LBP FAQ

LBP specific FAQ

How do LBPs work?

Liquidity Bootstrapping Pools (LBPs) are a bit like Dutch auctions, but with a twist. In a Dutch auction, the price starts high and goes down over time until someone buys. LBPs do the same, but they allow for more flexibility. The price starts high and gradually decreases, but the catch is that people can also buy in at any time, affecting the price. If more people start buying, the price might go up a bit. This way, LBPs offer a fairer and more dynamic way to find the right price for your token.

What are weights in relation to LBPs?

In the context of LBPs, weights refer to the proportion of each asset in the liquidity pool. For example, if you start with a 99/1 weight ratio, it means 99% of the pool is your project token and 1% is the other asset, often a stablecoin like USDC. As the LBP progresses, these weights can shift, like moving to a 1/99 ratio. This change in weight is what drives the price of your token to decrease over time, encouraging wider distribution. Adjusting these weights strategically is crucial for the success of your LBP, influencing both token price and distribution.

What should the start and end weights be?

The choice of start and end weights in your LBP is a critical decision that depends on how many tokens you intend to distribute and what you value your project at. We generally recommend starting at a weight of 99/1. This initial weighting is designed to deter bots at the beginning of the LBP and set a high initial token price.

As the LBP progresses, we suggest ending at a weight of 40/60. This ending weight allows for a wider token distribution, leading to potentially more funds raised. As the weights change and the price of your tokens decreases, more buyers may become confident enough to step in and participate. However, if distributing tokens is of less importance, we've seen successful LBPs conclude at up to a 50/50 end weighting. We do not recommend ending your LBP at 51/49 or higher.

Additionally, based on our research, we’ve observed a rule of thumb regarding the percentage of tokens sold: it tends to be the opposite of the end weighting. For example:

• If you start with 99/1 and end at 10/90, you can expect to sell approximately 90% of your tokens.

• If you end at 20/80, you might sell around 80% of your tokens.

• Ending at 75/25 would likely result in around 25% of your tokens being sold.

Please note that this is a rule of thumb and a guide only. The actual percentage of tokens sold can vary due to a multitude of factors, including market conditions and participant behavior during the LBP. It is advisable to monitor the LBP closely and adjust as necessary based on real-time data and results.

Can you share some recent examples of LBPs?

• One of the most critical factors influencing the outcome of your Liquidity Bootstrapping Pool (LBP) is demand. While the initial weights and liquidity you provide set the stage, ultimately, it's the perceived value and demand for your token that drives its performance. Below are some examples from 2023 that demonstrate how LBPs have fared under different conditions:

  • Autonolas ($OLAS)

    • Start-End Weight: 99/1 to 2/98

    • Initial Liquidity: $50k in USDC

    • Tokens Sold: 99%

    • Tokens Made Available: 1.5% of supply

    • Liquidity Generated: $547k

    • Fully Diluted Valuation (FDV): $39 million

  • Project $FLUT

    • Start-End Weight: 99/1 to 1/99

    • Initial Liquidity: 1 ETH

    • Tokens Sold: 99%

    • Tokens Made Available: 40% of supply

    • Liquidity Generated: 1,780 ETH (Approx $3 million)

    • Fully Diluted Valuation (FDV): $8 million

  • Altitude ($ALTD)

    • Start-End Weight: 99/1 to 70/30 (Hard Price Floor)

    • Initial Liquidity: $30k in USDC

    • Tokens Sold: 30% of available tokens for the LBP

    • Tokens Made Available: 5% of supply

    • Liquidity Generated: $430k

    • Fully Diluted Valuation (FDV): $30 million

Note that while Autonolas and $FLUT had similar start weights, their liquidity generation varied significantly. This variation underscores the influence of demand and market dynamics. Altitude, on the other hand, opted for a hard price floor, affecting both their liquidity generation and the percentage of tokens sold.

In summary, while the parameters you set can influence the LBP, demand remains the ultimate driving factor for its success.

Do I need to put up any initial liquidity?

No initial liquidity is required because of the zero liquidity feature, but you still need to set an amount of synthetic liquidity to create the price curve. More details can be found here.

What should be the starting price for my LBP?

Setting the starting price can be a bit tricky because it's not what you'd initially think. The starting price should be much higher than what you'd consider its fair market value. This strategy takes advantage of the LBP's weight mechanics, which gradually decrease the token price, allowing buyers to join when they find the price fair. For example, if you think the token's fair value is $1, starting at $6-8 could be a good strate

Are there hard caps or wallet limits for LBPs?

There are no wallet limits, but creators can set a hard cap. More details can be found here.

Can I change token weights during the LBP?

Unfortunately, the adjustment of token weights during a live LBP is not permitted. It is crucial to finalise these parameters before initiating the LBP.

What parameters can I modify during a live LBP?

The list of parameters can be found in manage my sale. The only actions permissible during a live LBP are pausing the swapping function and withdrawing liquidity. Due to these limitations, we strongly recommend conducting tests on the Goerli Testnet to preemptively identify and resolve any issues.

Can participants both buy and sell tokens during an LBP?

It depends if you choose a buy or buy and sell LBP. Most LBPs are buy and sell, but it's up to you.