offerings (IDOs), each with advantages and drawbacks.

Allocation based on qualifications often caters more to institutional investors, making it difficult for ordinary participants to meet stringent criteria for initial distribution eligibility. While some projects distribute tokens to specific users through airdrops, such an approach demands active engagement in the ecosystem.

ICO, a longstanding fundraising method in the crypto world, involves raising funds and allocating quotas based on capital contribution, which is favorable to large investors. On the other hand, IEOs rely on centralized platforms or intermediaries to facilitate token sales by listing on exchanges, granting projects access to the exchange’s user base and marketing support, but this may entail a lengthy listing process.

IDOs, the most recent method, allow users to purchase project tokens directly by deploying them in liquidity pools on DEX platforms, typically using another token. This method initially provided a permissionless path for anyone to participate in token distribution. However, with the emergence of on-chain bots, more users resort to scripts and bots to swiftly purchase tokens during IDO launches, driving up the token prices and posing significant costs for manually buying tokens.

Mechanism

LBP can be seen as an innovation based on the IDO issuance method mentioned earlier. Projects need to deploy liquidity pools on decentralized exchanges (DEX), which offer two advantages:

1. Projects do not need to form token pairs with fundraising currencies at a 1:1 ratio. Instead, they can form liquidity pools at ratios like 1:5, 1:10, or even smaller. This eliminates the need for projects to prepare large funds for initial liquidity.
2. Users can purchase project assets without any purchasing limits, regardless of the amount of funds they have. Due to the unique pricing mechanism of LBP, the issuance price changes over time. This allows users to choose the optimal time to purchase without worrying about being outpaced by bots or rapid price increases due to large investments.
3. Price discovery function: With fluctuating issuance prices, buyers negotiate prices, helping to ascertain the reasonable value of the project better.

The reason LBP can achieve these advantages lies in its top-down pricing mechanism design. This mechanism is similar to a Dutch auction, where the issuance price starts at the highest point in the price range and decreases over time. The graph below illustrates the curve displayed by the LBP platform Fjord Foundry during its LBP presale. Throughout the three-day sale, the token $FJO started at approximately $2.9, dropping to around $0.06 on the second day with no purchases, and potentially decreasing further to around $0.02 or even lower on the third day.

Source: Fjord Foundry Sites

In this mechanism, there are two key figures: initial weight and final weight. In the LBP, the weight value represents the proportion of an asset in the total pool. For example, in the LBP of Fjord Foundry shown in the above graph, the initial weight ratio between $FJO and $ETH is 99:1, where $ FJO provides 99% of the initial liquidity pool value, and $ ETH provides 1%. Before the sale, the total liquidity in the pool is approximately displayed as $220K, consisting of 7.5M $FJO and 72 $ETH (where ETH’s current price is roughly $3050), indicating that the total value of the liquidity pool shown in the graph is the total value of 72 $ETH.

The graph also shows the final weight, where the LBP will end when the weight between $JTO and $ETH becomes 10:90. However, if this weight is not achieved, the LBP will end after the fundraising date ends.

Source: Fjord Foundry Sites

Let’s assume the project token is A, and the fundraising token is X. Based on the weight ratio, we can derive a formula:

(A amount A price) : (X amount X price) = X weight : X weight

Consequently, we can obtain the price formula:

• The USD-denominated price of A = (A weight / X weight) (X amount X price) / A amount;
• The X-denominated price of A = (A weight / X weight) * (X amount / A amount).

In this mechanism:

• If there are no transactions, the price of A relative to X will continue to decrease;
• If someone buys a small amount of A, the rate of decrease in the price of A relative to X will slow down;
• If someone buys a large amount of A, the rate of decrease in the price of A relative to X will slow down, and even a price increase may occur;
• If someone sells A, the rate of A’s price decrease relative to X will accelerate.

How to Improve the Profit Probability of LBP？

Participating in the initial issuance of project tokens entails high potential returns and risks. Taking the Fjord Foundry platform as an example, according to Coincarp statistics (data as of April 16, 2024 evening), the LBP project Unibit ATH ROI (Return on Investment at its Highest Token Price) reached 52 times. However, a few projects also fell below the issuance price, with some gradually dropping below the average cost after subsequent market fluctuations. If ordinary users want a greater chance of making a profit, they need to do the following three things.

Detailed Research

Participating in an LBP is more akin to engaging in a 1.5-level market. At this point, projects have often undergone multiple rounds of primary market financing and are preparing for public issuance. After the LBP, the liquidity pool is formally established, marking the beginning of a secondary market. Therefore, participants must still consider various aspects of the project, including the initiating team, core mechanisms, competitive advantages, industry prospects, project valuation, tokenomics, security, and more. Although most LBP platforms conduct due diligence on the projects listed on their platform, the potential and risks of these projects still require users to conduct research based on their financial capabilities.

The Appropriate Timing

The Mechanism of LBP introduced earlier can be simplified as follows: the earlier you buy, the higher the price, but it won’t lead to contention, and the quota is sufficient. The later you buy, the cheaper it is, but the more likely it is to be manipulated by others, so theoretically:

For projects with a low Fully Diluted Valuation (FDV), buying early is advisable. If it’s a promising project with a relatively low FDV at the time of issuance, it’s recommended to purchase early during the issuance period. The reason is that high-quality projects have greater expected prospects, even if the price is relatively high at the beginning of the LBP, as most people will still participate, triggering a rush to buy, and preventing the price from falling.

For standard projects, buying can start in the middle. Most projects during the LBP often experience a significant drop in price in the middle to later stages and are then bought by people. For example, the token LBP for Airpuff, shown in the figure below, started to reach the price bottom after about 20 hours of the LBP and then began to rise. The price game among LBP participants in the middle to later stages also tends to develop a trend, and prices at this time are closer to the public’s reasonable expectations.

The reason for buying in the middle to later stages may also be related to the team. In theory, the team will not allow the project token to be purchased in large quantities at a meager price by participants, so they may internally purchase a portion. However, this method has not yet been publicly disclosed by any project.

Source: Fjord Foundry Sites

Dollar Cost Averaging

If you are optimistic about the project and wish to hold it long-term, you can buy in the early or mid to later stages. You can split your funds and purchase in batches at different time points. This can help achieve an average price and mitigate the impact of price fluctuations caused by large-scale selling or buying in the LBP market.

Selling in Time

After obtaining tokens through LBP, remember to check whether the token allocation plan is unlocked all at once or unlocked over time. It is recommended that participants consider selling tokens on time-based on market trends and their target total profits. In actual cases, the difference in returns at different times in many LBPs can be as much as five or even ten times. For example, some projects have achieved ATH ROIs over five times, but according to prices on April 17th, the current price has fallen below the average LBP price.

In summary, profiting from participating in LBP depends on preliminary research, timing of participation, and timing of selling.

Introduction to LBP Platforms

LBP platforms act as investigators and reviewers of LBP projects before they are listed. A good LBP platform tends to have more high-quality LBP projects. Participating in these platforms’ thoroughly reviewed LBPs can, to some extent, increase the success rate and efficiency of fundraising. This article will introduce two influential LBP platforms.

Fjord Foundry

Fjord Foundry is the exclusive partner of Balancer DAO. The project was previously known as Cooper Launch, and during the peak of a bull market cycle on Cooper Launch, Merit Circle raised $105 million. In September 2022, Copper was rebranded as Fjord Foundry. Today, Fjord is a community-centric fundraising platform that connects innovative projects with actively engaged supporters through fair and transparent LBPs, raising over $933 million for projects.

Fjord relies on a Curator system for project review. Curators conduct research on projects, communicate with teams, introduce projects to their respective audiences, and select projects for curation based on quality standards. Currently, the platform has 16 Curators, including renowned investment institutions and investors.

However, projects can also be created directly without Curator review. Fjord will indicate the Curator status of the project, and data shows that projects without curation tend to have average price performance and lower fundraising amounts.

In addition to the Curator review system, Fjord’s UI interface is user-friendly. As shown in the previous demonstration images, Fjord supports multi-chain issuance, and the page displays all basic information about the LBP and project.

Fjord Foundry was acquired by Concave in July 2023 and raised $4.3 million in funding, led by Lemniscap in March 2024. As of April 16, the Twitter follower count is approximately 73.7K.

1intro

1intro is the first LBP platform in the Solana ecosystem. Before offering LBP services, 1Intro operated as an AI-driven DeFi platform, optimizing decentralized trading with an AI-powered liquidity engine. With the launch of LBP services, 1Intro integrated three functionalities: 1DEX, 1LBP, and 1DEPLOY. Its inaugural LBP project is the token $INTRO. 1Intro’s LBP is permissionless, allowing anyone to create LBPs on the platform. As a newly launched LBP platform, 1Intro’s early LBP projects will undergo internal team audits, with plans to introduce a Curator system similar to Fjord Foundry in the future, where professional and reputable third parties will provide curation services.

The inaugural LBP project, $INTRO, has already raised over $10 million, and it is expected to launch more projects within the Solana ecosystem. As of April 16th, the Twitter follower count is approximately 414K.

Conclusion

LBP provides a method for token issuers to start with less capital. For users, this issuance method is fairer as it removes concerns about capital and technical capabilities. However, users must judge more accurately on buying and selling points to increase profit potential. In addition to project research and entry strategy selection, choosing a good platform and good curators can greatly increase the likelihood of profitability.

Adding 1Intro also demonstrates the acceptance of the LBP issuance method by the market. It is believed that in the future, more Launchpad projects will integrate LBP functionality, and more public chains will have dedicated LBP platforms to incentivize ecosystem projects to conduct token issuance with less startup capital.

Disclaimer: Trading carries risks, and investments should be made cautiously. This article is for educational purposes only and does not constitute financial advice. Readers are advised to approach blockchain with rationality, increase awareness of risks, and be vigilant against various illegal virtual token issuances and speculation.