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LBP (Liquidity Bootstrapping Pools) are pools consisting of 2-4 tokens that can dynamically change the token weightings over time (e.g 1/99 to 99/1 for TokenA/TokenB). The programmatic adjusting of weights over time facilitates the lowering of the price slowly. Therefore, LBPs elongate the price discovery period and enable participants to wait for the price they think is fair to buy at.
The pool owner selects the starting and end weights of the tokens and has the ability to pause swaps. LBPs can be used to launch new tokens with a relatively small amount of capital, allowing broad token distribution, fair price discovery, and minimized volatility.
LBPs can dynamically change over time the token weightings (e.g 1/99 to 99/1 for TokenA/TokenB)
Used to launch new tokens with a relatively small amount of capital
LBPs allow broad token distribution, fair price discovery, and minimized volatility
LBPs often start with intentionally high prices and decrease over time
To understand LBPs, one first needs to know about the Dutch Auction. The Dutch Auction is an auction where the price of an item starts high and reduces over time. Once the price gets low enough, the buyers start to buy. The Balancer’s liquidity bootstrapping pools combines the thinking behind a Dutch Auction with the AMM (Automated Market Making) pricing model.
<aside> 🔥 LBPs often start with intentionally HIGH prices and decrease over time. This strategy strongly disincentivizes whales, bots, front-running and speculation. When LBPs are used for early-stage tokens, this can help increase how widespread the token distribution is.
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Because of the flexible weightings, projects can bootstrap liquidity with little investment. For example, a project can start a pool with a 90/10 TokenA/TokenB, and set up a pool controller to programmatically change the ratio over a period of time. At the end of the period the ratios invert. As weighting adjusts throughout the sale, retail investors get the chance to take part in the project sale at a fair price. In contrast, when using traditional 50/50 initial DEX offerings (IDOs), they suffer from increased prices caused by whales and bots.
A unique feature of LBPs is that they aim to keep a constant ratio at all times to reach its target, be it 10%, 20%, or 90%. An LBP will both sell and buy TokenA for TokenB to keep the target ratio.
Radicle is a decentralized code collaboration network built on open protocols. It enables developers to collaborate on code without relying on trusted intermediaries. The project also has an associated token, the RAD token.
In February 2021, the initial sale of the RAD token was done using Balancer’s LBP. The pool consisted of two tokens, the RAD token and USDC as the collateral token. The initial weights were 92.5%RAD / 7.5%USDC. Over the course of two days the weights shifted to a 50%RAD / 50%USDC.
