LBP for Users
A Liquidity Bootstrapping Pool is the fairest, open and user-friendly way to participate in a token launch. At it's heart an LBP Launch using the Liquidity Bootstrapping Pool (LBP) is a crowdfunding mechanism that enables any kind of crypto project to raise capital from individuals all around the globe. The mechanism sets a fair stage where whales, geopgraphies, middlemen or thirdparties do not favour any single participant and capital can flow freely to projects that the community deem deserving of it.
Advantages of LBP Auction Launches for Projects:
- 1.Price Discovery for new token happens freely as the fair value is found in an open and transparent manner. A "pre-sale" price does not become a metric disincentivizing later investors.
- 2.Distribution of new tokens to a community of supporters and investors happens in a way which disincentivizes sniping bots and whales. This makes token launches a more equitable and fair process.
- 3.New projects gain the liquidity to bootstrap operations or make their token tradable by using the funds to provide liquidity on Beethoven X or another exchange platform. Users therefore have a direct way of supporting their favourite projects and helping them succeed.
Beethoven X is a permissionless platform meaning anybody can create an auction and LBP on the platform. Any auction listed on the platform is indexed by Beethoven X directly based on the information the protocol or project has entered on the blockchain. Therefore, a project being listed on Beethoven X does not imply an endorsement or support of said project by Beethoven X or it's community. Please note that participating in any fair launch auction is a high-risk endeavour and the value of tokens your have received for your contribution might go to 0. Beethoven X is not responsible for any losses incurred by using our platform.
Participating in Auctions
Users wishing to participate in an auction will go through several steps.
Firstly, you will need to hold the funding token the team has chosen as collateral for the launch of their token. This is the token you will use to purchase the newly launched token in the LBP auction. In most cases team's will use FTM or a stable coin such as USDC, MIM, or UST as the collateral token. Please note you will also need to hold some FTM for gas fees in your wallet. If you need help funding your wallet, bridging assets to Fantom, or are new to DeFI please refer to our "New to Defi & Beethoven X" resources here.
Go to app.beets.fi and connect your wallet on the top right off the screen. You will now be able to enter the Fair Launch Auction tab via the Navigation.
Find the project you desire to support in the list of upcoming, or currently running, Liquidity Generation Event Auctions.
If the auction window has already begun, you will be able to participate and purchase the new token now. If not, please wait until the countdown has completed. Please remember don't ape in, the price is designed to go down. Do your own research and form your own theory for when, and at what price, you are comfortable participating in the auction.
When purchasing the funding token with your collateral token you can use the input screen to input your desired amount. First, you will have to approve the spending of your collateral token on Beethoven X in your wallet (this is only required once). Second, you will have to approve the token purchase. In total, you will therefore have 2 transaction that require gas when purchasing from the LBP.
How to know if you should invest in a Fair Launch Auction
Like with anything related to crypto it's essential you do you your own research (DYOR) and complete some due diligence (DD) before investing. Some of the aspects of a project you may wish to research are:
- 1.Implied market cap - if the price is X and number of tokens in circulation (new projects token allocated to LBP + minted) is Y. How much is X * Y = the implied market cap off the project. You can compare this number to some similar projects. For this you will need the total number of tokens minted. Please also compare this number to the total number of tokens for auction tobetter gauge risk.
- 2.Reputation of the team - is the team and community active and responsive on Twitter and Discord? Are any reputable figures part of the team? Are other trustworthy sources or influencers talking positively about the team and project?
- 3.Tokenomics - how is the supply of tokens distributed? Are team and potential investor tokens vested? When are unlocks happening? What factors will influence the price of the token in the medium and long term? How are similar project performed after launch and beyond?
- 4.LBP Liquidity - what is the plan for the liquidity raised in the fair launch auction? Will the project use it to enable trading? Will you be able to sell the token if you wish to do so?
- 5.The product being built - what will the protocol or project behind the auction build? Do you think this idea will succeed in the long term? Are you confident in holding this token no matter how the market conditions affect the price because you believe in the product and technology?
When to buy in a fair launch auction?
The price decay is built into the liquidity bootstrapping model and the team launching on the permissionless platform can choose the parameters at which an auction starts and how the weighting of the funding token and collateral shifts over the duration of the LBP. In essence, the team thus sets a market cap for the beginning of the LBP which is higher than the anticipated fair market value. This is done to disincentivize bots and whales buying up the supply immediately. As the price (and implied market cap) decays buyers will begin to enter the auction when they feel that the price has reached more realistic level. However, even in a fair launch auction the price can be very volatile and necessary caution needs to be applied by any potential users considering to buy.
Please note, previous liquidity boot strapping pools have shown that many scenarios for price action are possible. Some auctions follow the determined price decay closely. In other auctions the buy pressure exceeds the inherent price decay and the price rises throughout the entire auction. Given that both scenarios are possible users may want to consider a dollar-cost averaging (DCA) approach for LBP's as well. Basically, this means that a user participates by dividing their planned investment into smaller portions they enter the auction with at different intervals. For example 300 USD is invested, of which 100 USD is invested in the beginning phase, 100 USD in the middle phase, and 100 USD towards the end phase. This ensures the user gets a buy-in price which reflects the average price of the token throughout the fair launch auction.